Wednesday’s Federal Reserve meeting was a bit of a shocker to the markets. Since the summer, it appeared that the Fed had laid the groundwork for the reduction of asset purchases, and the market certainly expected something like that coming into yesterday’s meeting. When Ben Bernanke declined to taper purchases — and took a dovish tone in the press conference that ensued — markets made immediate adjustments. By the end of the day, stocks were up big, as were bonds; but the U.S. dollar hated the thought of the Fed keeping its foot on the gas pedal.
Recent events unfolding in Syria are a good example of how quickly news can change and ripple through markets.
Lately I have participated in several discussions about how to make money at “neutral vol,” or when Pinnacle portfolios are positioned to have roughly the same volatility as our benchmark portfolios. A good starting point for the conversation is to analyze the total equity positions we own in the portfolio versus the neutral allocation to equity in our benchmark portfolios. In Investment-Speak, changing the overall portfolio risk posture by underweighting risk assets is called a “beta trade.” We are reducing the portfolio allocation to market risk.
Rates are hopping, markets are churning, and investment positions are coming under challenge. Today we’ll have an investment meeting that challenges one of the bigger themes that we have in our portfolio: investing a strong dollar bias.
Inflection Point: (N) – Mathematics – A point on a curve at which the curvature changes from convex to concave or vice versa.
In describing our current thinking, I have to resort to an investment writing cliché where the financial markets are described as being “at an inflection point.” While the mathematical definition for an inflection point is presented above, in the business of investing inflection points occur where there is a change in the long-term trend or momentum of the financial markets, economy, or price of an individual security. Inflection points are critically important because if you recognize one and if you understand the significance of the change, then you can make a lot of money.
Back in June our proprietary quantitative model gave us a warning signal by dipping below the neutral bracket into what we consider mildly bearish territory (see the red line in the chart). The fact that the external models we follow were also behaving similarly had us somewhat concerned. However, that turned out to be a brief signal, as the model quickly reversed course and crossed the neutral bracket in just a few weeks, landing in mildly bullish territory last week. The message was again confirmed by the external models, which all turned up over the past couple of weeks.
Generally, there are four ways to save for college:
- UTMA (Uniformed Transfer to Minors Act) or UGMA (Uniformed Gift to Minors Act) accounts
- Pre-paid tuition plans
- College savings plans
- Coverdell Education Savings Accounts (ESAs)
If you could return to May 2012, would you invest your money in Europe or the United States? It may come as a surprise, but Europe is actually outpacing the S&P 500 with returns of 40% and 33% respectively. Headlines continue to beat the negative drum that ‘problems still loom in Europe;’ that may be true, but those problems also might be hiding the strong gains realized in those markets. The markets still look healthy from a technical perspective, and I’m particularly intrigued by the financial shares.
Gone are the days of seemingly endless college applications, lengthy essays, and anxious weeks waiting for an acceptance. Your young adult has made a decision and he or she is college bound. It’s a very exciting time – a transitional process described beautifully by actress Tina Fey in Admission: “Parents exist to drive their kids insane.”
I recently wrote about three “red flags” that I look for when evaluating portfolio manager returns. The third item – a firm dropping a specific time frame from its performance reports – is particularly relevant, because we’ve decided to make our own change to the time horizon for our performance numbers. Beginning next month, Pinnacle will no longer publish monthly portfolio returns.