At The Year End

From the December 5th peak for the Dow Jones Industrial Average, 17,982 major U.S. stock indices dropped 5% through Dec 16th. Additionally, the world was stunned by the 50% drop in oil prices in a matter of months.

Spillover effects from this swift and precipitous plunge in oil prices have crushed energy stocks as well as other investvestment categories such as High Yield bonds and Master Limited partnerships. These MLP’s, popular for their high yield and tax advantages earn money on the volume they move not on the underlying price of the oil and gas. In a panic babies are thrown out with the bath water.

Emerging market bonds and global stocks joined the retreat. Russia has became the poster child for what too much dependence on one commodity can do to your economy. Sanctions from Mr. Putin’s military actions in the Ukraine have reduced Russia’s capital flows and capital raising capacity. The Ruble plunged 50% and Russia’s troubles became a problem for the world of investments.

Many diversified bond funds lost net asset value as their portfolios have significant exposure to high yield energy companies which comprise about 20% of that market niche. At year end prices of losing assets tend to go even lower than seems rational as taxable investors lock in 2014 losses to offset earlier gains.

December which is typically one of the strongest months in the calendar year, up 1.7% on average, has so far proven to be just the opposite. The volatility of the past few weeks reminds us of October with wild swings in both directions. Yesterday the Fed came to the rescue again saying it would be patient before “normalizing “policy.

Long dated Government notes and bonds have soared in price this year as a flight to safety has prevailed. Rates of high quality debtors like Germany 0.58 %, U.K. 1.87% and Japan 0.35 % yield even less than U.S. 10 year notes. 10 year Treasury Inflation Protected Securities - TIPS have a nominal yield of 0.55 %. Bill Gross thinks they are a good buy here.

Our 10 year rates have dropped by more than a third since January from 3% to below 2% in mid-October. As you know the U.S. has seen rising employment and rising GDP in 2014. Not one of 67 Economists in a Bloomberg survey forecasted lower U.S. rates in 2014 this time last year.

Today you get paid 2.2% to loan the government your money for 10 years. This is attractive to many foreign buyers who get more yield than they do at home and benefit from a rising U.S. dollar exchange rate. In addition U.S. banks hold huge amounts of Treasuries as capital on their balance sheets encouraged to do so by bank regulations.

Diversification away from the highest quality US assets has be wrong footed in 2014 as other investments are nearly all lower in U.S. dollar terms.

Stocks in hard asset countries such as Canada, Mexico, Brazil, Australia and Russia are down 4.5%,16%, 22%, 12% and 45% respectively.

In Europe; France, Germany and the UK stocks are down about 14%. Japan and South Korea markets are down 7% & 14%. Only China +5% and India +19 % along with the US show gains.

The question is can US stock markets continue to rise with most markets abroad signaling recession? Additionally, will rates rise in the US next year or remain abnormally low due to international concerns?

Oil prices at these low levels benefit consumers worldwide. U.S. inflation numbers will be temporarily below the Fed's 2% target and cheaper energy costs should boost our GDP growth now projected at 2.6% to 3.0% by FED economists. A recession here looks highly unlikely as we have the world’s most diversified economy. The Fed is on hold for at least a few more meetings as of yesterday. While Ms.Yellen would like to “normalize” rates the FED seem fearful of doing so in this climate.

Continued US dollar strength will be a headwind against multinational profit growth. The 4th Q 2014 EPS growth was 3%. Full year 2014 SPX earnings according to Factset will be $119.09, up 7% year over year and at $128.38 up 7.8% for 2015 .

Central bank money printing has helped owners of financial assets far more than the average American or the retired saver. Now these tactics are being embraced in Japan and to a lesser extent in Europe with little economic effect except record low interest rates.

Every forecast we have seen from Wall Street now sees higher stock prices ahead for 2015 .

A Santa Claus rally should lie ahead over these final 8 trading days of the year. There is an old saying, if Santa Claus should fail to call Bears may come to Broad and Wall.

The 67 “wrong way eeconomists” who took the Bloomberg survey noted this past year that market direction and interest rates are no easy call.

In the long run it pays to remember that 11.5% returns from stocks and the 5.21% returns from 10 year bonds are the historical norm from 1928-2013.

These returns are indeed earned by investors who are capable of staying the course. Volatility can be our friend but as it ramps emotions it is often our enemy.

Douglas Coppola

John Coppola

December 18, 2014

CFA is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where CFA and its representatives are properly licensed or exempt from licensure. No representation is being made that the information presented is accurate, current, or complete, and such information

December 2014

November ended another historic month for US stocks with all-time highs in the S&P 500 and DJIA, up 11.9% and 7.6% year to date without dividends respectively.

West Texas Intermediate oil prices dropped 31% from their June highs dragging down energy stocks as well as energy related MLP's. This is a boon to retailers and consumers.

In recent weeks, 2nd and 3rd Quarter GDP were revised up and now GDP is expected to grow over 3% trough 2015. We lead developed countries in growth, albeit the slowest since the 1940’s. Ebola and a global growth scare were quickly forgotten after the nearly 10% SPX correction ended mid-October.

30 year US Treasuries now yield 2.99%. The Treasury yield curve flattened somewhat with 2 year notes at 0.55%, 5 years at 1.61% and the 10 year note at 2.25%, down from 3% in January.

Long maturity U.S. government bonds are outperforming this levitating stock market against all predictions here and elsewhere.

We are experiencing a very strange world; global oil price tanks 30%, long bonds soar, and U.S. stock indices rise simultaneously. This new paradigm is based on rising earnings, low inflation, an abundant new energy supply sprinkled over with low global interest rates. U.S stocks and Government bonds have become assets of choice, here and abroad, despite our $18 trillion U.S. debt and continuing huge deficits.

Europe and Japan are either back in or teetering on recession. The U.S. dollar has appreciated about 10% on a trade weighted basis as our interest rates are significantly higher than nearly all developed counties. Comparatively speaking the U.S is a growth engine. China, Japan, and Europe are all trying to stimulate growth with more QE or lower rates.

Gold closed November down for the year after a horrible 2013 and a 15% rally in the first quarter. The yellow metal is -40% from Sept 2011 highs.

A majority of Hedge funds and Equity mutual fund managers continue to underperform the U.S. broad based stock market indices. Central banks rule the roost and can turn markets on command with words and printed money.

Tax considerations in December will likely exacerbate existing trends until the New Year has begun.

Douglas Coppola 

John Coppola

December 4, 2014

CFA is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where CFA and its representatives are properly licensed or exempt from licensure. No representation is being made that the information presented is accurate, current, or complete, and such information is at all times subject to change without notice. CFA does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

November 2014

October lived up to its rocky reputation as a month of high volatility. On
October 15th the SPX culminated a nearly 10% correction. This was the
morning after a deflationary plunge in US and global yields down to 1.9 %
on the US 10 year note and 0.88% on German Bunds of the same maturity.

Weak economic news and several U.S. Ebola cases caused a plunge in stocks
to 1820, down on the year, from all time highs on the September 19th.

Fast forward to Oct 31st .Surprise, the global decline went poof on
Halloween as Japanese stocks soared 5% overnight on a new and massive
QE program by the Ministry of Finance .Taking up the baton from the US
Federal Reserve which ended QE only days before the Japan plan is to buy
bonds and stocks both local and international.

Presto and thanks to monetary smoke and mirrors major indices went back
to their highs closing up 9.2% on the SPX and 4.9% for the DJIA year to
date. All this fun in two weeks! The Bears were gored again.

Oil has plunged 18.2% in 2014 and 11.6% during October taking energy
related shares along for the ride. Gold and other commodities made new
lows. Energy sector stocks are -1.0% YTD while Utilities and Healthcare
sectors are +21%.

Tactical moves proved fruitless as investors found themselves cash rich and
stock poor by month's end having sold holdings to take gains or avoid
serious losses. The 5 year bull move off 666.79 SPX March 2009 lows
continues.

The markets are saying have faith in Central Bank monetary policy.
All will be well. The Japanese Ministry of Finance and the ECB are now on an
easing path even as the U.S. Fed moves to QE Lite.

November, December, and January are historically the strongest
consecutive months for market gains which average 3.4% or nearly double
the average 1.86 % return in any “normal" 3 month calendar period.

Stocks are no longer historically cheap at 18.9 trailing earnings according to
Birinyi Associates. Factset however puts the forward P/E at 15.5x so if
earnings can grow as predicted the market can rise in line with earnings
growth plus a near 2% dividend yield.

With two thirds of companies having reported profits, they are up 7.3 % for the 3rd quarter. For the 4th Q 2014 some 46 companies have issued negative guidance while 18 have raised guidance.

The US dollar has strengthened this year which hurts returns on non US investments. EFA , the leading non US stock index is -4% YTD.

The Fed appears ready to raise rates mid to late 2015 and bonds may lose their attraction drawing even more money into stocks as both domestic and foreign investors move where superior returns are earned.

As most professional managers have gotten interest rates and stock selection wrong this year , money moves increasingly into index investing exacerbating current trends.

If Republicans win a Senate majority, markets will be further encouraged. Perhaps a lower corporate tax can be achieved in the next 2 years along with a greater national energy focus which improves both jobs and income.

Douglas Coppola 

John Coppola

November 4, 2014

CFA is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where CFA and its representatives are properly licensed or exempt from licensure. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. CFA does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

October 2014

Global stock and commodity markets got rocky in September. The S&P 500 lost 1.6% in the month, was up 0.6% for the quarter and +8% on the year. It appears that S&P 500 and NASDAQ Composite Index strength mask a deeper correction. For the NASDAQ 47% of stocks are at least 20% off their highs.

Small caps as measured by the Russell 2000 led the parade down 7.9% in the quarter and 4.4% YTD. Importantly, 40% of this broader index is down over 20% from the highs. Today this index reached 10% correction territory.

Short term government bonds are returned only 0.57 % YTD. Very few expected long rates to drop as the U.S economy improved and QE ends This year started with 10 year yields of 3%, they ended Q3 at 2.5 %.

German 10 year Bunds now yield 0.90%, as Europe is losing its fight to recover from the recession. The Vanguard FTSE Europe ETF dropped 10.8% since June 18th in dollar terms. The ECB Head, Mario Draghi is still trying to muster support for his quantitative easing program which may be announced as soon as Oct 2. The German DAX has broken key support levels having dropped 15 % from June highs in dollar terms.

Japan’s Abenomics is stalling with recent sales tax increases hurting the recovery. When you raise taxes people buy less! With 10 year Japanese government bonds yielding 0.52 % many question the continuation of optimism for the world's third largest economy and its stock market.

China’s GDP growth is around 7% with major protests in Hong Kong bubbling concern to the surface. A recent infusion of capital into large banks by the Central planners is expected help stem a receding growth tide. Absent economic progress the natives get restless.

I-Shares China symbol FXI is down 10% from its high on September 3rd. Both Hong Kong and Mainland China stock indices are down about 1.5% YTD.

Much of the drop in commodities can be laid on the door of a stronger U.S. dollar up 7% on a trade weighted basis during Q3. Emerging markets had advanced to yearly highs in August only to sell off by 9% in September.

Even with chaos in Iraq, Russia, Syria, and Ukraine oil prices plunged 13% in Q3. Global energy demand is weakening and U.S. consumption of imported oil is now down to 26%.

While the majority of market pundits believe the U.S. will remain recession free and earnings on the S&P 500 will continue to rise, we know the U.S. is not an economic island. A significant percentage of S&P 500 earnings and sales come from overseas markets.

We are currently viewed as a safe haven; GDP is growing along with earnings, dividends and share buybacks continue at a record pace. Mergers and Acquisitions are occurring more frequently. With stock prices having risen for 5 years there is clearly more risk to owning shares now than in the past few years. If there is no global pick up in the near future the U.S. Stock Market will surely cool down.

Douglas Coppola

John Coppola 

October 1, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

The Teflon Market

The SPX rallied 3.8% in August, the best August performance since 2000.

Second quarter GDP rebounded to 4.2%, yet 10 year Treasury yields made yearly
lows closing at 2.34% down 66 basis points from January levels. Profits grew at a
7.7% rate in the 2nd quarter supporting new highs for the S&P 500 index. The SPX
is +8.4% YTD with the DJIA +3.1% YTD without dividends.

The market seems impervious to negative geopolitical events, a five year sub normal
U.S. economic recovery, higher than average P/E’s and recession signs appearing in
Europe. Italy has reentered recession and France, the second biggest Euro economy
is not far behind.

German Bunds now yield 0.88% on 10 year paper causing economists to call for
more vigorous ECB efforts to ignite growth. Euro-area inflation slowed to its weakest
rate since 2009 and unemployment remains far above acceptable levels. Deflationary
fears are exacerbated by threats of more sanctions against Russia. Major European
markets are now down year to date led by Germany’s DAX at -8.9%.

Emerging markets are showing some lift up 21% from February lows. They are
aggregately the cheapest of all stock markets on a P/E basis having grossly
underperformed the U.S. market for the past 5 years.

Back at home, we have gone nearly three years without a 10% correction. Since
1964, there have been 18 declines exceeding 10%. A majority of professional
investors are confident that the SPX will march higher through year end; 52.5% of
Investment Advisors are Bullish and only 15.1% Bearish.

A perfect storm of falling oil prices, falling interest rates, a rising dollar, rising profits,
rising dividends and improving U.S. economic activity continues to push stocks
higher.

As always your comments are welcome.

Douglas Coppola

John Coppola

September 2, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

August

July closed with a bang with its last day bringing on a 2 % decline negating performance for the DJIA now -0.1 % on the year while the S&P 500 finished at 1930.67 + 4.5 % having reached a record high of 1991.39 on July 24th.
The global markets were affected by heightened tension in Ukraine as the downing of the Malaysia airliner by Russian backed separatists led to stronger sanctions by the EU and the U.S. on Russia. This action puts in doubt a fragile European recovery and set back the markets on the Continent with Germany, France, and the UK down by 8.2%, 4.3 % and 2.4 % respectively YTD. Money seems to be shifting over to Asia with China + 5.5 %, Hong Kong + 6.8 %, Taiwan + 9.2 % and Australia up 9.1 % YTD.
Negative news from Gaza, Argentina and Portugal combined with relatively high valuations for stocks and led to profit taking.
Needless to say this fluid environment affected 10 year Treasury bonds now at a 2.55 % yield down from 3% on January 1. 10 year German Bunds by comparison yield 1.2% as feared economic weakness coupled with easy money have driven Eurozone yields to levels not seen in centuries.
Both payroll employment and profits continue to grow in the U.S., as the slowest economic recovery since World War II stretches beyond 5 years of age. Dividends and profits of U.S. companies are now the key ingredients along with share repurchase helping stocks remain aloft. The re-rating of the price earnings ratio for U.S. stocks which fueled last year’s gains is likely behind us.
Without a recession, inverted yield curve, suddenly higher interest rates or another war, stocks will remain an investment of choice. U.S. energy production approached 30 year highs as we persistently free our economy from foreign oil dependence.
Since we have gone 33 months without a 10 % correction caution is warranted as the Summer and early Fall are typically weak periods for U.S. share prices.

Douglas Coppola 

John Coppola

August 1, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

2014: First Half Review & Second Half Outlook

The first half of 2014 was full of surprises. Benchmark 10 –year Treasury yields fell from 3% to 2.6%. The S&P 500 finished up 7 % hitting an all time high on June 20th but small cap stocks and growth stocks underperformed. Utilities were up 13.5% The Russell 200 Growth Index was up 2.2 %.

Just like Hurricane Arthur which blew up the East Coast on July 4, annexation in Ukraine, war in Iraq and Syria, Government scandals, and a 2.9 % negative GDP did little damage.

Janet Yellen our new FED Chief is worried more about a 6.1 % unemployment rate than inflation or asset bubbles. She has just re- assured us of a continued easy rate policy ahead.

Gold and other commodities are rebounding while stock margin debt hit new all- time highs exceeding 2007 levels. Yet, no worries from Central bankers who focus on fragile economies in the U.S., Europe and Japan and some Developing markets.

The fact that the USA is now the world’s biggest oil producer, having just overtaken Saudi Arabia in the first quarter and remains the world’s largest natural gas producer since 2010 has helped keep the lid on energy prices. No recession is on the horizon and GDP in the 2nd half should go positive. No threat of rising rates keeps the party going.

Earnings are expected up again in 2014 but like last year, single digit gains do not post an obstacle to outsized stock market gains. The 2nd Quarter estimated growth rate for S&P earnings is 4.9% with revenue up 2.7%. Earnings are helped by company share buy backs. Dividends continue to go higher.

Intermittent 10 % stock market corrections have taken a holiday this cycle as we have gone 32 months without one. Stock valuations are stretched but not excessive at 15.7 times forward earnings estimates of $126.17. Peak valuations have reached as much as 25 times in the past.

As Laszlo Birinyi recently said “This is not an ordinary, average, typical or normal bull market”

Market participants have come to realize that caution does not pay dividends, interest or capital gains but stocks and bonds do.

Douglas Coppola
John Coppola
July 7, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

Sell in May,No Way?

Why are long dated bonds rallying, stocks climbing with Q 1 profit up a mere 2.1%? Q1 revenues up 2.4 %, yet GDP down 1%? 

Despite slowing profits the S&P 500 rose 2% in May and has outperformed most other domestic averages year to date. Long term bonds have outperformed stocks for the biggest surprise of 2014. 

We have observed that low short term rates provide little competition for long dated Treasuries and the ongoing 5 year old bull market in stocks.

Ten year sovereign bonds in Europe yield a meager 0.69 % in Switzerland, 1.34 % in Germany, 1.72% in France, 2.55 % in Britain and 2.81% in Spain. Stock indices in Europe generally have greater yields than comparable 10 year bonds. 

Some believe the recent thrashing of the old guard Socialist parties in France and Britain is a welcome sign that Europeans have awakened from their anti-business, slow growth slumber. No growth breeds high unemployment and discontent. 

We are concerned that stagnant GDP growth in the developed world will lead to a new recession without further central bank stimulus. The ECB meets on June 5th and will likely lower rates further. At this point, pro growth fiscal policies are needed to achieve real growth. 

With Gold trading below $1300/oz we see less fear in the financial system. The VIX or Volatility Index at 11.68 is down from 48 in July, 2012. Investors have become complacent.

Investor Sentiment Surveys put bullish sentiment at 30.4% versus a long term average of 39%. This positive albeit contrary sign indicates stock prices may have further to run.

 Large global companies are doing well with low labor costs, low material costs, and sizeable share buybacks. S&P 500 companies have record profit margins and record profits. If profits stall in the second half of 2014 however, stocks will likely turn lower.

The US is increasingly a self sufficient energy producer and is attracting more foreign manufacturing for the first time in decades. Housing is not soaking up marginal investment dollars as it did in the 1995-2006 period. 

Defense spending is down as US trade and budget deficits shrink. Capital spending is still in stall mode. 

While the average P/E in the past decade was 13.8 times, we lurched higher in the past year and now trade at 16 times forward earnings. 

Aggressive investors who shorted U.S. Treasuries at year end yields of 3% are getting squeezed as Treasury bond issuance is lower than past years. 

While major stock averages climb, a recent Investor’s Business Daily survey indicated that mutual fund managers are struggling with negative returns as growth stocks dropped from favor and utilities soared in 2014. A stealth correction is underway. 

We continue to believe that earnings will rise in 2014 and stocks have not yet peaked for this cycle. At the same time, we believe economic weakness here and abroad combined with political risks may lead to a long overdue market correction. 

Douglas Coppola
John Coppola

June 2, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

May Market Musings

The DJIA finished April at 16,580.80 an all-time high but unchanged on the year. SPX closed + 1.9 % YTD, Nasdaq -1.5 % YTD after
9.7 % correction which began in March. 

Ten year treasuries closed the month with a 2.64 % yield. 1 year CD rates hover around 1.00 %. 

Cold weather frosted the 1st Q GDP + 0.1 % versus a 1.2% expectation. We have experienced a 19 quarter recovery which has produced only +11.1% GDP growth. 

The previous 10 recoveries averaged+ 21.4 % GDP growth. In dollar terms we are $12,800 per household below average, according to IBD. Five years of economic anemia have many questioning the Obama administration’s economic policies. Average household income is $51,017 or 8.3 % below 2007. 15 % of Americans live in poverty. The labor participation rate is now 62.8 % at March 1978 levels when Jimmy Carter was the US President.

Russia annexed Crimea and masses troops on Ukraine’s borders. Western allies wring their hands but do little to stop Mr. Putin‘s aggression. Markets blinked but did not crumble. European financial markets held up surprisingly well indicating no economic concern. 

Emerging markets are selling at 10 P/E ratios given a lack of confidence in global growth projections and consumer demand for their commodity related products.

Japan raised taxes in the first quarter and her reform policies are stalling. China is attempting a transformation from an export to consumer driven economy. 

Our 2014 fiscal deficit will be $492 billion down from $680 billion in 2013 thanks to higher tax revenues. As a percent of GDP our yearly deficit has dropped from 9.8 % in 2009 to 2.8 %. If current laws persist however we will move back up to $1 Trillion per year deficits in 2022-2024 according to the Congressional Budget Office.

We have gone 31 months without a 10 % correction in the SPX. 

At 15.4 times forward earnings of $123.12 stocks are not historically rich but far from cheap. The P/E ratio is above the 5 –year (13.2) and the 10 -year(13.8) averages.

Dividends rose to $ 17.8 billion in the 1st Q + 22.9 %. Payouts at 36 % of earnings are below the 52% average. The SPX dividend yield on March 9 ,2009 was 2.72 % it is now 1.87 % . This rally is over 5 years old which is nearing old age for recoveries but may still have legs due to a lack of excesses in the system. 

Corporate mergers are heating up. Large U.S. domiciled companies seek better tax treatment here and are unwilling to repatriate $2 trillion in overseas deposits. There is little incentive for companies to remain captive to the highest corporate tax rates in the world. They seek opportunity elsewhere and have begun buying non US companies as a way to easily change their home country base. Our employment base suffers even at is has now reached a 6.3 % unemployment rate. 

Energy finds on this continent are a potential game changer for employment, the dollar, and foreign policy but is being under emphasized by the Administration. 

The market appears to be digesting last year’s gains. Fully 54.7 % of professional investors remain bullish according to Investors Intelligence while only 20 .8 % are bearish. 

We remain wary of an unexpected recession triggered by a sudden foreign conflict which could break the positive. We are unwilling however to risk capital in long term bonds.

If the pace of GDP growth improves later in 2014 we will continue on a leisurely but favorable course for stock markets.

Your questions are comments are welcome. Thanks for reading!

Douglas Coppola
John Coppola

May 2, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

First Quarter Review, 2014

Despite headwinds from awful winter weather and the annexation by Russia of Crimea, the S&P 500 managed a 1.3% gain in the period while the DJIA dropped by 0.7 %. Virtually all of the gain in March and year to date came in the last two days of the month.

March madness had some real bracket busting outcomes including a Putin showdown where the opposition never turned up and therefore forfeited the game.

The Fed continues to reduce buying of Treasury and Mortgage backed bonds by $10 Billion per month yet yields on 10 year treasuries dropped to 2.73 % from 3.00 % at year end. This was perhaps the biggest financial surprise as Barclay's Aggregate bond index rose by 1.8 % in the quarter. In 2013 bonds posted their biggest drop since 1994.

Soft economic news from China and the lowest inflation numbers in Europe since 2009 have not derailed US or European stock markets. China's Big Caps declined 6.7 %, Japan -6.7 % and bad boy Russia -16.9 %.

According to Fact Set, the S&P 500 is trading at 15.2 times the next 12 months expected earnings, This compares with 13.2 times over the past 5 years and 13.8 for the past decade. Without extraordinarily low interest rates some might conclude the market is overvalued. However, as rates are expected to remain low and profits are still growing we see no major market decline as long as a recession is not on the horizon.

At current P/E levels profit growth is the key to higher stock prices. S&P 500 earnings grew 10.6% in the fourth quarter and markets are still digesting last year’s 30% gain. The US economy continues to be stuck in a +2-3% GDP range, accompanied by very low inflation.

With elections coming in November it seems increasingly likely the GOP may control both branches of Congress in 2015 as President Obama's reset of the economy and foreign policy has provided little by way of new net jobs or wage gains for the middle class. A stalemate in D.C. means fewer negative surprises emanating from our leaders.

In sum, not much has changed since year end. Spring will hopefully bring warmer weather and less international tension.

Douglas Coppola
John Coppola

April 1, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

February Market Review

The S&P 500 rose 4% in February to close +0.6 % year to date despite a rough start to the New Year. The DJIA was down 1.5%.

U.S. 10 year Treasury rates closed at 2.65% from nearly 3.0 % as the year began boosting bond prices.

The Polar vortex led to slower retail sales while Emerging Market weakness caused concern for some investors.

Fourth quarter 2013 earnings are still coming in and are better than anticipated.

Goldman Sachs recently published S&P 500 estimates through 2017 as follows:

2013 - $108 

2014 - $116 

2015 - $125 

2016 - $132 

2017 - $138 

Given the median P/E multiple has been 15x forward earnings for the past 10 years we calculate a value of 2070 for the index late in 2016. This target is only 10.7% higher than today's 1870 level. Based on this calculation alone the market appears to be overvalued by 6.95 % today.

We know that history shows market returns deviate widely as sentiment moves from fear to euphoria. At today’s 16x forward estimates we are benefiting from low interest rates and abundant liquidity provided by the Fed and other Central banks.

To conclude that we've appreciated too much might be premature. Holding cash or bonds make for poor returns. Inflation remains low. Labor costs are under control while profit margins are at record highs as are Corporate Earnings. Dividends continue to rise and payout ratios are still low historically.

Without a recession or much higher interest rates this bull market will likely prove to be long lasting but not without sudden corrections along the way.

Doug Coppola
John Coppola

March 4, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

AS JANUARY GOES SO GOES THE MARKET

After a breathtaking return in 2013 the US. stock market began the New Year on a cautious note. The S&P 500 was down 3.6 % in January with the DJIA -5.3 %. Germany was -6%, Big Cap China -9.9%, Brazil slumped 12.1%. The Emerging Markets ETF declined 8.6 %.

Despite near universal belief that interest rates will climb higher in 2014 the 10 year note went from 3.0% at year end to 2.65 % by month's end. Most believe this is a technical correction not an economic signal.

The move to a risk adverse posture comes from concerns over the slowdown in Chinese manufacturing, European deflation fears and fourth quarter weak retail sales in the U.S. In addition, the Fed is slowing it's buying of mortgage and Treasury bonds by $10 billion per month.

Slow growth in our employment numbers and a swift move into safe haven currencies surprised the investment community. A currency crisis in socialized economies like Argentina, Turkey, and Venezuela led to confusion and uncertainty.

Stock market bulls are counting on a year of earnings growth to support current valuations. The SPX is expected to earn $120.50 in 2014 up some 10% according to consensus estimates.

Bonds are expected to continue their inexorable decline in price. Europe is likely to gain economic traction after a severe recession. Consumers will continue spending while capex around the globe increases due to increased confidence. Thus far, 2014 is not unfolding according to this script.

We anticipate a more volatile year than last. Investor sentiment moved to 5 year highs at year end which is a contrary indicator. Real growth is hard to come by in a slow growth world so while growth stocks made new highs last month, commodity companies are floundering.

Emerging market economies are now 35 % of global GDP and collectively support more people than reside in developed countries. The fact remains that financial wealth disproportionately resides in North America, Europe, and Asia. Large companies in these economies are adept at turning profits given low labor and commodity costs.

The U.S. is the best of the big economies and has a clear energy and technology cost advantage. Our market multiple at 14.6 times forward earnings reflects this situation yet it is far from historical highs if earnings come through.

We seek more growth exposure this year and less dependence on fixed income assets. Cash still yields little in US dollar terms. While inflation is still very tame at 2%, gold has increased about 3% in 2014.

We know from experience that stock markets can rapidly move from one extreme to another. According to Stock Traders Almanac, every down January, since 1950, has been followed by a new or continuing Bear market, a 10% correction, or a flat year. This indicator has had an 88.9 % accuracy, so we are paying close attention to the character of this decline.

We will be diligent in monitoring signs that the heretofore positive investment climate remains benign for equity investors. Five to ten percent corrections are normal and healthy in rising markets.

Doug Coppola

February 3, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

2013 Review & 2014 Preview

The S&P 500 had its best year since 1997 finishing up 29.6 % while the Dow Jones Industrial
Average advanced 26.5 %. No wonder the U.S. stock market surprised Wall Street strategists along
with the average investor.

The 10 year U.S. Treasury ended 2013 with a 2.99% yield up 127 basis points for the year. High
quality, long maturity bonds posted losses. The 10 year yield averaged 3.49% over the past
decade. We are likely to get there in 2014.

Gold fell 28% over the year. A $4 trillion balance sheet at the U.S. Federal Reserve could not prop
up gold prices in the face of rising interest rates and inflation below 2%.

We began 2013 full of apprehension over the “Sequester”, a 3.9% income tax raise in the top
bracket, plus a payroll tax hike for all earners. In addition, we saw an increase in capital gains and
dividend taxes up to 20 % up from 15 %.

Many were concerned with Europe's recession and implementation of our country's big new social
program "Obamacare".

The Federal Reserve executed an $85 billion per month Quantitative Easing program. After it's
December meeting they announced a tapering of their bond purchases in 2014. Markets rallied after
the news.

The Japanese Ministry of Finance embarked upon their own copy cat QE program
with positive consequences. European bond yields dropped throughout 2013 as Mr. Draghi calmed
markets and the Euro held firm. Both Japanese and EU stocks rallied strongly as their economies
stabilized.

Many investors expressed confusion over how new monetary policies would play out.
Few anticipated the result; losses in long dated bonds in the U.S. and soaring equity prices in
developed markets. We only had a 4 % earning increase for domestic corporations; revenues were
up about 2 %.

Diversified and balanced portfolios underperformed along with Emerging markets. Brazil was down
20.1%, Big Cap China -5.1%, Russia -3.4% and India -4%.

Assets considered safe were losers in 2013 while stocks and risky "Junk bonds” paid off
handsomely. We witnessed a gradual increase in investor confidence even while consumers
remained wary.

Many middle class and low income consumers feel like the country is still in recession as jobs have
not returned in great numbers nor has their income increased. Income inequality has
ironically widened in the past 5 years because of the current Administration's policy choices.

Despite record fines by the DOJ for major banks, no resolution on the Keystone pipeline and little
progress on the U.S. budget impasse, investors still perceived U.S. stock markets as an opportune
place for their idle dollars.

Europe crawled out of recession resulting in late year surges in EU stock markets. Germany for
example finished up 28.6 % in 2013. Japan was up 24.5 % in dollar terms.

The U.S. dollar did not collapse as many feared. After an anemic 5 year climb out of recession the U.S. economy seems capable of growing above 2% with less FED help and a 'do nothing Congress." We continue to expect acceleration in global economic growth in 2014.

Why was the U.S. stock market the belle of the Investor’s Ball in 2013?

Energy independence is the top of my list for good news in 2013. The country has moved closer to a long stated goal with a new technology called horizontal drilling combined with the decade’s old technology called fracking.

Entrepreneurs have made U.S. energy independence possible. Newly discovered gas and oil is located on private land and financed with private money. States that have embraced this type of drilling are North Dakota, Texas, Oklahoma, and Pennsylvania. These areas have witnessed economic booms and filled tax coffers.

One wonders what might happen if CA and NY join in the fun or if the Federal government pursued policies encouraging more drilling. The ensuing job creation would create a much needed increase in personal income, higher tax revenues plus lower trade and budget deficits. We could be freed from defending allies in the Middle East, Europe, and Japan for the purpose of oil security.

Earnings, dividends, and margins for U.S. companies reached record levels, while the P /E ratios for stocks rose at least 2 multiples. We are still below 2000 and 2007 P/E levels. Earnings on the S&P 500 companies will finish around $109 a rise of 4.7 % over 2012.

CEO’s authorized record levels of share buybacks supporting higher share prices.. U.S. corporations have approximately $1.8 Trillion in cash on their balance sheets so more buybacks and dividend increases are expected in 2014..

After such a banner year one seeks a repeat. Rather, we expect a gentler rise. The market is trading at fair value or 15.4 times a rosy $120 forward estimate .U.S. interest rates are likely headed higher as the 3 decade bull market in bonds has run it's course.

Investors wanting more of a good thing will likely allocate marginal dollars towards equities rather than bonds. With no 2014 recession in sight we expect stocks to outperform bonds once again.

Doug Coppola
January 3, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.