eWatch401k.com

Out Of The Box

noreply@blogger.com (John Norquay) — Thu, 11 Mar 2010 20:41:00 +0000

I started in the investment industry in January of 1992. I was trained the same as every other investment advisor, that “Buy and Hold” or “Asset Allocation” is the only way to invest money properly. It didn’t take long to realize that a market downturn could quickly steal 25% or more of a client’s portfolio. It didn’t feel right telling someone that they didn’t need the money now and that over time they would come out just fine. That explanation never seemed to make people feel better.

I found that asset allocation was based on a system called “Modern Portfolio Theory”. This theory says that if gas prices go up, then so will gas stocks since the gas companies become more profitable. At the same time, transportation stocks will go down, because their largest cost (fuel) is going up. If your portfolio has both these positions, then it goes in the middle. Over time everything goes up, but your portfolio has less volatility along the way.

Modern Portfolio Theory made complete sense to me because it works according to economics. What shocked me was to find that the large investment firms seemed to water down this model. Instead of having Oil stocks and Transportation stocks, they instead use Growth stocks and Value stocks. Unfortunately growth and value don’t have the same relationship as gas and transportation. If the market goes DOWN, both growth AND value stocks go DOWN!

I also was shocked to find that the asset allocations were based off 20 year or more time frames. This means that the client needs to plan on staying in this allocation for 20 years or more in order to get the results that are expected. I haven’t found ANY clients that want to stay in an investment for 20 years or more!

I started exploring other ways to invest that made more sense. I found that the market tended to move in cycles or waves. For example Presidential elections cause a 4 year cycle. Tax season creates a type of annual cycle. Nature works in cycles as well. Light travels in cycles, electricity travels in cycles, even waves and the tide move in cycles. It seems that most things in nature are cyclic. It only makes sense that the market would have a cyclic movement also.

I started working with cycles and waves in 2000 and have avoided major market downturns due to this approach. Since then I have designed and implemented computer models that help me determine what cycles are dominant and where we are currently in each cycle. When it appears the market has crested the top of a cycle and is beginning the descent down the other side, we go to the safety of cash. This prevents the loss of principle in the portfolio. If we avoid the loss of principle in down markets then we reach new portfolio highs much quicker during the next up market.

I have implemented multiple systems into each portfolio. The varying systems offer client’s diversification without sacrificing return. Each system determines where we are in the cycle and then determines which investment option provides the greatest potential return with the least amount of risk.

If your tired of the same response “You’re in it for the long haul” and would like an investment approach designed to keep you out of the major market downturns without giving up the potential associated with large market upturns, then you should explore our systems further.

Can I Contribute To Both A 401k And An IRA?

noreply@blogger.com (John Norquay) — Thu, 25 Feb 2010 17:30:00 +0000

I just had the question asked: "Can I Contribute To Both A 401k And An IRA?"
What a great question. This means you are trying to put some serious money away. I congratulate you for that.

The resounding answer is YES! The ultimate question, though, is can you deduct the entire contribution to the IRA. If you are single and your company offers a 401k or other type of retirement plan, you can still contribute $5,000 to an IRA or up to $6,000 if you are 50 or older. If your Modified Adjusted Gross Income, or MAGI (for most people this number is similar the the Adjusted Gross Income, which is the number on the bottom of the first page of your tax return) is less than $55,000 then you can deduct the entire $5,000 or $6,000 (50 or over) contribution amount. If you earn over $65,000 you can't deduct ANY of the contribution (although you can still contribute). The gray area is when your MAGI is between $55,000 and $65,000 for 2009. There is actually a formula that will help you determine how much of your contribution can be deducted when your income falls within this area. It is:

Example: If you're single the "Highest dollar limt of MAGI range" is $65,000subtract your MAGI from this, let's say it is $60,000. Next, the contribution limit is $5,000 (under 50). The last part of the equation is "Highest dollar limit of phase-out range" which is $65,000 minus the "Lowest dollar limit of phase-out range" which equals $10,000.

This breaks down to: $5,000 x ($5,000 / $10,000) which equals $2,500.

This formula seems compicated when you look at it but it is quite simple. If we are half way between the beginning and end of the phase out range (MAGI is $60,000 when the bottom and upper limits are $55,000 and $65,000) then half of your contributiion can be deducted. If you were a quarter of the way into the phase out then you could deduct a quarter of your contribution amount.

This all gets a little more complex when you are married. Variables are if you and both your spouse work or not, if each spouse has a retirment plan at work and such.

I continually stress to people who are maxing out their retirement contributions: "Make sure you are doing the best thing for future taxation". It may be better to put money into a Roth and your 401k instead of an IRA and 401k.

Til later,

John

When Can I Take Money Out Of My 401k?

noreply@blogger.com (John Norquay) — Thu, 18 Feb 2010 20:08:00 +0000

The easy answer is at age 59 1/2. Most people who ask this question ask it because they don't want to pay a penalty to the IRS for early withdrawal of their 401k. What most people don't know is a small part of the internal revenue code (section 72t) that allows them to take money out of their 401k PRIOR to age 59 1/2.

Have you ever wondered how someone can begin taking a pension prior to age 59 1/2 without penalties? Well section 72t allows you to take money out of your 401k prior to 59 1/2 if you make the distributions look like a pension plan. Your next question is probably "how do I do that?"

It isn't very difficult to follow the rules set forth by section 72t. Basically your distributions must be similar in amount and frequency and you must continue taking them for a minimum of 5 years. Your 401k administrator can give you exact details and will help you conform to these rules.

Congratulations on saving well for retirement. If this conversation interests you then you must have been diligent in your putting money away and managing it.

How Much Can I Contribute To My 401k?

noreply@blogger.com (John Norquay) — Thu, 18 Feb 2010 19:47:00 +0000

In 2009, those under 50 years old can contribute a maximum of $16,500. If you are 50 or older that increases another $5,500 to a total of $22,000.

An equally important question should be "How should I have the money invested within my 401k?" People over the age of 50 who have accumulated a sizeable 401k balance (usually their largest single investable asset) have experienced tremendous volatility. They have lost between 30% and 50% two different times in the last ten years.

Many are looking for ways to protect what they have already saved while not giving up the potential of growth during good market periods. Friends and acquaintances who know I own a Registered Investment Advisory service ask me all the time "How should I have my 401k invested?" My answer is that my answer will change over time. Today the market might require one type of allocation while a down market will require a completely different allocation. If this friend or acquaintance doesn't see me after my allocations have changed, then they may sit on the wrong allocation during a down market and lose as much as everyone else. Because of this, I will only give advice to people who will follow my recommendatins on a regular basis.

It makes sense to be invested during an up market and be in cash during a down market, right? Who wouldn't want their account to always go up? Obviously it isn't that simple. You must develope a system to tell you the probability of what is to occur next. I have been in this industry since 1992 and have found that tracking cycles (waves) in the market makes the most sense. Cycles occur in everything on this earth. The weather works in cycles, tree rings are in cycles, even the Presidential election creates a 4 year cycle. I have software that runs daily checking to see what the long term and intermediate term cycles are in the market and where we are within them. This has been a wonderful way to decrease risk to 401k accounts while not limiting upside potential.

For more information on this process, go to www.eWatch401k.com

A Newsletter from Dec. '07

noreply@blogger.com (John Norquay) — Wed, 07 Oct 2009 16:25:00 +0000

The objective of managing your investment account should be: Don't lose in down markets so it is easier to gain in Up markets. The Bible refers to this as "Occupation". You protect what you've already gained and then go out to get more. Militarily you are to never give up what you've already conquered on the promise of gaining more in the future.

Following is a newsletter I sent to my clients in December of 2007, which was near the top of the market. I was notifying them we were going to begin a conservative approach because I thought we could be moving into a recession.

The Market. . . According to John

No Short Term Views

The market was in an overbought condition last week, but the latest pullback has fixed that. At this point, the next short term move is a toss-up. This suits our hedge position perfectly. Yesterday, for example, the Dow was down over 170 points. Most of our acccounts, however, were pretty close to break-even. Today, the market was slightly up, but we enjoyed a very nice increase in account values.

Why hedge? When the market hasn't shown a clear sign what it is going to do next, it would be nice to have positions that will do BETTER than the market if it advances. Since it may also go the other way, it would be nice to have positions that will make us money there as well. By effectively buying positions that help offset each other, we are taking a "Market Neutral" stance. If we are lucky enough to do it right, in an increasing market, our out-performers will beat the market enough that they will pull our hedge positions along well enough to at least match the upward return of the market.

If the market decides to go south, our hedge positions will increase in value and hopefully our stock positions won't go down too dramatically, thus decreasing our overall account value less than the market declines. Properly executed, our hedged portfolio should give us major market return with substantially decreased volatility. The perfect answer for a time when the market is giving us no short term direction.

Intermediate Term: Down

An ominous scenario is potentially setting up. If the market decides to pull back further and break the lows it just set a couple weeks ago (remember the last low broke the lows set this summer) and then immediately spikes up 200 to 400 points -- then look out. This is the pattern that historically has preceeded crashes. I have no idea if this will follow through, but I will definitely be watching.

In the end of November, the Dow broke a major support level before bouncing back (see #1 in Figure 1). The piercing of this major support level changed our long term trend from positive to negative. Now, we would expect any upward movements in the market to top out lower than the high of the last upward movement (notice last top in Figure 1 is lower than previous top). On the same hand, the next low should be lower than the last. Lower highs and lower lows are the definition of a down trend.

Figure 1

Let's look at how the Dow acted through the last recession and compare how it is setting up now. Figure 2 shows how the major lows consistently broke below the low prior to it. These are numbered from 1 to 7. The highs were initially trying to go higher, but were turned away at the previous highs. Eventually they began to top out lower than the previous highs.

Figure 2

Recession Watch

Partial reason for the nice bounce off the support levels last week were news from the Fed. They hyped further liquidity to the financial markets by buying back $40 billion of treasuries (known as "repos"). Unfortunately, the rest of the story is that these were coming due anyway this week. $39 billion of repos were due and will be simply getting a different maturity date. The market finds this out and we get a couple major down days back to back. We've heard the heralding of hundreds of billions being pumped into the market to prop up the ailing financial system. In all reality, only about 18 billion has been added.

The Fed is doing us a great disservice. They are inflating our currency at rates that haven't been seen for 30 years. This results in DECREASING it's value. This causes the economic hangover to be worse when they slow down the inflating process. The opposite of inflating is depressing. Yes, depressions are the natural product of wild, out of control periods of inflating. Historically, the Fed won't let the cycle take it's full course and it will begin inflating again before a full blown depression occurs, causing a mild depression or "recession".
Where do we go from here?

I truly believe we will be taking off long positions soon and replace them with further shorts such as SKK, SKF and MZZ.

Small/Mid Cap Component

noreply@blogger.com (John Norquay) — Wed, 07 Oct 2009 16:12:00 +0000

The small/mid cap component represents half of our 401k management program. The above returns represent the return you would have experienced in the Fidelity Low Priced Stock Fund had you not used our system vs. if you DID use our system. The period of time represented is the top of the market in Oct '07 until today, Oct 7 '09.

The way our system works:

Determine which investments in your 401k represent the small / mid cap asset class.
When we let you know the market is good, invest half of your 401k into one or more of these funds.
When the status of the market changes, we will notify you. At this point you would switch the small/mid cap funds into the money market.

The entire idea is to protect your 401k in bad markets and capitalize in the good markets.

This system has done exactly that. You don't have to wait years just to break even after a bad market. This system allows you to exercise good judgement as it pertains to your 401k.

401k Allocation

noreply@blogger.com (John Norquay) — Mon, 05 Oct 2009 19:29:00 +0000

Our 401k allocation system has two components. One is International / Emerging Markets and the other Small / Mid Cap. The chart above is a history of Fidelity Emerging Markets Fund utilizing our International/Emerging component. The line depicts the Fund by itself from October 2007 through today. It is down over 40% in this period of time. The line is red when the system told you to be in cash (money market) and green when it told you to be invested in the emerging markets fund. Had you done as it recommended your investment would have looked like the followingchart:

The flat periods depict while you were in cash and the jagged periods while you were invested in the emerging markets fund. Had you simply held onto the fund you would be down over 40% today but had you utilized this system you would be up over 50%. What a huge difference.

This system was designed in the mid '90s so the results are real. Not backtested.

If you're interested in looking further at this service goto http://www.ewatch401k.com or simply click on the rescue helicopter in the left margin.

Empower Your 401k

noreply@blogger.com (John Norquay) — Wed, 23 Sep 2009 03:51:00 +0000

have you ever received your 401k statement in the mail and without even opening it put it in the file pile? Being in the investment business I speak with people all the time who have no idea how to invest their 401k. Most of them have many investment options to choose from but have no idea which ones to use or not to use.

After years of being asked "what should I be doing with my 401k?" I finally decided to create a solution. The idea for the solution came from a website that had over 5000 subscribers. The developers of the site had created a "Mechanical Investment System". This system took risk out of market in downturns without taking the opportunity for good returns in up markets. These people didn't address the 401k issue but I was highly impressed with their approach. The mechanical approach took all the emotion out of the decision to invest. This only made too much sense so I started on a journey duplicate their effort but have it focus on people's 401k plans.

This idea hit me in 2006. Learning to duplicate their effort would require my learning to write computer programs. Fortunately for me this was what I studied in college so many years ago. I had already spent the last 14 years as an investor and now I had the opportunity to learn programming all over again! What a pleasant surprise to how advanced the programming languages are today compared to then!

After at least a couple thousand hours (no kidding) of learning coding and it's relationship to stock market data I had a good idea what worked and what didn't. I realized many things along the way. Some people build mechanical investment systems that "Fit the market". This is called Curve fitting. These programs have backtest results that look astounding but don't work in whatever kind of market that is coming up next. What is next is the only thing that matters in the world of investing. Everybody gets caught up buying what did best LAST only to buy it and find it is the worst thing for what was next.

Mechanical Investment Systems that are robust (work in any kind of market) are those that were tested using many different types of markets and "Walked Forward". Whenever you build a system you want to test it on one type of market then on another and then another. You "Walk Forward" through time and different markets to see how it would have worked AFTER it was designed.

I built this exact type of system to help people manage their 401k. The site is at http://www.ewatch401k.com/. The algorithms used were actually developed back in the mid '90's. This gives plenty of time and opportunity to see how it has performed since. In fact in the last 10 years it has returned over 15% compound annual return. It was down only 5% in 2008 when the general market was down over 40%.

I will detail more about this system in future posts but it is online and ready to be used.

Status of SSG

noreply@blogger.com (John Norquay) — Mon, 24 Aug 2009 18:05:00 +0000

We bought SSG at the same time as DXD and QID. The latter two have broken support and had to sell them this morning. SSG seems to be bouncing off it's support level which is promising for this position. Also, if this support level holds, it speaks poorly for the market in general. This position is short the semi-conductor sector. This sector usually goes south prior to the rest of the market. SSG bottoming at this level would say that the market is going to go south shortly.

SOLD DXD and QID

noreply@blogger.com (John Norquay) — Mon, 24 Aug 2009 17:52:00 +0000

Just sold DXD this morning since it closed below it's support level last Friday.

Also sold QID this morning as it also broke it's support level on Friday (the lowest red line).

Bought GSG (Commodities Index)

noreply@blogger.com (John Norquay) — Mon, 24 Aug 2009 17:45:00 +0000

GSG is the ETF representing the Goldman Sachs Commodities Index. We just purchased this at $31.59 and expect it to reach $34.00 without too much resistance. This would be about an 8% gain. It has much greater potential in the longer term. We aren't going to give it much room to go the wrong way before we would get out. I have set the stop at $30.59 which gives a two to 1 risk to reward ratio. In the worst case it should be supported by the increasing red line but I expect it to advance more in line with the yellow line.

Sold Silver

noreply@blogger.com (John Norquay) — Wed, 19 Aug 2009 19:30:00 +0000

Our Silver position (SLV) was sold yesterday after it broke support of the last pivotpoint (See the red line marked "Stop Line". It seems to have stopped what was a somewhat organized new trend. Historically silver and the market in general move differently from each other. As of late they have been moving in tandem. I don't think this position is offering enough return potential in the intermediate time period for the risk it is showing. Maybe we will have another day. Made an 8% profit over the course of 25 days.

New Positions

noreply@blogger.com (John Norquay) — Tue, 11 Aug 2009 20:44:00 +0000

Click on any chart to get a closer view.

SSG: This is short the Semiconductor sector. You can see that price has made a swooping bottom and has started up. The red line projecting from the last price bar to the first target price is at the same slope most of the other "up" moves this ETF has made. You can also see on the bottom indicator that this is very oversold and has just moved up through a level that says we should expect an up move now. The first target is based from the last previous resistance level. The red line just beneath the price is our stop level. If price ever closes below this line we will absolutely and completely sell. The stop is 8.5% away. The first target price is at $32.71 which would be a 20% gain. This gives us a risk to reward of 2.3:1 which is enough to take a position. We need to be right less than half the time in order to at least break even.

DXD: This is an ETF that shorts the Dow. This looks similar to SSG in the fact it appears to have put in a bottom. The indicator below has also turned up and gave us a buy signal. We bought at $39.40 which is only 3% from our stop level and 13% to our first target. This gives us an excellent risk to reward ratio of 4:1.

QID: This is an ETF that shorts the Nasdaq. We bought at $27.25 with a stop level at $25.80 and first target of $31.50. This gives us a risk to reward of 3:1. Again, if price closes below our stop we will absolutely sell the position.

I expect our first targets to be hit within two weeks time based upon the slope that previous advances have taken. This would be in the neighborhood of 15% return on these positions in that period of time.

May the force be with us!

How much will the tax be on cashing out a 401k?

noreply@blogger.com (John Norquay) — Tue, 27 Jan 2009 03:49:00 +0000

Due to massive downsizing during this economic downturn people are wondering How much will the tax be on cashing out a 401k. Let's go through the process of calculating an example.

Our example is a married couple who are earning One hundred thousand dollars per year. One of them just got downsized and now they only expect to make $75000 per year.

Remember when you cash out a 401k prior to age 59 1/2 you will not only pay Federal and State income tax but also a Federal and State penalty. The total of the 4 items will determine your total taxes due upon early termination of your 401k plan.

First we need to calculate where this couple is in their tax bracket. We will need to determine how much their exemptions and deductions are. Each personal exemption is worth $3650.00. Since this couple has no kids their first ($3650.00 X 2) $7300.00 of income has no tax.
We next will assume they get no more than the standard deduction which should be $11400.00 in 2009. If we add the exemptions and deductions up we get $11400.00 + $3650 = $15050.00. This means the first $15050.00 of income has no Federal income tax attached to it.

From here we start paying taxes in incremental tax brackets:

The next $16700 is going to be taxed at 10% (once we use all this we will still have $43250 left).
Then the next $51200 will be taxed at 15%. (Since we only have $43250 left we won't fill up this tax bracket. We will still have $7950 left over).

Now we know that we are in the 15% tax bracket prior to cashing out our 401k. Let's say their 401k has $100000 in it. If it is all pulled out we will continue to fill up more expensive tax brackets. Remember we only have $7950 left over in our 15% bracket. Once that is used up we almost double our tax rate:

Next $69150 is taxed at 25%. (we still have $22900 left for the next bracket).
Next $71800 is taxed at 28%. (thank goodness we only use $22900 of this bracket).

To summarize:

Federal taxes due from regular income:

$16700 x 10% = $1670
$51200 x 15% = $7680

Sub Total $9350 Federal Taxes due to income.

Now lets add our 401k cashout:

$7950 x 15% = $1192
$69150 x 25% = $17287
$22900 x 28% = $6412

Sub Total $24891 Federal Taxes due to 401k cashout.

Now lets add in State income tax. Each state is different. In Wisconsin we pay around 7% and the exemptions and deductions are very different. So I will make a ballpark guess of $4200 taxes due to income and another $7000 due to the 401k cashout.

Now we must finally add the Federal and State tax penalty to our total. The Federal is at a 10% rate and the State (at least in Wisconsin is 1/3 of the Federal. we will call it 3%). This makes a Federal penalty of 10000 and a state penalty of $3000.

Let's add it all up:

Federal income tax due on cashout: $24891

State income tax due on cashout: $7000

Federal penalty: $10000

State penalty: $3000

Total Taxes due to 401k cashout: $44891.00

You can see in this case that our normal couple would lose about 45% of their 401k due to taxes and penalties!!!

It is very wise when considering a cashout that you only cashout what you need. The rest can be rolled over to an IRA where no tax will be due. You can still keep the investment in the IRA liquid in the event you want to take another distribution next year when you might be in a more favorable position within your tax bracket.

How much will the tax be on cashing out a 401k? PLENTY!! Be wise and try to do a little over a few years in order to keep your amount owed to a minimum. Feel free to contact me if you have any questions. I'm happy to help. www.ewatch401k.com or john.norquay@gmail.com or www.pivotpointadvisors.net

Can I roll my 401k to a Roth IRA?

noreply@blogger.com (John Norquay) — Tue, 27 Jan 2009 02:51:00 +0000

Since this downturn in the market many have been asking "Can I roll my 401k to a Roth IRA"? The simple answer is Yes. You must first ask yourself what the consequences are. The following are the basic questions you should be asking yourself before deciding to roll your 401k to a Roth IRA.

What is the difference between a 401k and a Roth IRA?
There are effectively 4 different places in life that trigger income tax. First When you EARN money Second when the money you've invested GROWS each year this growth can be taxed. third when you decide to SPEND the money and fourth at DEATH whatever is left for your heirs can be taxed. I mention these different times of taxation because the only difference between the 401k and the Roth IRA is WHEN you pay the tax.

Taxation of the 401k:

When you EARN the money and put it into the 401k it is NOT taxed.
When the money grows each year the GROWTH is NOT taxed.
When you decide to begin spending the money (usually retirement) it IS taxed.
Whatever is left over upon your death the balance goes to your heirs and IS taxed.

To summarize taxation of the 401k: You put a small amount away each year. This amount is tax deferred. You do this for many years and the money is all growing without taxation. Once you hit your retirement years it has turned into a LARGE amount of money (hopefully). This LARGE amount of money will all be taxed by either you or your heirs.

Taxation of a Roth IRA:

When you put an amount away each year you first PAY the tax.
When it grows each year the GROWTH is tax free.
When you decide to spend it in retirement it is tax free.
Whatever is left over for your heirs is tax free.

You effectively pay tax on the small amount of money that goes in and the big amount later is completely tax free! Personally I believe the Roth IRA is too good to be true. I believe when they decide to increase taxes this will be one of the first things to go. Hopefully they will grandfather all the money that is already in the account if and when they change the rules.

So should I or shouldn't I transfer all or some now?
First you should realize that you must pay the taxes due on any amounts that you rollover. They don't actually call this transfer a rollover. It is officially called a Recharacterization. Many are wondering if it makes sense to change to a Roth now since their account values have depreciated so much. The upside is if you switch and the account returns to the values it once had then you only paid tax on todays amount which in many cases is only half.
The downside is you need to have enough money at tax time to pay the taxes due. Usually it is best to have this tax money on the outside of your plan. Try not to use the money from your plan to pay the tax. It is a very expensive way to pay the tax.

How much tax will I owe?
Since I'm not a tax advisor I would have to refer you to one. What I can tell you is how the tax brackets work. You need to figure out what percentage rate you will be assessed on the rollover. Here's how taxes work:

The first taxable income isn't taxed because you have personal exemptions to offset it.
The next amount of taxable income isn't taxed because you have deductions to offset it.
If you have more taxable income than allowed for exemptions and deductions you begin paying in the 1o% bracket. Each dollar here is assessed a tax of 10%.
Still more taxable income? After the 10% bracket is the 15%.
Next is the 25%
. . .and up.

Hopefully you get the idea. Look to see which tax bracket you have gotten into without any rollovers. Check to see how much room you have left in that tax bracket. I usually try not to have people go above their current tax brackets. I prefer to have some transferred this year and maybe more next year. Slowly get it over through the course of a few years so that you are keeping taxes as low as possible.

I've developed a spreadsheet to help people with this planning. It is free of charge you just need to contact me if you would like a copy. I've also developed a website that helps you keep your 401k invested according to the market conditions at http://www.ewatch401k.com/ .

Once you go through this entire process yourself you will be the expert when someone approaches you and asks "Can I roll my 401k to a Roth IRA"?

DIG

noreply@blogger.com (John Norquay) — Mon, 20 Oct 2008 21:26:00 +0000

Short term view above. Top red line is resistance at 62.00 Bottom red line is support at 26 and some change. Bought at 34.25 this morning and closed at 36.83

Below is the longer term view. Red lines are at the same levels on both charts.

Dig goes up 200% of the Dow Jones US Gas & Oil Index. It is near support and has a long way to go before it hits resistance. Bought this morning at $34.25. Support is at about $27 and the first round of resistance isn't until $62. This means there is about 3.5 to 1 ratio of return to risk which makes it acceptable.

Your 401k, Recession's Perfect Sacrifice

noreply@blogger.com (John Norquay) — Tue, 26 Feb 2008 21:09:00 +0000

Think that if you put your head in the sand and wish this recession away, that your 401k will be OK? It might be more like 0K (that’s ZERO K for those of you in Rio Linda).

The last recession came like a thief in the night. Those napping awoke and found they lost a majority of it. Many began calling it their 41k.

Don’t think that the Wall Street types are going to take pity on you just because you don’t care about what’s going on. These guys are great at telling you to buy and hold while they are moving their money around trying to catch the latest greatest deal. It’s ironic that you’re limited to moving the funds around in your 401k because the fund’s managers were caught moving theirs around EVERY day. Most of the people I talk to don’t even know HOW to move the funds around in their 401k!

I know it’s hard to know exactly what to do. It’s not a perfect world. We don’t even know if we’re actually IN a recession or not. In fact the government types that officially determine when recessions start and end can’t agree. In the last four recessions, it took them on average 8 months to let us know it started. Many recessions don’t even LAST 8 months! They are even worse letting us know when they’re done. On average, it took them almost 2 years to let us know the recession was over. If THEY don’t know, how are WE supposed to?

Think that the company running your 401k cares about you? When was the last time someone from there called you and said you should re-think the way your 401k is invested? When was the last time ANY financial type called you and said ANYTHING about your 401k? Maybe they’re too busy paying attention to their own. It’s probably the largest single investment you own. It’s also probably the single most ignored thing you own. I saw people who went into the last recession with $100,000 and came out with $30,000. I wonder how long it took them to earn the $70,000 they just gave away; a heck of a price to pay for not caring.

Don’t let them put your hard earned, perfect 401k onto the alter of Recession. Instead, sacrifice a little of your time and pay attention to your 401k, it will keep it from becoming THE Suckers Perfect Sacrifice.

Recession History

noreply@blogger.com (John Norquay) — Fri, 22 Feb 2008 16:05:00 +0000

Since history seems to repeat itself, maybe we could learn something about the current possible recession by studying this country’s recession history. Since pictures are supposed to be worth a thousand words, we will look at the recession history in charts.

I work with investments, so I’m particularly concerned with recessions due to the fact they can have a very negative impact on investment account values. I’m going to look at the recession history with particular focus on how each recession affected the Dow Industrials Stock Index. I have Dow Index data back to 1930, so we will start there.

I have known for some time that the market has seems to operate in approximately 15 year cycles. The market goes up for 15 years, then seems to go sideways for the next 15 years. This growth and then consolidation pattern happens frequently through out history as we will soon see.

This first chart (figure 1), shows the Dow Industrials index from 1930 through 1945.

Figure 1

The light blue areas are times of recession. The first one, however, was the great depression. We all know the effect the depression had on stock values. The Dow lost over 88% of its value between 1929 and 1933. Notice the nice rebound it made following the depression. It increased 345% over the next 4 years. We will see there is a theme in the recession / expansion cycle. Recessions are relatively short and can be very violent to investors in the stock market. The expansion period following recessions are much longer and historically quite good.

One thing you need to be extremely aware of though. Numbers and percentages can be deceiving. I just mentioned that the index lost 88 percent, but then gained 345%. Sounds like you made up all your losses and then some. Not quite.

The dirty little secret to investment losses is this: if you lose 50% of your portfolio, you need to make 100% just to break even. This is an ugly little fact, but lets look at it in real life. If you had $100,000 and lost 50%, you would be left with only $50,000. How much do you have to earn on your $50,000 to get back to even? You need to earn another $50,000. This is 100% of what you currently have. You lost 50% and must gain 100% just to break even.

Let’s look at our chart and see how this works. In 1929 the Dow had a high of around 380 and in 1933 a low of about 48. This is an 88% decrease in value. Over the next 4 years it went from 48 to 187. This is a 345% increase. Sounds like you made up the 88% loss and then some. Unfortunately you have only gained back just over half of what you lost. This also is a recurring theme. When a recession takes huge bites out of portfolio values, it normally takes many years just to break even again. Not to get ahead of myself, but the Nasdaq has only regained about half of what it lost during the last recession. And This is 7 years later! The Dow and S&P 500 took about 6 years to finally break even. The kind of time periods required to recover definitely make the study of the recession history worth while.

Figure 2

Now that some of the back ground work is complete lets look at the next 15 years, from 1945 through 1960 (Figure 2). We will see that it was about in 1955 that the Dow finally got back to where it was before the great depression. This was a very long 25 year wait. Imagine the poor retirees that retired before the depression and never again regained their original portfolio value!

Remember the last 15 years were mostly down then sideways (1930 through 1945). This next 15 year time period had very mild recessions with the worst only causing a 15% drop in the Dow. Overall, the Dow gained 267% over this 15 years. A very good reward for a minimum amount of risk. This leads us to the next 15 years, 1960 to 1975 (Figure 3).

Figure 3

The 15 year cycle is definitely in effect. The last 15 years were very tame yet had a nice return. This 15 years was not for the feint of heart. Gain was very little over the period, but volatility was killer. The period started out with a wonderful 75% gain, but gave it all back by the end. As you can see, the recessionary periods were very violent. The reward available in this market was much smaller than the risk.

Thus far, we had a 15 year period that was horrible, one that was very nice, then another horrible one. Without looking ahead, we might guess that the next 15 year time period would be another nice one. Let’s see.

Figure 4

Yep, looks just beautiful. Began with a 6 year period of consolidation (going sideways), but when it was done consolidating, it moved up very nicely. It moved from around 800 in ’82 to 2800 by 1990. This represents a 250% increase for the period. The volatility for the period was pretty tame. At least if you look at the volatility caused by recession. The largest pullback in value was the ’81 to ’82 recession which was about 18%. The big pullback in August of ’87 was about 30%, but wasn’t caused by recession and didn’t take that long to be regained; all in all a very fruitful 15 years.

This would lead me to believe that the next 15 years would be tumultuous again as the market needs to digest its gains. Let’s take a peek at Figure 5.

Figure 5

The roll the market had going continued for the first half of this period. It gained 300% in just 8 years. This was more in the first half than the others gained in their entire 15 year period. This didn’t go un-noticed however, and the market promptly took back a healthy 35% through the recessionary period. It took until mid way through 2006 to finally get back to even from the highs seen in ’99. Once this was achieved, however, the Dow just kept going. It extended it’s gains through the expansion period, hitting new highs.

Which brings us to today. There is much talk about the beginning of another recession. We’re at the end of a period that should have shown consolidation, but instead had another large run up. This run up wasn’t without sizeable volatility. Notice we’ve just broken the support line drawn. I’ve drawn support lines throughout the charts. Had you sold upon breaking the support lines over the years, you would have saved yourself many heart aches and wouldn’t have had to wait as long to break even again.

In summary, I would say that the recession history points to our next recession causing havoc on the Dow. When will the next recession be or are we already in it? I’ve covered this dilemma in another article. I think we are already in it. I believe the Dow just broke support and has a lot of potential to continue down
If you’re concerned about your 401k in this market environment, visit 401k plan facts. Help is available.

Recession History

noreply@blogger.com (John Norquay) — Thu, 21 Feb 2008 14:35:00 +0000

The old saying “History doesn’t always repeat itself, but often rhymes”, is based more on fact than fiction. By studying the Recession History, you should better understand how current recessions may affect your financial life today.

I focus on recessions simply because they have a dramatic effect on 401k balances and investments in general. During the last recession, which was officially from March of 2001 through November 2001, the major market indexes plummeted. The Nasdaq Index declined over 70% from it’s high within a year surrounding the recession. This index still hasn’t recovered. It is still only half of where it once was.

Could you have avoided this downfall by studying the Recession History? Maybe, but maybe not. Let’s look at the problem. The National Bureau of Economic Research (NBER) is the official agency that determines when recessions begin and end in history. Since recessions have such a detrimental effect on our investments, wouldn’t it be nice if they would notify us when one is beginning? Yes it would, but they don’t. The Nasdaq Index lost over 43% from its high before the NBER determined we were in our last recession. It took them 9 months after the beginning of the recession to announce it had begun. Is this a fluke? Unfortunately not. The official notification of the beginning of the last 4 recessions came an average of 228 days after they had already begun. This is an 8 month delay.

The way numbers work, if you lose 50% of your portfolio, you must earn 100% just to break even. If you had $100,000 and lost 50% ($50,000), you are left with $50,000. You must double this (100%) in order to break even. This is why it seems to be twice as hard to regain money after losing it. It took the Dow Industrial Index and S&P 500 Index around 6 years to get back to even after the last recession.

Let’s pretend you’ve lost 43% of your portfolio and are determined NOT to lose any more. You sell your stock funds and put your account into the safety of the money market. Your account is now safe for the rest of the recession. Will knowing the US Economic Recession History help you determine when the recession is over? Once the recession is over, you definitely want to move back into stocks so that you don’t miss the next increase in the market. After all, you need to make almost 100% just to break even!

NBER announced the last recession was over on July 17, 2003. Unfortunately they announced it was over in November of 2001! Yes they didn’t determine the last recession was over until nearly 2 years later. Had you had your investments strapped down for the winter winds of recession, you could have missed the excellent recovery period that typically follow recessions. The end of the last 4 recessions were officially announced an average of 522 days (17 months) after they were over.

Studying the Recession History may be helpful for some, but I don’t find it very helpful in managing investment portfolios. I find that tracking Supply vs. Demand in the investment markets is a much better way to protect assets. When supply begins to outweigh demand, simply change the portfolio to a more conservative stance. This usually happens near the beginning of recessions and you have plenty of time to switch your portfolio to safety. The opposite occurs near the end of recessions. Demand shows back up and you begin to change the portfolio to one of moderate risk.
The upside to recessions is the fact that periods of expansion last about 5 times longer than recessionary periods. There were 10 Recessionary cycles since 1945. The recession side of these cycles lasted on average 10 months. The expansion side lasted on average 57 months. If you can protect your money during the 10 recessionary months you won’t have to spend a lot of the expansion months trying to get back to even. You can instead be exploring new highs for the portfolio.
For help on securing your 401k form recession without missing the next run up in the market, visit 401k plan facts.

US Economic Recession History

noreply@blogger.com (John Norquay) — Wed, 20 Feb 2008 22:40:00 +0000

The old saying “History doesn’t always repeat itself, but often rhymes”, is based more on fact than fiction. By studying the US Economic Recession History, you should better understand how current recessions may affect your financial life today.

I focus on recessions simply because they have a dramatic effect on 401k balances and investments in general. During the last recession, which was officially from March of 2001 through November 2001, the major market indexes plummeted. The Nasdaq Index declined over 70% from it’s high within a year surrounding the recession. This index still hasn’t recovered. It is still only half of where it once was.

Could you have avoided this downfall by studying the US Economic Recession History? Maybe, but maybe not. Let’s look at the problem. The National Bureau of Economic Research (NBER) is the official agency that determines when recessions begin and end in history. Since recessions have such a detrimental effect on our investments, wouldn’t it be nice if they would notify us when one is beginning? Yes it would, but they don’t. The Nasdaq Index lost over 43% from its high before the NBER determined we were in our last recession. It took them 9 months after the beginning of the recession to announce it had begun. Is this a fluke? Unfortunately not. The official notification of the beginning of the last 4 recessions came an average of 228 days after they had already begun. This is an 8 month delay.

The way numbers work, if you lose 50% of your portfolio, you must earn 100% just to break even. If you had $100,000 and lost 50% ($50,000), you are left with $50,000. You must double this (100%) in order to break even. This is why it seems to be twice as hard to regain money after losing it. It took the Dow Industrial Index and S&P 500 Index around 6 years to get back to even after the last recession.

Let’s pretend you’ve lost 43% of your portfolio and are determined NOT to lose any more. You sell your stock funds and put your account into the safety of the money market. Your account is now safe for the rest of the recession. Will knowing the US Economic Recession History help you determine when the recession is over? Once the recession is over, you definitely want to move back into stocks so that you don’t miss the next increase in the market. After all, you need to make almost 100% just to break even!

NBER announced the last recession was over on July 17, 2003. Unfortunately they announced it was over in November of 2001! Yes they didn’t determine the last recession was over until nearly 2 years later. Had you had your investments strapped down for the winter winds of recession, you could have missed the excellent recovery period that typically follow recessions. The end of the last 4 recessions were officially announced an average of 522 days (17 months) after they were over.

Studying the US Economic Recession History may be helpful for some, but I don’t find it very helpful in managing investment portfolios. I find that tracking Supply vs. Demand in the investment markets is a much better way to protect assets. When supply begins to outweigh demand, simply change the portfolio to a more conservative stance. This usually happens near the beginning of recessions and you have plenty of time to switch your portfolio to safety. The opposite occurs near the end of recessions. Demand shows back up and you begin to change the portfolio to one of moderate risk.

The upside to recessions is the fact that periods of expansion last about 5 times longer than recessionary periods. There were 10 Recessionary cycles since 1945. The recession side of these cycles lasted on average 10 months. The expansion side lasted on average 57 months. If you can protect your money during the 10 recessionary months you won’t have to spend a lot of the expansion months trying to get back to even. You can instead be exploring new highs for the portfolio.

To protect your 401k portfolio through the recession, go to 401k plan facts.

401k Subscription

noreply@blogger.com (John Norquay) — Fri, 15 Feb 2008 03:36:00 +0000

For those of you who have your life savings in your 401k but aren’t sure how it should be invested, a 401k subscription is right for you. A good 401k subscription provider will help you keep your 401k allocated properly for the current market conditions. The methods used to determine proper allocation should be based upon time tested and proven investment techniques. This sounds simple, but investing is a very tedious topic. It is very difficult for even seasoned financial analysts to get a handle on the condition of the market at any given time.

There are tons of 401k providers; those who offer the 401k plan to the employer. Unfortunately once the 401k is implemented with the employer, very little effort is spent by the provider helping the employee choose the investment options right for him or her. This is where a good 401k subscription fills the gap. The recent changes in 401k’s brought about by the Federal Government mentioned this gap. They found there should be more assistance to employees in allocating their 401k’s. They realize that Social Security is less than funded and shouldn’t be relied upon. They also saw that 401k’s are sorely underfunded for the average worker. How well is your 401k funded? That depends upon 8 key factors:
Your current age.
Current Income (assume you want to make as much in retirement as before).
Projected Inflation Rate.
What percentage of your current income is being saved for retirement.
Current Retirement Savings Balance
The age to which you want your retirement income to last (Life expectancy plus a couple years at least – I use 90).
Rate of return prior to retirement.
Rate of return after retirement (usually a little more conservative investor after retirement).

Based upon the relationship of these 8 factors, you can determine at which age you can retire. Hopefully the answer you get says you can retire sooner rather than later. Here is a wonderful Retirement Age Calculator that allows you to input these factors. It immediately projects your retirement age and gives you the option of printing out a spreadsheet with the annual cash flow and savings amounts.

Once you play with this calculator, you will see how important it is to get a good return within your 401k. A good 401k subscription service can provide assistance in doing this. When selecting this service, make sure it fits your risk profile. I’ve seen many people who thought they were more aggressive investors than they actually were. All it takes is a bear market to let you know exactly how aggressive you AREN’T. Unfortunately by then, it takes many years for you just to break even again. A good 401k subscription service will offer programs that have double digit returns with risk levels that will keep you comfortable and in the program for the long haul.

John M. Norquay

Economy Carberator

noreply@blogger.com (John Norquay) — Sun, 10 Feb 2008 05:05:00 +0000

A good carberator regulates fuel into an engine. The Fed Chairman, the economy carberator regulates money supply into the national economic engine. You and I are the economy carberator and regulate cash flow into the engine we call our households. We each are carberators at our different levels.

A good carberator keeps the engine running smoothly and efficiently. When more power is demanded, more fuel must be supplied. Effectively, the carberator manages supply and demand for the engine. When supply and demand get out of whack, things get messy.

If the national economy wants to run at 100 miles per hour, but there's only enough fuel (money supply) to go 55, then there's a problem. The Fed Chairman has a decision to make. He could do the right thing and tell the economy it must only go 55 to be safe and operate smoothly, or he could appease the demands of the economy and give it more fuel. Unfortunately the extra fuel is borrowed and must be payed back with interest. This means a time will come when we won't even be able to go 55 anymore while we catch back up.

Recessions (sometimes depressions) are the time periods when we're catching back up. When we allow our politicians to continually spend more than our country makes, we must know that there will come a time when the piper must be paid. This is why it seems that every decade includes a recession. We should demand our politicians spend our Country's money with the same principles we must when we run our individual households.

Currently when our nation needs more money to pay the bills, we simply PRINT MORE! If only we could do that at home.

When money supply increases, inflation increases. It only makes sense that the more dollars are printed, the less each existing dollar is worth. When George Washington suffered through the winter because he couldn't afford supplies for his troops, he blamed the local merchants for charging too much. What he failed to realize was the government printed so much money to fund the war effort that each of the existing dollars just didn't go very far any more. The merchants were as much the victim as George and his troops. The same thing happened to confederate money in the civil war. Money supply over the last year (measured by M3) increased over 15%. Someone must be printing a lot of money to pay their bills!

As a result, inflation has increased the last couple quarters more than it has in years. Our financial system is in crisis due to excess greed. The dollar is in crisis due to excess greed. If our economy's carberator doesn't get fixed soon we will have a very tough stretch ahead. Probably a deep recession if not depression and rampant inflation to boot.

You can help your fuel efficiency by visiting my 401k investment tool site at 401k Plan Facts.

August Newsletter

noreply@blogger.com (John Norquay) — Sat, 09 Feb 2008 05:56:00 +0000

WOW! Just when you think the market is in a free fall, the Fed comes in and attempts to prop it up. It will be interesting to see if the market interprets this attempt as worthy or as simply an undersized band aid on a large flesh wound. As of this writing, the market is still undecided. It will be interesting to see if the institutional investors take their profits later in the day or decide to stay the course. The lows of the Dow yesterday left it at the same level it was at the beginning of this year. The lows of the small caps yesterday (Russell 2000 index) left it at the same level it was in February of 2006. That is a year and a half of no increase, but plenty of volatility. The small caps help determine the health of the overall market. The institutional managers are the cause of about 80% of the markets movement. It stands to reason that small caps are the first thing they begin to unload when they become nervous about the market, since the small caps are the most volatile part of their portfolio. It has been shown that when small caps are being unloaded from these portfolios, plenty of volatility lies ahead for the entire market, not just the small caps. Small Caps have underperformed large caps consistently this entire year. This has been a partial cause of our conservative stance this year. The other factors have been the fact that a majority of stocks weren't enjoying the same rise the Dow was. When a healthy market is increasing, a majority of stocks in that market should be participating. When only a few stocks are enjoying the rise, we need to be cautious. One of the lessons I have learned this year is to make daily portfolio decisions based on the technical indicators and not the fundamentals. The technicals tell us how the market is interpreting the fundamentals. My interpretation doesn't count. I can disagree with the market, but must always remember that the market is always right. It will go up or down whether I think it should or not. I have promised myself that my decisions will be based on these technicals although the fundamentals will always be near to my heart. This way I should be able to move quickly when the technicals show the market is beginning to re-think it's interpretation of the fundamentals. I bring this lesson up due to the correction we saw in the market in February this year. I was totally unaware of a key fundamental point. The carry trade was very extended and in troublesome territory. I didn't see the unwinding possibility ahead and was totally unaware when it occurred. The only thing that makes me feel better is the fact that very few others saw it coming either as evidenced by the 500 point skid in the Dow. The correction in February and the beginning of the unwinding of the carry trade, was like putting the frog into the pot of water and having the heat turned on. The current correction shows that the water has now begun to boil and the frog should soon be cooked. You could tell that the frog (the Dow) didn't know the hot tub would get so hot! It kept climibing like there wasn't a care in the world, hitting an all time high of 14,000 before pulling back below the current levels below 13,000. The market doesn't always have to make sense. As they say. . . it is what it is. I must also reiterate, it is ALWAYS right. WHAT'S NEXT? According to my cyclic analysis, this market should be able to climb out of this correction. Valid trend lines have been drawn which should indicate if and when this actually begins to occur. If so, we will begin taking long positions as they look appropriate. If the market determines to treat this Fed attempt of a fix as merely window dressing, then we will remain conservative and maybe even put on a short position or two. I will let the market decide our next moves from here, and will let you know what it decides.

Check out my website at 401k plan facts

October Newsletter

noreply@blogger.com (John Norquay) — Sat, 09 Feb 2008 05:45:00 +0000

Things don't seem to be adding up in this market. . .

You may or may not know that the small cap index is my "canary in
the coal mine". If they aren't healthy, then the market
overall is unhealthy. This is because institutional money
managers begin lightening their load in small caps when they
become weary of the market in general. They do this
because the

small caps represent the more volatile component of their
portfolios. When small caps begin to do poorly, the chances of the
entire market doing poorly are greatly enhanced.

A study was done that showed what happened to the general
market (S&P 500 Index) when the small caps were doing well as compared to
small caps NOT doing well. During times of small cap health, the S&P
500 index had an annualized return of 20.62%. This is compared to an
annualized return of only 6.78% during week periods of the small caps.
What is even MORE compelling is what happens on the DOWN side during these
different periods. The S&P 500 index's largest decrease from it's peak
(called Maximum Draw or [MDD) was only 12.08% during good small cap markets.
During poor small cap markets it largest draw down was 19.34%. These
numbers represent a 67% DECREASE in return and 60.1% increase in risk in the
general market when the small caps aren't healthy.

This brings us to today's market. You can see by the
chart below that the small caps were lower most of the summer than they were
at the beginning of the year. It took until late September before it
broke even for the year. The last month has shown an increase from the
lows, but so far hasn't shown the kind of health we're looking for.

What's next. . .

I'm fearful of a recession. I try not to make
investment decisions on fundamental data because fundamental data can be
interpreted by the market in many different ways that don't necessarily make
sense to a human being. The technicals don't show well yet overall.
The technical tell us how the fundamental data is being interpreted by the
market.

Until the small caps begin to show strength compared to the
large caps I choose to play conservatively. We have plenty of time to
make money. Unfortunately, if you lose 50% of your portfolio, you have
to make 100% just to break even. This is why it is so difficult to
ever get back to even on a losing investment.

The small caps are not showing health. I choose to
continue to play conservatively until they decide to be more technically
solid.

I will keep you abreast of any changes as they occur.

Check out my website at 401k plan facts

November Newsletter

noreply@blogger.com (John Norquay) — Sat, 09 Feb 2008 05:41:00 +0000

The Dow breaks primary support - Indicates official down trend

A market never goes straight up or down. If it is in
an up trend, it tends to go up, then pullback, go up higher than last time
and pull back, but stay higher than the last pull back. Bottom line is
an up trend will have higher highs and higher lows. On the same note,
a down trend will have lower highs and lower lows. We are always
looking for changes in the trend. One of the ways to tell if a
positive trend has turned negative is by watching support areas. If
the price stops going down at the same place it stopped going down last
time, then the support level is working. If it breaks through the
previous support levels, then weakness has crept into the trend.

The primary trend of the Dow has been up for a long time.
The big support level that we have been watching has just been broken.
This level was at 12,800 and was broken Monday the 26th. There was an
immediate bounce after this break, but will probably only turn out to be
that. As they say, even dead cats will bounce (a market saying, I
actually LIKE cats!).

In my humble opinion, the Dow has been running on empty all
year. Very few of the indicators I follow substantiated the new highs
the Dow was putting in. Every thing pointed to volatility and
volatility normally points to some kind of crash. It appears the Dow
race car has finally run out of gas and has bald tires, but the race isn't
yet complete.

Recession AND Inflation

I have said all year that I felt a recession is coming on.
We have been very conservative because of this. I have never been more
certain now that this is the case. The chart below shows the historic
recessions going back to 1965. These are the purple areas in the chart
below. The purple line is the difference between the blue and yellow
lines. You will see that each time this line hits zero, a recession
follows. You will see it just hit zero earlier this year. As
they say, financial history doesn't repeat itself, but it rhymes quite well.
If this is true, a recession should be just around the corner.

Inflation usually isn't a problem during recessions.
As people spend less money in the economy, prices don't continue going up
very rapidly. This probably won't be the case during this next
recession. As you have felt in your pocket book, oil prices and food
prices haven't been going down or even staying the same. They are at
all time highs and have had the tendency to stay there. There are many
reasons why I believe inflation will not only continue to increase but
increase rapidly. This email isn't where I'm going to go into that
detail. Maybe I can touch base on that within a week or two. The
bottom line is that the market will be effected in a very negative manner
and we will be addressing it accordingly.

Banking Crisis Deepens

Anecdotal evidence of severe problems within the banking industry continues,
with stories abounding of troubled institutions and instruments, and of
back-door actions taken by worried central banks. As the U.S. recession
deepens, the problems with structured financial instruments will widen
quickly, extending far beyond the issues with problem mortgages. The Federal
Reserve can be expected to spend every dollar it needs to create in order to
maintain the solvency and stability of the domestic banking system.

The Fed have their hands tied now. If they decrease the Fed Funds rate
to stimulate the economy, it will accelerate the dollar sell off.

What's Next?

We will continue to act defensively. The short positions we have held
in the RIA accounts have paid off handsomely. We may even increase
these positions in the future. Accounts that can't be shorted will sit
in short term bonds or cash until a better opportunity arises. If the
market decides to change it's mind and start going back up, we will
re-evaluate. Until then, we will be patient and see what happens.

You can check out my website at 401k plan facts