The Personal Blog of John Rothe http://www.johnrothe.com Thoughts On The Markets And Economy Wed, 02 Apr 2014 16:20:13 +0000 en-US hourly 1 http://wordpress.org/?v=3.6.1 Global Asset Allocation Strategy Update – April 2014 http://www.johnrothe.com/global-asset-allocation-strategy-update-april-2014/ http://www.johnrothe.com/global-asset-allocation-strategy-update-april-2014/#respond Wed, 02 Apr 2014 15:55:16 +0000 John Rothe http://www.johnrothe.com/?p=4346 April 2014 update to the global asset allocation strategy 2014, so far, has been a volatile and choppy market here in the US. Global investors have begun to look outside the US for value opportunities – specifically within PIIGS countries (Portugal, Ireland, Italy, Greece and Spain). This has caused a change in leadership within the…

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April 2014 update to the global asset allocation strategy

2014, so far, has been a volatile and choppy market here in the US. Global investors have begun to look outside the US for value opportunities – specifically within PIIGS countries (Portugal, Ireland, Italy, Greece and Spain).

This has caused a change in leadership within the model – and may be the start of a global shift in investors’ portfolio allocations.

Below is an update on my global asset allocation model, including changes and a few key highlights.

How the strategy performed in March:

 

Italy continues to be the outperformer in our global asset allocation strategy, while the tech heavy “QQQ” continues to weaken.

This may be the start of an “exit” from tech and a move into global markets where PIIGS countries, such as Spain, trade at a discount from their more established Eurozone counterparts.

At the start of 2014, PIIGS ETFs traded at substantial discounts compared to the MSCI European index. As the Eurozone strengthens, opportunistic investors may be looking at these discounts as a reason to buy.
march perfomance

 

source: ETFreplay

Changes to the model for April:

 

global relative strength april 2014

European and PIIGS ETFs have shown the largest change in relative strength during the past month. It should also be noted that the tech heavy “QQQ” has been kicked out of the top ten list as measure by relative strength.

Italy (“EWI”) and Spain (“EWP”) continue to outperform, which may continue as investors don’t want to miss out of the emerging markets bounce and rush into these ETFs.

Key Highlights- Global Markets:

 

global updates april

(click to enlarge)

  • Canada’s consumer spending increased in 2013 at a 3.1% annualized rate – higher than expected.
  • Italian and Spanish based ETFs have surged so far in 2014, as investors look to potential value opportunities.
  • Australia is starting to see a major shift in economic growth: consumer led growth is overtaking growth from mining.
  • Is this the start of a shift from US technology into PIIGS?

Global Asset Allocation Strategy – Backtest Performance and Statistics

 

Year to date, our global asset allocation model has outperformed the S&P 500 after two back-to-back years of underperformance.

Below are statistics on the global asset allocation strategy. Please note that these are backtested results based on relative strength rules. Results are provided by ETFreplay.

If you have questions or comments, feel free to contact me or leave a comment below.

global asset allocation strategy performance

 

Looking Ahead

 

Comments from the Fed and Janet Yellen have seemed to add an increasing level of volatility into the markets. I am starting to see a widening of trading ranges which may be why we are seeing increasing interest in PIIGS countries.

PIIGS ETFs have underperformed for the past few years as investors worried about how a slowdown in the Eurozone would impact these countries. As a result, we are now seeing large discounts between PIIGS ETFs and the MSCI index.

US tech investors may feel that the iPhone/Social Media technology run is nearing the end of its current cycle and are willing to shift into PIIGS countries hoping for a “bounce back” in valuations.

It will be interesting to watch our global asset allocation strategy to see if “QQQ” remains out of the top 10 in terms of global relative strength, or if the pullback in tech will be viewed as a buying opportunity.

Thanks and enjoy the start of Spring!

-John

 

 

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A Couple of Quick Thoughts On Current Market Conditions http://www.johnrothe.com/a-couple-of-quick-thoughts-on-current-market-conditions/ http://www.johnrothe.com/a-couple-of-quick-thoughts-on-current-market-conditions/#respond Thu, 13 Mar 2014 19:41:01 +0000 John Rothe http://www.johnrothe.com/?p=4290 As I write this, the market continues its decline for the week with the Dow being down nearly 250 points. Is it time to worry, or is this just a pullback in a rising market? Well, I wanted to share a couple of items I am currently looking at: Market Trend The longer-term trend in…

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As I write this, the market continues its decline for the week with the Dow being down nearly 250 points. Is it time to worry, or is this just a pullback in a rising market?

Well, I wanted to share a couple of items I am currently looking at:

Market Trend

The longer-term trend in the market is still up:

screengrab1

Until this upward trend is broken, we are experiencing normal volatility in a trending market.

Volatility levels have barely flinched:

screengrab2

 

Many look towards the “VIX” (aka the fear gauge) as a measurement of fear and worry in the markets. Typically levels below 20 are very anti-climatic.

 

Seasonal Strength

We are still in a period of strong seasonal strength. Historically, the markets perform well during late winter/early spring. The current, low levels in the “VIX” is an indication that most market-watchers feel that there is no reason for this historical trend to no continue.

sellinmay

 

The Fed Has Been Quiet

Since Janet Yellen took over for Ben Bernanke earlier this year, the Fed has been pretty quiet. The Fed’s “taper” program also seems to be sitting in the back of investors’ minds. Searches on Google related to the Fed’s tapering of bond purchases has dropped recently:

 

fedgoogle

 

source: Google

I should also point out that copper prices have been dropping:

2014 copper prices

 

In my 2012 outlook (see 2012 Outlook), I discussed how copper prices are a great indicator on the health of the global economy:

Copper is an amazingly conductive metal, AND a fantastic gauge of the overall health of the global economy. From September 2011′s Economist:

“Copper’s excellent conduction of electricity and heat means that it is used not only to cable and pipe the globe. An average car contains over 25kg of copper; electronic gadgets, from PCs to mobile phones, use copper for wiring and contacts. Its ubiquity means that rising demand should provide an early indication of an uptick in manufacturing and construction. Copper sagged in the early stages of the credit crisis, for example, and then started to pick up at the end of 2008, some months before the stock market began to rebound.”

 

Any worries about a slowdown in economic growth will keep the Fed quite.

 

Reallocation into Risk and Europe

Investors appetite is back as inflows in ProShares Ultra Russell 2000 ETF (“UWM”) have increased. This particular leveraged, ETF tracks the Russell 2000 performance multiplied by a factor of 2.

Proshare Ultra Russell 2000 inflows

Additionally, last year’s problem child – Europe – is back in favor with investors as well:

etf inflows 2014

At this point any selloffs in the market are just speed bumps – but keep and eye on VIX levels and the S&P 500′s 200 day moving average (a line in the sand for many investors) for indications of how the market crowd is feeling about the market as the weather gets warmer…

Cheers,

John

 

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How To Turn Your Kid Into A Millionaire http://www.johnrothe.com/how-to-turn-your-kid-into-a-millionaire/ http://www.johnrothe.com/how-to-turn-your-kid-into-a-millionaire/#respond Fri, 07 Mar 2014 17:07:23 +0000 John Rothe http://www.johnrothe.com/?p=4255 Somehow, I have friends whose kids are about to graduate from college this year (time goes by way too fast!). I started to think, what would I want my kids to know about after graduation? The “fun Dad” in me thought about visiting far-off lands and enjoying life. But the “math Dad” in me thought…

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Somehow, I have friends whose kids are about to graduate from college this year (time goes by way too fast!). I started to think, what would I want my kids to know about after graduation?

The “fun Dad” in me thought about visiting far-off lands and enjoying life.

But the “math Dad” in me thought of something more practical — the magic of compounding interest. (Sorry kids.)

 

Retirement – The Bleak Outlook

A theme among pre-retirees that is becoming more and more common is the lack of retirement savings. The average 50 year old has approximately $44,000 saved for retirement. This means they will be spending the next 15 years or so frantically saving for their golden years. This is in addition to helping kids with college expenses, home repairs, and hopefully enjoying a little bit of travel.

Unfortunately, most people don’t have the luxury of doing all the above. However, if we can get our kids to start saving early, we can help them avoid a pre-retirement scramble.

 

retirement statistics

source: Source: U.S. Census Bureau, Statistic Brain

  out of 100 people

Compounding Interest: What it is, how it works

For my fellow math geeks:

formula-compound-interest

P = principal amount (the initial amount you deposit)

r  = annual rate of interest (as a decimal)

t  = number of years the amount is deposited or borrowed for

A = amount of money accumulated after n years, including interest

n  =  number of times the interest is compounded per year 

 

In layman’s terms:

Compounding interest can be thought of as “interest on top of interest”. This interest on top of interest allows a higher growth rate than interest with no compounding:

compoundinterest

source: batr.org 

Compound interest can significantly boost investment returns over the long term. While a $100,000 deposit that receives 5% simple interest would earn $50,000 in interest over 10 years, compound interest of 5% on $10,000 would amount to $62,889.46 over the same period.

While the magic of compounding has led to the apocryphal story of Albert Einstein supposedly calling it the “eighth wonder of the world and/or man’s greatest invention”, compounding can also work against consumers who have loans that carry very high interest rates, such as credit card debt. A credit card balance of $20,000 carried at an interest rate of 20% (compounded monthly) would result in total compound interest of $4,388 over one year, or about $365 per month.

                                                                                                                                                                                                                                                        — Investopedia

Compounding Interest in Action – aka How To Turn Your Kid Into A Millionaire

To give an example of how powerful compounding interest can be, let’s assume we are able to help or encourage our child to contribute $2000 per year into a tax-free vehicle, like an IRA, from age 19 to 26. At retirement, our child would be better off than the person who contributed the same yearly amount from ages 27 to 65:

 

How To Turn Your Kid Into A Millionaire

(This is assuming a 12% average annual rate of return — which is an entirely different article that will be addressed at another time.)

This concept can greatly impact the quality of their future life. However, most people are not exposed to the concept of compounding interest until they are much older and begin researching retirement investments on their own.

In fact, one quarter of 25-32 year olds have less than $5,000 saved:

 

learnvest chart

source: LearnVest 

 

Resources To Help

We help them choose colleges, majors, wedding locations, maybe even baby names. But not many parents take the time to explain what benefits their kids should be choosing on their first day of work.

Some resources to help them out:

AARP has a nice calculator to help illustrate how much they will need to save: AARP Retirement Calculator 

Wall Street Journal: What is a 401(K)

Employer matching and vesting: Matching Contributions From Your Employer Can Help Build Your Retirement Account (Nationwide)

If you want to start them early:  The Benefits Of Starting An IRA For Your Child (Forbes)

Lastly, make sure they understand tax free growth:

Graph-Taxable-vs-Non-Taxable-Growth

 

Last thought of the day: I have seen young clients walk into my office with very large 401k balances. Not one has ever told me they got to that point because they picked the next Apple, Google, or (insert hot stock of the day). The answer is always the same: I started putting money in my 401k the first chance I had.

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Global Asset Allocation Strategy – February Update http://www.johnrothe.com/global-asset-allocation-february-update/ http://www.johnrothe.com/global-asset-allocation-february-update/#respond Mon, 24 Feb 2014 14:27:37 +0000 John Rothe http://www.johnrothe.com/?p=4248 Each month I like to post an update to our global asset allocation strategy. This month has been a bit busy and I am late to post the changes. Below is how the strategy performed in January - Overall, performance was rather dismal as volatility increased in global markets. However, in February, the model has…

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Each month I like to post an update to our global asset allocation strategy. This month has been a bit busy and I am late to post the changes.

Below is how the strategy performed in January -

Rel Stregth perf

Overall, performance was rather dismal as volatility increased in global markets.

However, in February, the model has bounced back a bit:

feb screen capture

Model testing and research done with ETFreplay

Strategy Rules:

The rules for the model are to examine a prescreened global ETF universe to find the top ten ETFs with the highest relative strength. Those 10 ETFs are then allocated equal weight within a portfolio, then overlayed with the 10 month moving average.

ETF Universe: etf global asset allocation

If the ETF is trading below the 10 month moving average, it is replaced with iShares Barclays 20+ Yr Treasury Bond ETF (“TLT”).

This model underperformed the S&P 500 index in 2013, but I am curious as to how it will perform in 2014.

What Is A Global Asset Allocation Strategy?

A global asset allocation strategy attempts to take advantage of relative strength and momentum within global markets. Typically asset classes are used via ETFs or mutual funds instead of individual securities, as the latter may have higher overall transaction costs.

Since most of these strategies focus on quantitative methodologies, they tend to have shorter holding periods when compared with a portfolio holding individual equities. As a result, positions are typically held less than a year and can rotate between various asset classes such as equities, fixed income, currency, etc.

The objective is to provide investors with the opportunity to invest in economies around the world — both major and emerging — while providing a risk-based approach in order to reduce exposure to volatile economies during uncertain times.

 

 

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Is The Stock Market Set For A Decline? – What To Watch For http://www.johnrothe.com/is-the-stock-market-set-to-decline-what-to-watch-for/ http://www.johnrothe.com/is-the-stock-market-set-to-decline-what-to-watch-for/#comments Mon, 03 Feb 2014 22:42:14 +0000 John Rothe http://www.johnrothe.com/?p=4192 Flickr: B Rosen’s Shutter As the markets start off February with a decline, investors are starting to worry about the markets. I have been finishing up this month’s research topic and wanted to share a few thoughts to those who don’t want to read a lengthy research report. ARTAIS Signals First off, our ARTAIS models have…

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screencap

Flickr: B Rosen’s Shutter

As the markets start off February with a decline, investors are starting to worry about the markets.

I have been finishing up this month’s research topic and wanted to share a few thoughts to those who don’t want to read a lengthy research report.

ARTAIS Signals

First off, our ARTAIS models have been on a sell signal for equities. This started back in December when emerging markets started to raise a few warning flags.

Emerging Markets (EEM)

emerging markets etf

S&P 500 (weekly):

SPX weekly chart

 

QQQ (weekly):

QQQ weekly chart

 

200 Day Moving Average Is Still Intact

However, the S&P 500 index is still above the 200 day moving average (SMA) – this is a good sign for investors.

sc

Why the 200 day moving average matters:

This is a “line in the sand” for many investors. In fact, studies have shown that market volatility in 30% higher when the S&P 500 index trades below it’s 200 day moving average.

In his 2006 book, Stocks for the Long Run, Jeremy Siegal studied the Dow Jones Industrial Average (DJIA) from 1886 to 2006 and  found that the 200 day moving average provided a way for investors to reduce volatility in their portfolios and increase returns by avoiding stocks when they trade below this indicator.

More recently, Mebane Faber’s  paper, A Quantitative Approach to Tactical Asset Allocation studies the use of moving averages and found similar results using a 10 month moving average:

global asset allocation strategy

Additionally, this strategy was able to avoid most of the 2008 stock market decline:

global asset allocation strategy

 

Investors Are VERY Leveraged

Market volatility in 2014 has increased as expected. With a combination of high investor borrowing rates and a Fed slowing down the stimulus “throttle”, investors are becoming a bit more timid than in 2013.

One key data point that I am keeping an eye on is investor margin levels.

As the margin levels in investors’ portfolios have surpassed the peaks levels of 2000 and 2007, investors are starting to worry that without the Fed pushing 100% on the gas, the global markets will pull back.

High margin balances could quickly impact the markets as investors rush to the exits as they begin to de-leverage their portfolios:

NYSE-investor-credit-SPX-since-1980

 

Reversal of Bond Outflows?

Some of the recent market declines may be due to portfolio reallocations. Last year was the first time since 2008 in which investors preferred equities over bonds:

equity vs bond flow

With the rise in volatility we may be seeing investors swapping back into bonds.

In fact, our models have been showing a few buy signals for US bonds (TLT):

US Bond ETF

 

To me, this all makes sense since the Fed is taking their foot off gas and the correlation between the stock market and the Fed has been very high since 2008:

correlation fed and stock market

 

Key Areas To Watch

1) Watch the equity markets as the S&P 500′s 200 moving day average  is approached. Investors can get great insight to what the rest of the market is thinking by looking to see if other investors panic, or view this “line in the sand” as a buying opportunity.

2) Watch bond inflows – are global investors becoming more worried about what the world will look like without a Fed who has the gas pedal pressed to the floor? Investors typically view US Treasury bonds as safe heaven investments in times of trouble. A spike in bond inflows may indicate an increase in investor worry.

3) Lastly, watch volatility levels. Investors have been treated to very low levels of volatility for the past two years. A continued high level may be too much for investors who are carrying large margin balances to handle.

 

 

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Why You Need To Know The Difference: Financial Advisor vs Investment Advisor http://www.johnrothe.com/financial-advisor-vs-investment-advisor/ http://www.johnrothe.com/financial-advisor-vs-investment-advisor/#comments Fri, 31 Jan 2014 20:00:06 +0000 John Rothe http://www.johnrothe.com/?p=2249 image: flickr/tunaboat Financial Advisor vs Investment Advisor – the difference continues to blur. Last year I did a post on the difference between  financial advisors and investment advisors that has brought quite a bit of inquires and questions from investors. I noticed similar questions being sent to me, so I am going to revise last years…

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financial advisor vs investment advisor debate

image: flickr/tunaboat

Financial Advisor vs Investment Advisor – the difference continues to blur.

Last year I did a post on the difference between  financial advisors and investment advisors that has brought quite a bit of inquires and questions from investors.

I noticed similar questions being sent to me, so I am going to revise last years post with much more detail.

To start off with here are a couple of key points:

Investment Advisors (RIA)

-fiduciary duty
-innovation comes from this area
-no products to sell, are typically money managers
-typically investment model based
-typically small business owner, privately owned
-has access to multiple firms (Fidelity, Schwab, FolioFN, TD Ameritrade, Trust Company of America, etc)

 

Financial Advisors (stockbrokers, etc)

-no fiduciary duty
-spend time selling
-firm products to sell
-quotas and sales contest
-MPT based
-work for large firm (Bank of America Merrill Lynch, Morgan Stanley Smith Barney, etc)
-access to only firm’s resources

I want to focus on a couple of those key points mentioned above:

I am asked quite often, “how are you different from my financial advisor and why should I care?”

I love this question. It gives me the opportunity to dish out the dirty little secrets about stockbrokers/wirehouse financial advisors and brag a bit about myself at the same time. With trust of Wall Street at an all-time low, I figure now would be a good time to add some more fuel to the fire:

Suitability vs Fiduciary

Did you know that your broker, aka Financial Advisor, may not be looking after your best interest? Did you know that this is mandated by law?

Most large firms are publicly traded, meaning they have stockholders to answer to. By law, firms are supposed to look after shareholders’ interests before clients’. In fact, board members of these firms have a fiduciary responsibility to shareholders, not their clients.

What this means is that your financial advisor at Merrill Lynch or Morgan Stanley is only required to make recommendations that are “suitable” to you. What happens if they fail to make suitable recommendations? Typically, the firm will settle in (or out of) arbitration with the client, and the financial advisor may get a slap on the wrist, or pay a small fine.

Registered investment advisors (RIAs) have a “fiduciary” responsibility to their clients. In the simplest terms, it means we have a legal responsibility to put your needs ahead of all others, including ourselves and our firm. If I fail to do that, my assets and my family’s assets are at personal risk.

To help explain the difference, TD Ameritrade conducted a survey after SEC Rule 202(a)(11)-1, commonly known as the Merrill Lynch or Broker/Dealer Exemption rule, was adopted in April 2005. The rule allows stockbrokers to offer services similar to that of RIAs without being held to the fiduciary standard of care and conflict of interest disclosure required of RIAs

In fact, the study done by TD Ameritrade showed that when

  • 74% of investors did not understand the different obligations required of RIAs and stockbrokers. Unlike stockbrokers, RIAs have an obligation to act in an investor’s best interest in all aspects of the financial relationship.
  • 79% of investors said they would rather work with an investment advisor if they knew advisors provided greater investor protection than stockbrokers.
  • If investors knew that stockbrokers were not required to act in their best interest in all areas of the financial relationship, 70% would not use them

In 2005, the SEC required that brokerage firms offering fee-based advice must make the following disclosure:

“Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits and our salespersons’ compensation may vary by product and over time.”

After reading the previous disclosure, 79% said that they would be less likely to go to a brokerage firm for financial advice.Here is a link to the TD Ameritrade study:TD Ameritrade Investor Perception Study

Different Business Models

My business model is very different from the guy down the street at Merrill Lynch. When I started out in this industry 15 years ago, I started as a financial advisor (stockbroker) at Morgan Stanley. My typical day was spent looking for new clients. Our bosses (who answer to the board, who in turn answer to the shareholders) wanted us to always be adding new clients. The minimum quota was 10 new clients per month. If we didn’t do this, management gave us a hard time. Even when I was a VP at the firm, this was still required. It was one big sales job.

As a result of this, most brokers recommend to diversify your assets and hold on for the long term. (How do you think that strategy has worked out for their clients over the past twelve years?)  Their models are based on risk level and suitability and can quickly be generated by software — this allows the broker to quickly set up an account and move on to the next new client.

In my current role, most of my day is spent crunching numbers. Yes, as a business owner I want to grow my business, but I don’t have any quotas to meet. If I want to add one or two clients a quarter and spend the rest of my time analyzing the market, nobody is going to come and yell at me. And if the markets start to get ugly, I can make sure I take care of my clients’ needs first (remember I have a fiduciary responsibility) and not worry about adding new clients just to keep my job.

Active vs Passive Investing

Because the business models are so different, so are the investment strategies. As I mentioned above, most brokers are using asset allocation models for their clients and holding on for the long run — this is passive investing.

Many RIAs are active investment managers. We adapt the portfolios for changing economic and seasonal conditions.

The truth is, informed portfolio managers have had much more success using a systematic-based approach instead of the “set it and forget it” attitude of the 1990s.

The last secular bear market that US investors faced occurred in 1968 and lasted until 1982. During that time, buy and hold investors saw a great deal of market volatility, but received little in return for their patience.

john rothe

The National Association of Active Investment Managers (NAAIM) did a study on the time period from January 1984 to December 2008 to show the difference in performance that active investment management can have over a buy and hold strategy. The study found that if you missed the 10 best and 10 worst days in the market, the resulting return would have been 8.15%, as compared to the 7.06% S&P 500 Index return:

global asset allocation strategy

So how does an investor miss the worst days?

In his 2006 book, Stocks for the Long Run, Jeremy Siegal studied the Dow Jones Industrial Average (DJIA) from 1886 to 2006 and  found that the 200 day moving average provided a way for investors to reduce volatility in their portfolios and increase returns by avoiding stocks when they trade below the 200 day moving average.

More recently, Mebane Faber’s book The Ivy Portfolio studies the use of moving averages and found similar results using a 10 month moving average:

global asset allocation strategy

Additionally, this strategy was able to avoid most of the 2008 stock market decline:

global asset allocation strategy

 

Very different from what most financial advisors do.

 

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—-

Photo: Eric Ortner

 

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The Potomac Has Frozen Over http://www.johnrothe.com/potomac-river-frozen-with-ice/ http://www.johnrothe.com/potomac-river-frozen-with-ice/#respond Tue, 28 Jan 2014 13:49:36 +0000 John Rothe http://www.johnrothe.com/?p=4139 I took a quick stroll down to the river to see how much of it has frozen over after a week of below normal temperatures and managed to take a few photos. I must say, it was a bit strange to hear the river flowing underneath. The infamous “snake house”:   Looking from Virginia across…

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I took a quick stroll down to the river to see how much of it has frozen over after a week of below normal temperatures and managed to take a few photos. I must say, it was a bit strange to hear the river flowing underneath.

The infamous “snake house”:

snake_house

 

Looking from Virginia across to Maryland

potomac_river_ice_2014

 

Riley’s Lock/Camp Calleva

In the summer, Calleva sends over their “war” canoe to pick up the kids on the Virginia side of the river. The kids (and parents) are always quite excited to see the canoe emerge from under the bridge:

Potomac River Frozen With Ice

 

“The River of Blood”

Trump_river_of_blood

Finally, the clubhouse at Trump National looking up from the Potomac

Trump_clubhouse_snow

 

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January Update For The Global Asset Allocation Strategy http://www.johnrothe.com/january-update-for-the-global-asset-allocation-strategy/ http://www.johnrothe.com/january-update-for-the-global-asset-allocation-strategy/#comments Tue, 07 Jan 2014 16:10:10 +0000 John Rothe http://www.johnrothe.com/?p=4071 Below is the January allocation for the Global Asset Allocation Strategy.   And here is how the Strategy performed in December: Model testing and research done with ETFreplay Strategy Rules: The rules for the model are to examine a prescreened global ETF universe to find the top ten ETFs with the highest relative strength. Those 10…

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Below is the January allocation for the Global Asset Allocation Strategy.

january asset allocation 2014

 

And here is how the Strategy performed in December:

global asset allocation strategy

Model testing and research done with ETFreplay

Strategy Rules:

The rules for the model are to examine a prescreened global ETF universe to find the top ten ETFs with the highest relative strength. Those 10 ETFs are then allocated equal weight within a portfolio, then overlayed with the 10 month moving average.

ETF Universe: etf global asset allocation

If the ETF is trading below the 10 month moving average, it is replaced with iShares Barclays 20+ Yr Treasury Bond ETF (“TLT”).

This model underperformed the S&P 500 index in 2013, but I am curious as to how it will perform in 2014.

What Is A Global Asset Allocation Strategy?

A global asset allocation strategy attempts to take advantage of relative strength and momentum within global markets. Typically asset classes are used via ETFs or mutual funds instead of individual securities, as the latter may have higher overall transaction costs.

Since most of these strategies focus on quantitative methodologies, they tend to have shorter holding periods when compared with a portfolio holding individual equities. As a result, positions are typically held less than a year and can rotate between various asset classes such as equities, fixed income, currency, etc.

The objective is to provide investors with the opportunity to invest in economies around the world — both major and emerging — while providing a risk-based approach in order to reduce exposure to volatile economies during uncertain times.

 

Last Thoughts:

US equities, to me, seem a bit overvalued in an era of Fed tapering. As 2014 progresses we may start to see an exodus of capital into overseas markets such as Europe – specifically Germany.

 

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Quick Update On Those “Quit Rates” http://www.johnrothe.com/quick-update-on-those-quit-rates/ http://www.johnrothe.com/quick-update-on-those-quit-rates/#respond Mon, 16 Dec 2013 19:59:20 +0000 John Rothe http://www.johnrothe.com/?p=4058 In September, I wrote a post on the Yellen Fed and how the addition of the “quit rates” data point may impact the Fed’s decision in 2014: To get an idea of what Ms. Yellen thinks about the current state of the economy, we should look to “quit rates”. Yellen has been a fan of…

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In September, I wrote a post on the Yellen Fed and how the addition of the “quit rates” data point may impact the Fed’s decision in 2014:

To get an idea of what Ms. Yellen thinks about the current state of the economy, we should look to “quit rates”.

Yellen has been a fan of the quit rate for some time and has referenced it in past speeches as an indicator she looks at.

From the 2013 National Association for Business Economics Policy Conference:
“I am likely to supplement the data on employment and unemployment with measures of gross job flows, such as job loss and hiring, which describe the underlying dynamics of the labor market. For instance, layoffs and discharges as a share of total employment have already returned to their pre-recession level, while the hiring rate remains depressed. Therefore, going forward, I would look for an increase in the rate of hiring. Similarly, a pickup in the quit rate, which also remains at a low level, would signal that workers perceive that their chances to be rehired are good–in other words, that labor demand has strengthened.”

I want to update that data on this discussion. Below is data from the Bureau of Labor Statistics (BLS) December 10th report on quit rates.

yellen quit rate

yellen quit_rate2

 

While November data has not been released yet, one of the key indicators that Janet Yellen will be looking at hasn’t improved. Quit rates have remained steady for the past few months and have not show the same improvement as the unemployment rate.

Read the full BLS report here:

 

BLS Dec 10 2013

 

 

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November Update For The Global Asset Allocation Strategy http://www.johnrothe.com/november-update-for-the-global-asset-allocation-strategy/ http://www.johnrothe.com/november-update-for-the-global-asset-allocation-strategy/#respond Mon, 11 Nov 2013 20:25:20 +0000 John Rothe http://www.johnrothe.com/?p=4043 Last month I published a piece on a global strategy I have been tracking. The post included mid-month data, so I wanted to update the status of the model and include the October performance data. source: ETFreplay The rules for the model are to examine a prescreened global ETF universe to find the top ten ETFs…

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Last month I published a piece on a global strategy I have been tracking. The post included mid-month data, so I wanted to update the status of the model and include the October performance data.

global strategysource: ETFreplay

The rules for the model are to examine a prescreened global ETF universe to find the top ten ETFs with the highest relative strength. Those 10 ETFs are then allocated equal weight within a portfolio, then overlayed with the 10 month moving average.

ETF Universe: etf global asset allocation

If the ETF is trading below the 10 month moving average, it is replaced with iShares Barclays 20+ Yr Treasury Bond ETF (“TLT”).

Lastly, this model is rebalanced monthly. For November the updated allocation is as follows:

john rothe

source: ETFreplay

 

 

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