The long-awaited November election results surprised the world.

Republicans held majorities in the House and Senate and unexpectedly won the Presidency.

Mr. Trump's odds were 4-1 in betting pools on election day and soared to 12-1 early that evening.

The DJIA dropped 800 plus points in the overnight futures markets on Nov 8, but began to rally the next morning. Despite dire warnings by many, the DJIA rallied 5.8 % for the month. 

The SPX closed at record highs, up 7.58 % year to date and up 3.4% in November alone.

The shocking result caused a massive migration from bonds into stocks causing the third worse selloff in 30 years for US Treasuries.

November was the worst month ever for the Bloomberg Barclays Aggregate Total Return Index with a 4 % loss. 

Sentiment swiftly changed from low interest rates forever to faster GDP growth, higher rates are here to stay and inflation is coming soon.

More money was lost in bond markets than was made in stock markets.

Trump's policy proposals, previously ignored by the media, focus on reduced tax rates for corporations and individuals. He proposed a $1 trillion spending plan to modernize our infrastructure.

Repeal and replacing Obamacare takes pressure off small business and will aid job creation as employers no longer fear new full time hires costing them too much. 

With lower regulatory burdens anticipated on banks and manufacturing we saw an industrial and finance stock run heretofore absent for years.

Defensive stocks, even with good yields swooned, along with foreign stocks due to U.S. dollar strength.

Gold and municipal bonds plunged as safe havens were suddenly out of fashion. 

Growth stocks took a back seat to small cap value stocks and cyclical sectors.

This is what a bond yield tantrum, like 2013 looks like on the chart below.   

In summary, a sea change in markets and perception for growth prospects has occurred with the election results.

Bonds are no longer as safe a haven as they once were. Rates look like they bottomed in July 2016 at 1.33 % on ten year UST’s.

Hopes for a stronger for longer economy have improved given this business-friendly administration.

We are more bullish on stocks looking ahead and more concerned about long dated bonds.

Risk is back on for emboldened investors but it won 't be a straight line to higher prices.

The business cycle has not been repealed. We have not had an economic downturn in 8 years. Our national debt has doubled under President Obama. President Trump's new spending must be financed with more deficits. 

We are adjusting portfolios to reflect new realities.

All the best for a wonderful holiday season!

 Doug Coppola

John Coppola

December 1, 2016 

Communication is for informational purposes only & doesn't constitute offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by CFA or an associated person or entity. CFA 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 always subject to change without notice. We do not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written about the explanation of the matters described herein & 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 avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed. Please Access Your Advyzon Web Portal to View Your Account & Monthly Fee

The long-awaited election results came in on November 8-9 and the whole world was surprised.

Republicans held majorities in the House and Senate and most unexpectedly won the Presidency.

Mr. Trump's odds were 4-1 in betting pools election day and soared to 12-1 early that election evening.

The DJIA dropped 800 plus points in the overnight futures markets on Nov 8 but began to rally the next morning as the DJIA rallied 5.88 % in the month. The SPX closed at record highs up 7.58 % year to date and up 3.4% in November alone.

The shocking result caused a massive migration from Bonds into stocks in the third worse selloff in 30 years for US Treasuries.

Sentiment swiftly changed from low rates for as far and long as the eye could see, expected to be continued with a Clinton win, to faster GDP growth expectations. Trump's policy proposals very much ignored in the media are for lower tax rates for corporations and individuals along with a $1trillion fiscal spending plan on infrastructure.

Throw in lower regulatory burdens on industry and banks and we got a bull run the likes we have not seen in years.

Financials and Industrials soared while defensive groups with good yields swooned.

Gold and Bonds plunged as safe havens were suddenly out of fashion.

All the best for a wonderful holiday season!

Doug Coppola

John Coppola

December 1, 2016

Communication is for informational purposes only & doesn't constitute offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by CFA or an associated person or entity. CFA 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 always subject to change without notice. We do not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written about the explanation of the matters described herein & 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.

The S&P 500 closed October 30th at 2126.15, down 1.9% on the month and up 4.1% on the year. The DJIA is up 4.1% and NASDAQ up 3.6%.

​The ​Core PCE Price index is running +1.7% year over year.

The U.S. Two-Year Note yields 0.85%.

The Ten-Year U.S. note yield is 1.83% and the 10 Year German Bund is +0.16%, up 28 basis points this month.

Global interest rates rose sharply in October, as the lows on yields for 2016 and perhaps this interest rate cycle may have been seen this summer.

Q3 could be the first time the S&P 500 Index has seen year over year earnings growth since Q1 2015, ​per Fact Set.

All eleven sectors have contributed, led by financials. ​

The Fed meets ​next week, but is expected to stay any interest rate hikes until the December meeting, which according to latest statistics has a 78% chance ​for a rise in the Federal funds rate.

With the election on November 8th this "soap opera" race will conclude in a week.

However, if Ms. Clinton is elected as markets expect, with ​the FBI probe still

​underway, all parties might have to wait for the final episode until January.

Having ​weathered the weakest cyclical part of the market year with higher profits in the offing, stocks may well rise into year end. Average gains in the last two months of the year are typically ​+​3.8%.

​With inflation pick​ing up due to wage increases, bonds should have a harder time than stocks holding on to their yields. That of course is conventional wisdom.

However, there is not much conventional about these economic or political times​

If you have any questions or concerns about your accounts, please set up a meeting or conference call.

Happy Halloween!

Doug Coppola

John Coppola

October 31, 2016

Communication is for informational purposes only & doesn't constitute offer to sell or solicitation of an offer to purchase any interest in any investment vehicles managed by CFA or an associated person or entity. CFA 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. We do 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 & 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.

Stocks were down 0.1% in August after hitting all-time highs of 2193 for S&P 500 then closing at 2170, l up 6.2 % year to date. 

Ten year U.S. treasury yields rose from 1.33% July levels, to 1.57% on August 31. The Fed continues to talk about raising the Fed funds rate by year end. The biggest monthly sector loser was Utilities Select SPDR or (XLU), which dropped 5.5%.  

Despite constant chatter from talking heads, we expect no action on rates until we are past the November elections.

GDP seems to be picking up in the second half and corporate profits, while still anemic, are moving in a positive direction.

September is typically a down month for the stock market. BREXIT losses have been erased as dire predictions have not come to pass.

The EU continues to demand more taxes from successful companies like Apple even as the Irish tax authority says the company does not owe $14 billion claimed due by the bureaucrats in Brussels.

 The U.K. vote has brought all these issues to the forefront for discussion. 

We are concerned that investor sentiment has turned too bullish of late. Equity mutual funds continue to shed assets in favor of index ETFs and bond funds.

We have seen a mild selloff in precious metal prices and more in metal stocks after a big rally. The US dollar has risen over the past 2 months.

On the positive side, we see no recession in sight. We see a flatter but not inverted yield curve. We expect only a slow rise in inflation and rates, between now and year end. Valuations for stocks while high are supported by low bond yields and easy earnings comparisons moving forward.

Both the ECB and Bank of Japan continue to print money and buy more financial assets to prop up weak economies.

Emerging markets have rallied off winter lows. Collectively they have lower P/E ratios and higher growth rates than developed markets. European and US bank stocks have rallied off lows.

Prior to the November election, we expect lots of negative ads and some surprises that may roil markets.

Stocks appear to offer better long term prospects than bonds which have become expensive.

If we experience a market drop this Fall, we expect it to be fleeting.

Goldilocks continues to romp free from interference by the 3 bears.

Doug Coppola

John Coppola

September 1, 2016

Communication is for informational purposes only & doesn't constitute offer to sell or solicitation of an offer to purchase any interest in any investment vehicles managed by CFA or an associated person or entity. CFA 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. We do 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 & 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.

The S&P 500 closed up 6.34% year to date and 3.56% in July alone. The Barclays U.S. aggregate bond index is +5.98% year to date.

Brexit fears did not last long. Negative interest rates in Japan and Europe continue as U.S. ten year bonds closed with a 1.45% yield. Also, 30-year Treasury bonds finished July with   a 2.18% yield, near historic lows.

After two political conventions the race for the Presidency is less than 100 days away.

All politicians make promises but few keep them. The Congressional Budget Office reported in July that federal debt held by the public surged to 75% of GDP from 39.3% in 2008, according to the Wall Street Journal op-ed on Aug 1. The C.B.O. projects a jump to 86% by 2026 and 110% by 2036 higher than the historic peak of 106% after WW II.

"Low yields are hell on savers but they have allowed Mr. Obama and the Washington crowd to party like it's 1995; the year the government paid $232 billion in net interest, more than the $223 billion it paid last year, even though publicly held debt has more than tripled in 20 years."

"As a share of GDP, the U.S. is paying less in interest than the average over the past 50 years, even as debt has skyrocketed."

This is the result of repressed interest rates, compliments the FED and other Central bankers.

Global government debt has piled up with little negative consequence.

Bond gurus like Bill Gross of Janus and Jeff Gundlach of Doubleline Investments are sounding alarm bells on long dated assets including Treasuries and everything that trades off Treasury debt yields, except real estate and gold.

Bulls on the other hand argue that while we have been in a drawn out profit slowdown, the bottom in profits was reached late last year and earnings are improving.

Richard Bernstein argues that pessimism is rampant, stocks move on earnings increases and earnings are about to increase after 4 quarters of decline.

Earnings comparisons get easier in the second half of this year and in 2017. While P/E 's are high they are supported by rising earnings. Consensus forward earnings estimate on the S&P 500 is anticipated to be $126.50 a P/E ratio of nearly 17 times, higher than the 5 and 10 year averages.

We have lived through a collapse in oil prices and other commodities over the past 2 years. Oil prices went from $116 to $26 at the recent lows then rallied to $52 and dropped back to $40 this week.

We saw the SPX peak in May 2015 at 2134, surpassed last month after massive pessimism on the British vote to leave the EU proved to be fleeting.

Smart people are clearly divided in their opinions. Interest rates at historic lows have driven both stock prices and long duration bonds higher.

A subtle currency war is going on with China, Japan and Europe vis some vis the U.S. dollar.

At this point most prognosticators think bonds have done all they can, as far as capital appreciation is concerned. There are exceptions like Gary Shilling who sees even lower yields ahead.

Stocks will likely rise further, if earnings increase and P/E ratios remain elevated.

If we go into a U.S. or global recession, which JP Morgan rates at only a 30% probability, all bets are off.

Central bankers and the politicians, expect low interest rates for the foreseeable future.

Elections are looming in the U.S. and Europe which may change the investors calculations.

We shall monitor markets closely for evolving opportunities.

Doug Coppola

John Coppola

August 3, 2016

Communication is for informational purposes only & doesn't constitute offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by CFA or an associated person or entity. CFA 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. We do 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 & 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.

July Newsletter

It has been a very interesting year. The fact that the S&P 500 closed up 2.89% through June 30th and up 1.23% over the past full year masks the incredible market movements we have witnessed over this time period. We saw a 12.5% drop a year ago ending with the August 24, 2015 flash crash.  We then rallied to within 1% of the 2134 SPX peak then bottomed about 14.5% lower at 1810, this winter. Those who got out, missed a subsequent 17% rally back to the SPX 2120 level. 

While the 15-year return for the SPX has been +3.67 % annualized, the 10-year return was +5.17 % and the 5-year return was 9.44%. 

Long term bonds rose 12.43% YTD, while Corporate Bonds added +7.02% and High Yield bonds +5.4% beat the stock market averages. 

Why are bonds outperforming stocks in this environment of slow growth and near deflationary trends? 

The answer is that this economic cycle is without recent precedent. GDP growth for the U.S. has been about half the rate of prior recoveries post WW II. 

Central Bankers have tried to control of interest rates via interest rate repression and quantitative policies which use money, they have created from thin air to purchase government bonds as well as other liquid assets. 

In an all-out effort to avoid recession and even worse global coordinated rate cuts and money creation have led to historically low rates around the globe. 

Bill Gross points out in his July missive that "credit growth has averaged 9% a year since the beginning of the century and barely reaches 4% annualized in most quarters now." 

"Credit, he states, is the oil that lubes the system, the straw that stirs the drink

and when the private system fails to generate sufficient credit growth, then real economic​ ​growth stalls and even goes in reverse." 

Britain's exit from the European Union was the choice of the majority of UK voters and it has set off another wave of fear that the world GDP will slow even further. 

Ten year U.S. Treasury notes now yield 1.36%, new all-time low levels. Canadian 10 year's yield 0.98%. 

In Europe the yield rundown in the 10-year maturity is as follows:

Switzerland -0.68%, Germany -0.19%, Netherlands +0.02%, France +0.13%, UK+0.77%, Spain +1.18% and Italy +1.%.

In Japan we see a -0.26% yield on 10 year notes. In spite of their massive money printing apparatus the Yen has appreciated from 122.57 to 101.31 to the U.S. dollar. 

In spite of a down grade of the UK government bond rating by Moody's from AAA to AA1, bond yields in the UK have plunged below 1%. 

These market responses indicate that Central Banks have reached the limits of their powers. Even so, market participants are still choosing to take refuge in Government bonds. Nearly $10 Trillion of sovereign debt, mostly in Germany and Japan has a negative yield. 

A return of capital has clearly begun to trump a return on capital when investors are willing to loan money over long periods of time for guaranteed negative returns. 

What are the implications for our financial markets? 

So far monetary actions by central banks has lowered interest rates in order to stave off recession and repair balance sheets. 

Central bankers have managed to help keep developed economies GDP above the zero line. They have thereby stimulated housing demand, auto sales, share buybacks and new bond issuance by corporations. 

We have seen the coming and going of Capital spending in the energy patch as well as in the technology sector both of which led to fortunes being made and unemployment rates dropping. 

However, with anemic growth rates in the U.S., Europe and Japan compared with past recoveries much of the population feels squeezed or even left out. Emerging economies like China have slowed and Brazil is in a deep recession. 

This has led to the rise of discontent on both the left and the right of the political spectrum. 

As the Brexit demonstrates many voters are tired of the status quo and have begun to demand real change and are willing to take the risks associated with new beginnings. 

Gold has rallied some 30% off its late November 2015 lows while remaining about 30% below 2011 highs. 

Stock prices have stalled but certain sectors have benefited in this changing landscape while others have been badly hurt. 

We believe a period of uncertainty always presents opportunities. 

Fact set places the forward P/E on the S&P 500 index at 16.4 X. This P/E ratio remains above the 5-year average of 14.6 x estimated earnings. 

With the Brexit decision we see new opportunities abroad where P/E s are lower and dividend yields are higher. We expect the continued debasement of paper money to prop up stocks, and precious metal prices.  

Doug Coppola

John Coppola

July 6, 2016

Communication is for informational purposes only & doesn't constitute offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by CFA or an associated person or entity. CFA 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. We do 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 & 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.

June Newsletter

The SPX closed at 2096.27 on May 31, 2016, up for the month and +2.5% on the year. The NASDAQ closed -1.19% YTD.

The index is still 1.7% below its all time high of 2132.82 reached last July.

With 98% of companies having reported earnings in Q1 2016 the earnings decline was 6.7%.

The SPX forward 12 month P/E ratio is 16.7. The current P/E ratio is above the 5 year average of 14.5 and the 10 year average of 14.3 according to Factset.

The Fed was hoping to raise rates again in June or July before today's job figures. While the headline unemployment rate was 4.7%, non farm payrolls increased by only 38,000. U6, a broader definition of the unemployment rate is steady at 9.7%.

Average hourly earnings were up 2.5% over the past year. Average work week is 34.4 hours. Labor force participation rate has backed down to 62.6%.

The Fed is in a box and frankly their next move is hard to gauge.

Oil has bounced 92% from its low of $26/bbl of WTI but even at $50/bbl it is down more than 50% from 2 years ago, peak levels.

The big question after the 15% drop from last July to the February 2016 lows is; has the market already discounted an ongoing earnings recession?

Bulls argue the economy will pick up in the second half. Bears believe valuations are too high, margins are shrinking and earnings will not recover to compensate for the above P/E ratios.

The market is trying to come to terms with mixed signals.

Bill Gross of Janus believes that future returns from bonds and stocks will end up below the 7% and 10% averages achieved over the past 40 years.

Due to slow economic growth and repressed interest rates he believes the Barclays Capital U.S. Aggregate Bond Index will return between 1.5% and 2.9% over the next 10 years .

Stocks will earn about 3% more, or 4.5% to 5.9% with higher levels of volatility along the way.

Will more monetary stimulus from Japan, Europe and China lift those economies? Central bank moves now appear to have less effect on markets as well as the economy.

Will U.S. dollar strength resume after a nearly 10% drop below last December levels or has it begun a longer term decline?

The U.S. Dollar Index Chart below suggests a top may be forming.

If the U.S. dollar begins to decline,  earnings headwinds for U.S. multinationals will diminish and commodity prices will continue to rise, particularly precious metals.

The next Fed meeting takes place on June 14-15.The Brexit referendum takes place on June 23. Both bear careful watching.

Today the U.S. 10 year note yields 1.72%, 10 Year German Bunds +0.12%, the Japan 10 year -0.11%, the Swiss 10 year is at -0.43% and the UK Guilt +1.27%.

The public increasingly fears the trend toward negative rates. Negative rates not only offer less than zero returns but creates unease for savers.

Governments asking for a payment to hold their debt are creating a psychosis among investors. This in effect is a tax on savings.

Less savings does not necessarily lead to more spending. It can lead to more hording of currency, which creates the opposite effect of central banker intentions.

This upside down world has led individuals to remain on the sidelines with excess cash and institutions to reach for yield to meet payment obligations.

The 5/25/2016 market sentiment figures from AAII showed only 17.8% Bulls, 59.9% Neutral and 29.4% Bears.

Ironically, this is a rare reading which has proven bullish at similar junctures in the past.

We expect the year long trading range - SPX 2134-1810, may continue for some more time.

Given the volatility of bonds, commodities and stocks this year, we believe opportunities will arise to buy assets on the cheap.

Doug Coppola

John Coppola

June 3, 2016

Communication is for informational purposes only & doesn't constitute offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by CFA or an associated person or entity. CFA 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. We do 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 & 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.

May Newsletter

The U.S. stock market as measured by the S&P 500 was up 1% while the NASDAQ was down 4.6% through end of April.

Charles Biderman of Trim Tabs, whose firm follows market liquidity, states that since the end of 2011, $2 Trillion of U.S. stocks have been bought by corporations on a net basis.

Individuals via ETF's and Mutual funds have been net sellers.

In 2016 Basic materials, Energy and Utility stocks have led with YTD returns of 10.2%, 13.4% and 12.8%. These were among the worst performing sectors last year.

Healthcare and Technology led the losers down 3% and 3.7% YTD having been among the top sectors last year.

The SPX sells at nearly 18x consensus estimates with a 2.2% dividend yield while the 10 year U.S. Treasury note yields 1.86%.

10 year German Bunds yield 0.26%, Japan 10 year notes pay -0.13%.

Investors like Warren Buffett are still wrapping their minds around negative interest rates and don't seem to like what it implies, i.e no growth and no yield.

Consequentially, U.S. corporations with over $2T held overseas are hoarding cash. The personal savings rate in the U.S. Is 5.4% now, higher than the official unemployment rate of 5%.

Many top quality companies borrow money, buy back their own shares, shrink their float and create cash flow in the process. Debt is tax deductible and dividend rates are set higher than the cost of capital.

Exxon's stock yields 3.4%. Exxon lost it's AAA bond rating not long ago, but raised it's quarterly dividend to 75 cents per quarter on April 27.

Unilever borrowed 750 million Euros for 7 years at a 0.5% yield on Jan 26th, they also borrowed 300 million euros at a yield of 0.08% with a zero coupon.

It has been only 4 times over the past 50 years that stock dividends are higher than the yield on the 10 year treasury note. That situation arose again in January 12, 2015.

S&P 500 percentage (%) performance after first day the dividend yield goes above the 10-year Treasury yield

Date One month Three months Six months One year

June 22, 1962 7.8 9.5 18.9 33.4

Nov. 19, 2008 10.1 -3.4 12.6 35.7

Aug. 10, 2011 3.0 10.6 19.8 25.4

Average performance 6.97 5.57 17.1 31.5

While the world is not completely irrational, we continue to be in a period where things seem amiss. On Jan 12, 2015 the SPX was about 2044, it has a value of 2088 today only 2% higher with the 2.2% dividend yield. One can argue things are a bit different this time. Performance has been carried forward by central bank policies.

U.S. First Quarter GDP rose by +0.5%, down from 1.4% compared to last year's Q1.

China GDP, stocks and oil prices came back strongly from the February lows.

We have rallied to just short of the May 2015 SPX high of 2134 in late April.

Wage and salary growth are both down so far in 2016, but consumer spending while soft is steady. Economists see no recession this year. The FED may raise rates once more but even that assumption is questionable given the upcoming elections.

The Presidential race is interesting but remains very unpredictable.

With 62% of the SPX having reported earnings for the 1st Q 2016, 74% of companies have bettered the mean estimate with 55% reporting sales greater than the mean estimate. The problem is estimates were dropped numerous times before the actual reports.

According to FACTSET we are experiencing an earnings decline of -7.6%. For the first time since Q4-2008 through Q3-2009 we are seeing four consecutive quarters of decline, the definition of an earnings recession.

The SPX forward P/E ratio is now 16.8x, above the 5 & 10 year averages.

In sum, with rates low, stocks are being held up not by earnings growth, but by lofty P/Es thanks to Central Bank policies and share buybacks.

While many are not feeling the “Bern”, 6 of 10 Democratic primary voters believe socialism has a "positive impact" on society.

Socialism prevailing over Capitalism among voters in every demographic does not sound bullish.

The public is down on business and politics but life goes on.

Doug Coppola

John Coppola

May 3, 2016

Communication is for informational purposes only & doesn't constitute offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by CFA or an associated person or entity. CFA 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. We do 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 & 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

March Madness Reigned on the Courts in the NCAA Basketball Tournament & in Our Global Financial Markets

Upsets galore in early rounds continued through the Elite Eight and into the Final Four with only one #1 seed left in the contest. That team happens to be the UNC Tar Heels, whose home is right here in Chapel Hill.
While January and early February were tough sledding for the bulls, the bears got their comeuppance in late February and March.
February 11 proved to be the bottom of this year's version of the global growth scare. From that point on   commodities notably oil, emerging markets and high yield debt soared in price along with a broad array of stocks.  Yields in mid-February for junk bonds approached 2009 levels as oil hit $26/bbl. Panic gripped investors in many asset classes  as doom and gloom spread and prices plunged. But wait........
Just as we experienced on numerous occasions since the 2009 bottom, Central Bankers came to the market's rescue. Large and small capitalization stocks roared back to life as shorts ran for cover. Oil prices rallied more than 50%.
High bearish sentiment set the stage for this Bull Run as the Fed backed off its 4th rate hike goal set last December. The ECB went for more QE in Europe, China loosened credit standards and Japan stayed the course with negative interest rates.
The U.S. dollar retreated 6% from its Dec 2,2015 trade weighted high of 100.51 easing fears of an  earnings collapse for big cap U.S. corporations. This also helped emerging market economies, by taking pressure off commodity prices and their dollar denominated debt.
The Presidential contest has narrowed to five candidates. Nominees are to be decided upon in late July. Many voters are looking for a new hero not of the "ruling elite." Millennials and students wish to be rescued from college debt, blue and low pay white collar workers from stagnant pay scales.
Seniors fret over Social Security and Medicare, both underfunded. Social Security will be forced to reduce benefits in the not too distant future if something is not done soon.
Financial markets are buffeted by ever changing rules.  Central bankers change course as the fits of markets dictate. The Golden rule states.He who has the gold makes the rules. Central Bankers are modern day market kings and queens.
Ms. Yellen wants to get back to “normalization" for U.S. rates, but due to global economic concerns keeps delaying rate hikes.
Neither the Eurozone nor Japan can normalize due to slow or no growth economies.  Yellen retreats and hopes for better times down the road.  The Fed and most economists did not foresee the years of sluggish economic growth the past debt crisis would bring. Central bankers lend, extend and pretend all is well.
Fiscal austerity in Europe and discretionary government spending in the U.S. at 2008 levels have kept inflation low for 8 years. Politicians are frozen in their ideologies. Labor markets have improved but few feel like things are really good.
As Shakespeare once said, "All's well that ends well!" Markets are back to flat or up slightly up for the year. We have smooth sailing for the moment as the storm has calmed and sea monsters in China and other hot spots have submerged back into the depths.
 If we are to prosper in choppy markets it’s important not to panic and stay with your plan. Utilities and Telecoms lead the market this year after lagging last year. Energy is up in 2016 while Healthcare is down after respective horrendous and brilliant years for each in 2015.
With SPX at 2066, consensus estimates of $120.20 according to Yardini Associates, the P/E rests at  17.2 x forward earnings .While this is higher than the 5 and 10 year averages, in  light of a 1.78 % 10 year Treasury yield, German bunds at 0.15% and Japan notes at -0.04 % completion is not stiff. The reciprocal E/P derives an earnings yield of 5.8%.
It's been hard for active managers to figure out the rules of the road. Few are confident about earnings or growth levels at this late stage in an economic cycle.
Price gaps in markets have been a product of Dodd Frank regulation reducing market participation by banks and brokers as intermediaries. No uptick rules for shorting, plus algorithmic traders make plunges and screams higher more common.
Merrill Lynch reports we have record liquidity in client accounts as fear leads to under investment and caution. Two trillion dollars rests offshore rather than being invested here by U.S. corporations who refuse to repatriate cash and pay a world high 36% tax should they do so.
Computer programs with algorithmic settings move markets in moments, rather than in minutes or hours.
Leading hedge fund managers are struggling for positive returns as are 90% of portfolio managers. Active strategies are losing to passive ones.
Mutual funds are losing assets to ETF's. Cost of financial transactions has gone down for clients, but spreads, have gone up.
There are opportunities created by this seeming chaos.
Closed end funds that sell at big discounts approaching 2009 -2010 levels are one example.
We expect continued market volatility and slow growth in all economies. The Consumer at 68% of the U.S. economy is strong balance sheet wise and steady.
We are inclined to take more duration risk with high quality bonds as inflation is nowhere to be found. Longer dated AAA or AA bonds tend to rise when stocks fall and work well to balance a portfolio.
While the SPX may not be historically cheap more and more individual names got very cheap in the not so stealthy bear market we have lived through.
The Russell 2000 ETF index symbol -IWM - went from 123.10 on 6-23-2015 to 93.6 on Feb 11, 2016. That 24% drop in 8 months qualifies as a genuine bear market.
It has become crystal clear that the crowd is more often wrong rather than right. When values appear one must grab them quickly.
The rules of the game are ever changing as new market masters ply their trade.
The news cycle is short and negative. “If it bleeds, it leads", as the news room saying goes.
It is hard to stay patient and steady when the world appears to be falling apart around us. The 1820 SPX support zone has been tested 5 times since April 2014. The top of this zone is 2134 which we may see again before this year is out. The SPX closed +0.8 % through the quarters end.
In the long run, the country and markets seems to muddle through.

Doug Coppola

John Coppola

April 1, 2016

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