John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids http://www.johnrothe.com Wed, 20 May 2015 14:45:15 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.2 Growth Of The Dow Vs Historical Averages http://www.johnrothe.com/growth-of-the-dow-vs-historical-averages/ http://www.johnrothe.com/growth-of-the-dow-vs-historical-averages/#comments Wed, 20 May 2015 14:45:15 +0000 http://www.johnrothe.com/?p=5515 [dropcap custom_class="normal"] S [/dropcap]ince 2009, the US stock market has been rising due to a Fed created, low interest rate environment.

However, the economy has not seen the same growth as the stock market.

This has many investors wondering if the current stock market rise will end due to "non impressive" economic growth -- or if the market will continue to rise as the Fed may be forced to continue its economic stimulus plans.

To put the current stock market rise in historical perspective...

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ince 2009, the US stock market has been rising due to a Fed created, low interest rate environment.

However, the economy has not seen the same growth as the stock market.

This has many investors wondering if the current stock market rise will end due to “non impressive” economic growth — or if the market will  continue to rise as the Fed may be forced to continue its economic stimulus plans.

To put the current stock market rise in historical perspective the folks over at Chart of the Day have put together an interesting chart:

via: Chart of the Day

20150520

The Dow just made another all-time record high. To provide some further perspective to the current Dow rally, all major market rallies of the last 115 years are plotted on today’s chart.

Each dot represents a major stock market rally as measured by the Dow with the majority of rallies referred to by a label which states the year in which the rally began.

For today’s chart, a rally is being defined as an advance that follows a 30% decline (i.e. a major bear market). As today’s chart illustrates, the Dow has begun a major rally 13 times over the past 115 years which equates to an average of one rally every 8.8 years.

It is also interesting to note that the duration and magnitude of each rally correlated fairly well with the linear regression line (gray upward sloping line). As it stands right now, the current Dow rally that began in March 2009 (blue dot labeled you are here) would be classified as below average in both duration and magnitude.

 

Featured Image: Flickr/ Emilio Labrador

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Global Asset Allocation Strategy: May 2015 Update http://www.johnrothe.com/global-asset-allocation-strategy-may-2015-update/ http://www.johnrothe.com/global-asset-allocation-strategy-may-2015-update/#comments Wed, 06 May 2015 14:06:26 +0000 http://www.johnrothe.com/?p=5505 [dropcap custom_class="normal"] S [/dropcap]o far, 2015 has been a volatile and choppy market here in the US. Global investors have begun to look outside the US for value opportunities.

Overseas markets continue to be the outperform US equity markets. And we are seeing increasing weakness in US Treasury Bonds.

This may be the start of a longer term “exit” from US markets as assets continue to shift into international markets.

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o far, 2015 has been a volatile and choppy market here in the US. Global investors have begun to look outside the US for value opportunities.

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

 

How the global strategy performed in April:

Overseas markets continue to outperform US equity markets. And we are seeing increasing weakness in US Treasury Bonds.

This may be the start of a longer term “exit” from US markets — as assets continue to shift into international markets.

 

global perf april 2015

source: ETFreplay

 

Changes to the global model for May:

global strategy may 2015

 

This month we are seeing a big shift out of US Treasury bonds and an exit from US equities.

It’s no secret that the US Federal Reserve (aka The Fed) is planning to slow down its stimulus plans for the US economy.

(Whether they should or not, is a discussion for another day.)

This is causing many investors to look outside of the US for value.

Since 2008, the US stock market has been moving in lockstep with the Federal Reserve’s stimulus packages:

fed qe ending

So what happens when the Fed takes its foot off the gas pedal?

This is what has been on the minds of investors in 2015.

Meanwhile… China and European countries are looking to INCREASE stimulus.

international qe1 china

intnerational qe2

Fed generated stimulus has been so positive for US stocks, that foreign countries may be trying to replicate its success. As a result, we are starting to see outperformance from international markets.

 

Questions? Thoughts?

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

Feature Image: Wikimedia Commons/Maximilian Dörrbecker (Chumwa)

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Chart Of The Day: Should We Really Walk Away? http://www.johnrothe.com/chart-of-the-day-should-we-really-walk-away/ http://www.johnrothe.com/chart-of-the-day-should-we-really-walk-away/#comments Wed, 29 Apr 2015 12:16:38 +0000 http://www.johnrothe.com/?p=5500 [dropcap custom_class="normal"]"S[/dropcap]ell In May And Walk Away" has always been a popular adage among investors.

But Is It True?

Today's chart breaks down the performance of the stock market during the strongest cycle (November to April) vs the weakest cycle (May to October).

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ell In May And Walk Away” has always been a popular adage among investors.

But Is It True?

Today’s chart breaks down the performance of the stock market during the strongest cycle (November to April) vs the weakest cycle (May to October).

Via Chart of the Day:

“The stock market is about to enter what has historically been the weakest half of the year.

Today’s chart illustrates that investing in the S&P 500 during the six months of November through and including April accounted for the vast majority of S&P 500 gains since 1950 (see blue line).

While the May through October period has seen mild gains during major bull markets (i.e. 1950-56 & 1982-97), the overall subpar performance during the months of May through October is noteworthy.

Hence the saying, ‘sell in May and walk away.’ ”

sell in may and walk away

 

Featured Image: Flickr/Scott Beale

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Why Are People Not Saving? http://www.johnrothe.com/why-are-people-not-saving/ http://www.johnrothe.com/why-are-people-not-saving/#comments Tue, 28 Apr 2015 17:05:08 +0000 http://www.johnrothe.com/?p=5493 [dropcap custom_class="normal"]G[/dropcap]reat TED Talk on why we don't save, how our laziness impacts us, and one of the biggest obstacles to saving enough for retirement.

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reat TED Talk on why we don’t save, how our laziness impacts us, and one of the biggest obstacles to saving enough for retirement.

 

Economist Shlomo Benartzi studies behavioral finance with a special interest in personal finance. He is co-founder of the Behavioral Finance Forum (www.behavioralfinanceforum.com), a collective of 40 prominent academics and 40 major financial institutions from around the globe.

The Forum helps consumers make better financial decisions by fostering collaborative research efforts between academics and industry leaders.

Benartzi’s most significant research contribution is the development of Save More Tomorrow™ (SMarT), a behavioral prescription designed to help employees increase their savings rates gradually over time.

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Chart Of The Day: Nasdaq’s 15 Year Journey http://www.johnrothe.com/chart-of-the-day-nasdaqs-15-year-journey/ http://www.johnrothe.com/chart-of-the-day-nasdaqs-15-year-journey/#comments Wed, 22 Apr 2015 13:13:09 +0000 http://www.johnrothe.com/?p=5489 [dropcap custom_class="normal"] F [/dropcap]or some perspective on a key US stock market index, today's chart illustrates the overall trend of the Nasdaq Composite since 2000.

As today's chart illustrates, the post-financial crisis rally (which began in early 2009) has been significant enough to have the Nasdaq surge well past its credit bubble highs of late 2007.

In addition, the latest leg of the post-financial...

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or some perspective on a key US stock market index, today’s chart illustrates the overall trend of the Nasdaq Composite since 2000.

As today’s chart illustrates, the post-financial crisis rally (which began in early 2009) has been significant enough to have the Nasdaq surge well past its credit bubble highs of late 2007.

In addition, the latest leg of the post-financial crisis rally has the Nasdaq at levels not seen since the tail end of the dot-com bubble.

In fact, as today’s chart illustrates, the Nasdaq continues to trade within its tightly confined yet steep three-year uptrend channel and is currently less than 1% away from all-time record highs.

via: Chart of the Day

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Portfolio Impact: Sector Relative Strength vs S&P 500 Index http://www.johnrothe.com/portfolio-impact-sector-relative-strength-vs-sp-500-index/ http://www.johnrothe.com/portfolio-impact-sector-relative-strength-vs-sp-500-index/#comments Tue, 21 Apr 2015 14:13:34 +0000 http://www.johnrothe.com/?p=5469 [dropcap custom_class="normal"]T[/dropcap]he US stock market has been stuck in a bit of a not-too-impressive trading range this year.

As a result, investors may be curious to see where the strength has been in the market so far.

A useful tool that investors can use to make sure they are exposed to the strongest sectors of the market, is to view sector relative strength.

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he US stock market has been stuck in a bit of a not-too-impressive trading range this year.

As a result, investors may be curious to see where the strength has been in the market so far.

A useful tool that investors can use to make sure they are exposed to the strongest sectors of the market, is to view sector relative strength.

Comparing relative strength vs the S&P 500 Index, allows us to see which sectors are outperforming and avoid those which are not.

For those not familiar with relative strength, Investopedia explains:

Relative strength is a measure of the price trend of a stock or other financial instrument compared to another stock, instrument or industry. It is calculated by taking the price of one asset and dividing it by another.

Currently, the four strongest sectors are:

 

healthcare tech cons staples consumer disc

 

source: Sector SPDRs

Relative Strength Impact To Portfolio Performance

 

Why should you pay attention to relative strength?

By investing in the strongest performing sectors, an investor can enhance his or her long term portfolio returns.

I ran a quick backtest to show this:

Rules

-Buy (equally) the top 4 strongest S&P sectors, as measured by relative strength.

-Rebalance at the start of each month.

 

relative strength portfolio

relative strength annual performance

relative strength performance

backtested data source: ETFreplay

By simply using relative strength indicators, investors can make sure they are investing in the strongest performing sectors and can avoid “unfavored” sectors.

Questions? Thoughts?

 

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

 

featured image: Wikimedia Commons/Jnadler1

 

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US Stock Market – Still Stuck http://www.johnrothe.com/us-stock-market-still-stuck/ http://www.johnrothe.com/us-stock-market-still-stuck/#comments Fri, 17 Apr 2015 15:10:06 +0000 http://www.johnrothe.com/?p=5461 [dropcap custom_class="normal"] T [/dropcap]he S&P 500 index is still stuck in a wedge pattern and investors don't look to be too committed to the up or downside direction of the market.

As a result the S&P 500 has basically made no progress in over four months. This, despite the stregthing in small cap stocks - which usually indicates that investors are feeling less risk adverse.

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he S&P 500 index  is still stuck in a wedge pattern and investors don’t look to be too committed to the up or downside direction of the market.

As a result the S&P 500 has basically made no progress in over four months. This, despite the stregthing in small cap stocks – which usually indicates that investors are feeling less risk adverse.

small cap stocks 2015

 

However, the rise in small caps may not be coming from new money, but from the rotation out of tech names:

 

qqq

 

What I find interesting is the Fed has indicated that any rate tightening will be pushed back. This is usually a strong positive for the market.

Perhaps the market has finally become margined out.

One of my biggest worries about the current market is the large amount of leverage being used. Historically, high levels of margin have beeen an indication of a market top.
NYSE-margin-debt-SPX-growth-since-1995

 

The rise of investor margin debt looks to be closely correlated with “Fed speak” since early last year. To me, the sideways pattern is a strong indication that leveraged investors are worried about when the Fed will act and how it will impact borrowing rates and liquidity.

Keep an eye on margin levels when the S&P 500 Index finally breaks out of its wedge pattern. I bet the two will be closely correlated.

 

Questions? Thoughts?

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

 

 

 

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Paul Tudor Jones: Why We Need To Rethink Capitalism http://www.johnrothe.com/paul-tudor-jones-ted-talks-why-we-need-to-rethink-capitalism/ http://www.johnrothe.com/paul-tudor-jones-ted-talks-why-we-need-to-rethink-capitalism/#comments Thu, 16 Apr 2015 19:14:18 +0000 http://www.johnrothe.com/?p=5448 Legendary hedge fund manager, Paul Tudor Jones, recent TEDTalks

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Legendary hedge fund manager, Paul Tudor Jones, recent TEDTalks

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Chart Of The Day: Home Price/Gold Ratio http://www.johnrothe.com/chart-of-the-day-home-pricegold-ratio/ http://www.johnrothe.com/chart-of-the-day-home-pricegold-ratio/#comments Wed, 15 Apr 2015 19:10:46 +0000 http://www.johnrothe.com/?p=5442 [dropcap custom_class="normal"] F [/dropcap]or some perspective on the single-family home market, today's chart presents the median single-family home price divided by the price of one ounce of gold.

This results in the home gold ratio or the cost of the median single-family home in ounces of gold.

For example, it currently takes a relatively low 168 ounces of gold to buy the median single-family home. This is dramatically less than the 601 ounces it took back in 2001.

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or some perspective on the single-family home market, today’s chart presents the median single-family home price divided by the price of one ounce of gold.

This results in the home gold ratio or the cost of the median single-family home in ounces of gold.

For example, it currently takes a relatively low 168 ounces of gold to buy the median single-family home. This is dramatically less than the 601 ounces it took back in 2001.

When priced in gold, the median single-family home is down 72% from its 2001 peak. Since making a new 32 year low back in early 2012, home prices (priced in that other global currency — gold) have worked their way higher.

Currently, home prices (priced in gold) are currently testing support of a three-year uptrend.

 

20150408

via Chart of the Day

Featured image: Flickr/BullionVault

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Will The Collapsing US Macroeconomic Data Keep The Fed At Bay? http://www.johnrothe.com/will-the-collapsing-us-macroeconomic-data-keep-the-fed-at-bay/ http://www.johnrothe.com/will-the-collapsing-us-macroeconomic-data-keep-the-fed-at-bay/#comments Thu, 26 Mar 2015 15:13:14 +0000 http://www.johnrothe.com/?p=5396 [dropcap custom_class="normal"] I [/dropcap]t is starting to feel like the release of any good economic data is being cheered on by an army of PR people nowadays.

People are quick to point to the improving unemployment rate and the rise in housing data.

But the reality is, economic data is still mixed and does not paint a rosy picture.

Below are two data points that I think we should all be closely watching:

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t is starting to feel like the release of any good economic data is being cheered on by an army of PR people nowadays.

People are quick to point to the improving unemployment rate and the rise in housing data.

But the reality is, economic data is still mixed and does not paint a rosy picture.

Below are two data points that I think we should all be closely watching:

 

The Deterioration In US Profits:

profits-deterioration

Albert Edwards, global strategist at Societe Generale, has warned that investors are ignoring a “savage deterioration in US profits”.

In his latest research piece he states:

The downturn in US profits is accelerating and it is not just an energy or US dollar phenomenon – a broad swathe of US economic data has disappointed in February.

 

The investor “herd” seems to be more focused on what the Fed will do next instead of underlying economic data.

Perhaps they are hoping that the decline in macroeconomic data will keep the Fed at bay a little longer.

 

Bloomberg US Macro Surprise Index:

 

edwards-sp-v-us-macro-0215

In the past, when the Bloomberg Macro Surprise Index has significantly declined it has been met with a more aggressive Fed.

Will this time be different, or is a surprise QE right around the corner?

 

Questions? Thoughts?

 

Feel free to leave a comment below or you can reach out to me privately here.

Thanks,

John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

 

Feature image: Craig Sunter/ Flickr

 

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