5 Minute Market Commentary – August 31, 2015

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

Just when we thought the markets were clearly in a downtrend, they went and recovered. Well, mostly. After a horrendous start to the week most major markets indices were able to turn on a dime and finish the week slightly positive. Considering the week started with a 1,000 point drop in the Dow Jones Industrial Average on Monday morning, I’d say that was a more than welcome recovery for most investors.

Lesson to be learned: Just when you don’t think it can get any worse, it either does…or doesn’t. In other words, markets don’t care much what we think. ?

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FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull / Bear indicator we want it to be at least 67% bullish. When those two things occur our research shows market performance is strongest and least volatile.

There was no change in either indicator since last weeks update.

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Weekly Comments

Last week I wrote about why investors should not get too emotional when the markets experience a correction, even when it’s fast and severe. Turns out, that was pretty good advice. That said, it’s the easy thing to say because we have hundreds of years of market history to back it up.

What happens next is quite a bit less clear (at least in the short term).

This week marks the end of August, and almost certainly it will end with most stock indexes down a good amount (for the month). It also is pretty critical what happens on Monday as the 50 day market average is just a hair lower than the 200 day market average. This is called the “Death Cross” and historically, pretty much every large scale market loss was preceded by the occurrence (Black Monday of 1987, Dot Com crash of early 2000’s, and Financial Crisis of 2007-2008 just to name a few). If the market is flat or down on Monday, the month ends in Death Cross zone. If it’s up a hundred points or more, then the month ends outside the Death Cross zone.

This is important because there are many tactical asset allocation managers, market timers, and technical traders out there that will automatically start selling their stock holdings if we drop in the Death Cross zone. If the larger investors start to sell, it can get ugly fast, which we saw just a couple weeks ago.

So I’d say Monday is pretty important as a tone setter for the rest of the week, month, and possibly the year.

As an investor, the smartest thing we can do is let this play out and try not to panic (or get excited). One day won’t change the next 1o years. That said, it might change some of our own asset allocation suggestions, so expect to hear more on the blog before the end of the week.

More to come soon. Stay tuned.

Regards,

Phil Calandra and Jason Wenk
Chief Investment Strategists

Shocking Secret Big Wall Street Firms Don’t Want You To Know…

Blue Mutual FundsI am frequently asked how we, as a Registered Investment Advisor, and fiduciary get paid.  We are a fee-based firm and that is drastically different from the traditional Wall Street racket.  Several times a week someone tells me they don’t pay fees for the financial products they own in their IRA or brokerage account.  Rubbish…  Wall Street has many ways to disguise how they charge and earn huge fees from seemingly clueless consumers.

One such method in the mutual fund arena is the “Revenue Sharing Agreement”.  A mutual fund family makes an under the table arrangement for a big firm to sell their funds.  The mutual fund company then slices  a couple dollars everyday of the closing price of the fund and passes it over to your big Wall Street firm.

With market volatility increasing, we have a number of portfolio positions with Cash.  We move out of an asset class when the risk to own that asset, like equities, exceeds our predetermined risk level.  If your investment strategy and advisor is not using a cash position to protect you from downside volatility, it may be because they have an incentive to keep you fully investment.  Revenue Sharing with their mutual funds.  If the advisor and big firm move you to the sidelines for a period of time to keep you safe, they do not get paid.

Attached are Revenue Sharing Disclosure documents for:

This pertains to mutual funds purchased in commission based brokerage accounts and IRAs.

For the year ended December 31, 2014 Edward Jones received $153.2 million from mutual funds and 529 product partners and $55.9 million from insurance product partners.  Their net income was $770 million.  So this represents 27% of their Net Income.

So now do you understand why Brokers and Registered Reps won’t let clients go to cash?  This income is extremely important to their bottom line and they will not receive this income if they go to cash.

Do you understand the same thing goes for 12b-1 fees that are paid from Mutual Funds?

Besides currently being able to do transactions (buying and selling stocks and bonds) for commissions, this is a high revenue producer for big brokerage firms.

If you have any questions, comments or you need additional information, please call me at 678.218.5925

5 Minute Market Commentary – August 17, 2015

ff_wmu_v2I am happy to present this weeks market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

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It’s like groundhog day every Monday in the financial world… as the market schizophrenia continued yet again. The only thing that’s been consistent pretty much all year is the horrific returns from commodities. Otherwise it’s been one step forward, then one step back.

Perhaps, however, the trend will be bucked this week. As of 11:30am on Monday the equity markets are up. The last time the market (measured by the S&P 500) had back to back positive weeks was in May!

Lesson to be learned – let’s not get too excited (or worried) about what happens in financial markets when measured in the short term.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull / Bear indicator we want it to be at least 67% bullish. When those two things occur our research shows market performance is strongest and least volatile.

There was no change in either indicator since last weeks update.

Screen Shot 2015-07-24 at 11.38.06 AM

Weekly Comments

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 I think the market is about to buck the sideways trend it’s been in for the last 7 months. The chart above shows a price pattern we call a “wedge” – where the highs are lower and the lows are higher, essentially coming to a point where one side of the short term trend will have to prevail. It’s always hard to say which direction wins, but statistically the market breaks to the upside more than the down.

Time will tell, and perhaps as soon as this week.

As an investor, the smartest thing we can do is let this play out and try not to panic (or get excited) when the market is flip flopping back and forth. A new trend will emerge, just like it has hundreds of times before. It could take form this week, or it could take a couple more months. I think it will be sooner, though, rather than later.

More to come soon. Stay tuned.

Regards,

Phil Calandra and Jason Wenk
Chief Investment Strategists

5-Minute Market Commentary – August 11, 2015

ff_wmu_v2I am happy to present this weeks market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.  After all, finances should be simple, not complicated.

Market Update

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The market schizophrenia continued last week. Three weeks ago there were broad market losses. Two weeks ago broad market gains, then last week more broad market losses. In the end, the market has basically continued a sideways trading pattern it’s been in since November of last year.

As of this posting (Monday morning) the DJIA is up more than 200 points and broad markets are surging.

Lesson to be learned – let’s not get too excited (or worried) about what happens in financial markets when measured in the short term.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear). In future posts I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull / Bear indicator we want it to be at least 67% bullish. When those two things occur our research shows market performance is strongest and least volatile.

There was no change in either indicator since last weeks update.

Screen Shot 2015-07-24 at 11.38.06 AM

Weekly Comments

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What you see above is the S&P 500 trading range for the past 6 months. Up, then down, then up, then…you get the idea.

It seems the news is not what’s driving the market. Nor fundamentals, nor the economy. It’s the big traders trying to figure out if they want to stay committed to a 6+ year bull run, or flip the switch, and let the market go into a natural correction.

As an investor, the smartest thing we can do is let this play out and try not to panic (or get excited) when the market is flip flopping back and forth. A new trend will emerge, just like it has hundreds of times before. It could take form this week, or it could take a couple more months.

While we let math tell us how to manage portfolios here at FormulaFolios, I suspect the market will find it’s new trend soon. In the next 6 weeks, based on what I’ve studied the past 15 years.

In the interim, the math is telling us it’s best to be partially invested while we wait. So, we’re finding many of our portfolios have moved to 20% to 40% cash. This allows us to be prepared regardless of the next move (better or worse). It’s not a perfect science, but it’s the responsible thing to do if our primary goal is to protect client assets for larger (and hard to recover from) losses.

More to come in the next few weeks. Stay tuned.

Regards,

Jason Wenk and Phil Calandra

5 – Minute Market Commentary

ff_wmu_v2I am happy to present this weeks market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less.

After all, finances should be simple, not complicated.  Please click on the green button below!

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Regards,

Phil Calandra