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Tuttle Tactical Management Weekly Market Notes

Tuttle Tactical Management, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Tuttle ...

07/10/2013

The Bulls returned to stocks this week and bonds got crushed again. Comments out of the ECB, strong data out of Japan, and a good jobs number contributed to the rally, but at the end of the day the market had gotten a bit oversold. Bernanke is scheduled to speak today so if past history repeats itself things could get interesting again. Next week we will get a bunch of Q2 corporate earnings to that could also have quite an impact on the market either way.

The main fear in the market is around the Fed tapering or ending QE3. However, this would only be done if the economy showed significant signs of improving. It seems like the market is warming to the fact that this might not be such a bad thing. As far as higher bond yields go, as long as the Fed mantains the zero interest rate policy there is only so high yields can go in the near term. Stocks still seem like the place to be.

Recent Moves
The only move we made this week was in our Treasury Bond position. Our protective stops were triggered during the selloff on Friday. We re-entered these positions again on Tuesday based on Treasuries being oversold in the short term.

What’s An Asset Allocator To Do
It wasn’t so long ago that we had different asset classes that we could use in designing a portfolio. Asset allocation did little, if anything, to protect from market declines, but you could use different combinations to tweak the risk vs. return of portfolios. For example, you used to be able to add bonds to a portfolio to reduce risk, while also reducing returns. Adding Gold or commodities used to also change the risk/return structure of portfolios. You also used to be able to add international and emerging market stocks to increase returns and risk. Now adding any of these assets just adds risk and reduces return. This creates a problem for the asset allocator, when US stocks are the only game in town what do you do? Do you keep fixed exposure to the other asset classes and just ride them down? Do you have 100% stocks and hope that we don’t have another bear market?

The advice I am seeing in the media is twofold, on bonds it is to get into short term bonds and as far as other asset classes it is the same old, same old about being a long term investor.

Short term bonds are better than long term bonds in this environment but you don’t earn squat and you are taking risk. If I was ok not earning anything I would rather have cash, at least with that I am not taking any risk.

As far as being a long term investor goes this is Wall Street’s default excuse for why it is ok not only to lose money but to knowingly put your money in stuff that is going down. No matter how old you are we are all long term investors, that still doesn’t make it ok to lose money.

This new paradigm may just reverse itself, but if it doesn’t asset allocators are going to have to think long and hard about new ideas in portfolio design.

Top Holdings

1. Cash
2. S&P 500
3. US Small Cap Stock
4. US Dividend Stocks

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