moulton w nc management “molten hot” minutes · months, stocks are overvalued in our opinion...

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Securities and investment advisory services offered through Cetera Advisors LLC, member FINRA/SIPC, a broker/dealer and

Registered Investment Adviser.

Cetera is under separate ownership from any other entity.

DONALD J. MOULTON RIAL R. MOULTON

CFP®, RFC CFP®, CPA/PFS, RFC

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Week of March 2, 2020

hat a difference a week makes! If you’ve not been holed up on your desert

island, you likely know that the S&P-500 experienced the worst week since the

Great Financial Crisis, falling -11.5%.

From an all time closing high (this on February 19th) it was the fastest -10% drop… ever.

(More on that later.)

Why?

The Coronavirus? No.

W

MOULTON WEALTH MANAGEMENT INC.

“MOLTEN HOT” MINUTES

SPECIALIZING IN RETIREMENT AND TAX PLANNING 1220 N. MULLAN ROAD SPOKANE, WA 99206

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The fear of a financial slowdown? Yes.

The Coronavirus may be the match, but it’s not the dynamite.

Where do we stand?

First, China is almost certainly understating the number of their cases – either on purpose

or because of faulty data. Ben Hunt of Epsilon Theory points out that before they are

contained, epidemics advance exponentially. One infects another, the two infect two others,

the four infect four others, eight infect eight, sixteen infect sixteen, etc.

However that’s not what China has been reporting. The following chart shows what one

would expect in terms of how an epidemic spreads (the green line), what China has released

(the blue line) and a linear line for comparison (the red line).

What China has released takes the form of a quadratic formula. And does so very neatly.

Almost like it’s scripted. That’s not how epidemics spread.

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But that’s not all bad news. In fact the virus is likley much more prevelant than anyone

currently knows. There are now over 60 countries with reported cases. Just here in

Washington State it is likely the virus has been spreading for weeks before ever being

discovered, with hundreds of possible infections according to the Washington Post.

Why is that not all bad news?

Because if the virus is much more widespread than realized, the fatality percentage rate is

much lower than previously announced.

One of the problems

with the virus is a lack of

testing kits worldwide.

South Korea has done the

most extensive testing. In

South Korea they’ve

administered over 66,650

tests and identified 3,526

infections with 17 deaths.

17 deaths vs 3,526

infections gives us a fatality

rate of 0.5% - roughly the

same as the flu – vs the previously estimated 2% – 3%. Like the flu, the fatality rate rises with

age and illness, so those groups have to be particularly vigilent.

Of course these are only estimates when applied to the world at large, and no one knows

how it might morph or spread, or may have already done so. But South Korea’s results are

encouraging.

So why is the stock market reacting so badly?

The fear of what a large scale quarantine – either by government decree or by personal

preference – will do to an economy that we have already identified as slowing in rate of

change space. Even if not part of an official quarantine, if consumers decide to skip trips,

avoid stores, steer clear of crowds, etc., it will negatively ripple through the economy.

Less consumer activity will mean an even slower economy. Companies’ earnings will

suffer and they may be forced to reduce or eliminate stock buy backs as well as employee pay

raises. Next will be layoffs. This will result in even more consumer entrenchment.

But beyond a simple economic slowdown, we’ve never been this indebted.

Governements, corporations and individuals are all carrying more debt than we ever have.

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Also, more investment grade corporate debt is on the lowest rung of the quality ladder (BBB-

or Baa3) than ever before, both in terms of whole dollars and percentages.

What happens when these companies, already struggling based on their ratings, suddenly

experience a further economic slowdown?

As debt slides from investment grade to junk status, many pensions, mutual funds, etc.

will be forced to sell it due to their charter. Who will buy it? What will the imapct be on the

world’s finances? What will the impact be on these companies?

The hope is that a combination of better data on the disease and ways to fight it will lead

to a lessening of consumer fear. If that happens sooner than later, it could reduce the

economic impact.

But make no mistake, at least some of the damage has already been done.

China announced their manufacturing PMI over the weekend. It was 35.7 vs a previous

reading of 50. China’s non-manufacturing PMI came in at 29.6 with the previous 54.1. And this

is after they likely put lipstick on the data.

Beyond China, we just don’t know how much damage has been done.

Regardless, the virus is likely going to be with us for some time. And as such, we are

presented with a lot of unknowns.

It’s easy to dismiss warnings and caution with portfolios, and to put off planning for a

defense when the market is advancing and your accounts are growing.

That may no longer be the case.

If you’re a client, we welcome you to review your accounts. What we

trust you’ll find is that you are down a fraction of what the S&P-500 is

for February and year to date 2020 (-8.4% and -8.6% respectively for

the S&P-500). If you further look at your statements from

September 30, 2018, before the last market drop of consequence, until

the end of February 2020, adjusting for additions and withdrawals,

you’ll likely find you are up multiples of the +1.4% the S&P-500 has

gained over the same period.

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We all know past performance is not necessarily indicative of future results but over full

market cycles – advances followed by declines – blindly buying and holding is often NOT the

best strategy.

It’s fun to make money.

It’s even more fun to have it stick around to spend.

Whether the coronavirus leads to a global recession and bear market isn’t even the real

question.

After all, if not this virus, something else will eventually lead to both.

The question is what you’ve done to prepare your retirement for that eventuality.

Protect yourself.

If you’re not a client, what is your advisor telling you about our current situation? If your

advisor is not discussing these issues with you, shouldn’t (s)he be? How much work do you

think it takes to keep up on all of this as we try to do, and how much easier do you think it

would be to simply repeat over and over…

Never sell

You can’t time the market

You’re a long term investor

The market always comes back

Etc., etc., etc.

Are you being told to stay invested after thoughtful analysis of world events, stock

valuations, economic considerations, etc.? Or are you being told to stay invested due to a

lack of thoughtful analysis of world events, stock valuations, economic considerations, etc.?

It’s your money and it’s your retirement.

Being told after the fact that ‘everyone lost money’ may make you feel better but it won’t

help pay your utilities.

Be careful.

If you didn’t like what happened to your portfolio in the dot.com bubble or the financial

crisis bubble, but you’ve made no moves to change the way you invest, now may be the time

to seriously consider your process – NOT after the market, and your portfolio, have crashed.

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Break the cycle and make your portfolio decision based on where we are likely headed,

not on where we’ve recently been.

If we can help, call our office now and set up a

no obligation review. Time may not be your

friend.

We think investing today must include a defensive strategy and system.

It’s this system that helps us decide when “enough is enough” and that it is

time to protect your portfolio. If you don’t have a system you should consider

it now. Regardless of what happens over the next week, month or several

months, stocks are overvalued in our opinion and eventually they will reset

with a significant market decline.

Remember, we have a feature on our website: www.Moultonwealth.com to help you

measure your risk tolerance. The problem with trying to

decide how much risk to take is we all want to be

aggressive when the market is going up, but conservative

when it’s going down. That’s why a sell discipline is important. However, the first line of

defense is always our allocation. This approach to measuring risk gives a number by making

investors trade off gains and losses. Just click the button to see where you stand.

On to this week’s data…

U.S. Markets: Fears over the spreading coronavirus, now known as COVID-19,

drove the fastest market correction in history (see the “Finally” section for more on

this). Stocks suffered their worst weekly decline in over a decade as investors reacted to the

global spread of the COVID-19 outbreak. All of the major indexes fell into “correction”

territory—down more than 10% from their recent peaks just a week earlier. The technology-

heavy NASDAQ Composite fared the “best” only giving up -10.5%, whereas the Dow Jones

Industrial Average plunged 3,583 points to 25,409—a decline of -12.4%. The large cap S&P

500 index gave up -11.5%, while the mid-cap S&P 400 fared the worst, closing down -13.0%

and the small cap Russell 2000 ended the week down -12.0%.

International Markets: It was a similar story in international markets, although most

fared better than the U.S. Canada’s TSX declined -8.9%, the United Kingdom’s FTSE fell -

11.1%, and France’s CAC 40 retreated -11.9%. Germany’s DAX fared the worst plunging -

12.4%. In Asia, China’s Shanghai Composite retreated -5.2%, while Japan’s Nikkei ended

https://pro.riskalyze.com/embed/efd588b5567c69b31c2c

http://www.moultonwealth.com/

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down -9.6%. As grouped by Morgan Stanley Capital International, developed markets

ended down -8.8%, while emerging markets fell -6.4%.

Commodities: There was some strange price action in the precious metals market

this week. Gold is usually seen as a safe-haven investment that rises during times of market

stress, but this week it closed down -5.0% to $1566.70 per ounce. Silver, which often

trades with more volatility than Gold, plunged -11.2%. The industrial metal copper, viewed by

analysts as a barometer of world economic health due to its wide variety of uses, declined -

2.6%. West Texas Intermediate crude oil plunged -16.2% last week.

February Summary: For the month of February, the Dow finished down -10.1%. The

NASDAQ Composite declined -6.4%. By market cap the large cap S&P 500 retreated -8.4%,

the mid-cap S&P 400 fell -9.6%, and the small cap Russell 2000 declined -8.5%. Canada’s

TSX declined -6.1% and the UK’s FTSE fell -9.7%. On Europe’s mainland, France’s CAC 40

fell -8.6% and Germany’s DAX declined -8.4%. China’s Shanghai Composite ended down -

3.2%, and Japan’s Nikkei retreated -8.9%. Developed markets gave up -7.8%, while

emerging markets ended down -3.8%. For the month, Gold finished February down -1.3%,

while Silver declined -8.6%. Oil gave up -13.2%, while copper managed a slight gain, gaining

0.9%.

U.S. Economic News: The Labor Department reported that the number of Americans

applying for first-time unemployment benefits rose by 8,000 last week to a one-month high

of 219,000. However, overall claims remain very close to a 50-year low. Economists had

expected claims to total 214,000. Meanwhile, the monthly average of new claims, smoothed

to iron-out the weekly volatility, edged up by 500 to 209,750. Continuing claims, which counts

the number of people already receiving benefits, fell by 9,000 to 1.72 million. That number is

reported with a one-week delay.

Sales of new homes soared to their highest level since 2007. The Census Bureau

reported sales of newly-constructed homes soared 7.9% on a monthly basis in January to a

seasonally-adjusted annual rate of 764,000. That is the highest reading of new home sales

since July of 2007 and marks a new cycle high for the housing market. On an annual basis,

new home sales were up 18.6% compared with the same time last year. By region, sales for

the month increased the most in the Midwest, where they rose 30.3%, followed by the West at

23.5%. In the Northeast, new home sales increased a more modest 4.8% between December

and January, and they dropped 4.4% over that same time frame in the South. The median

sales price of new homes sold in January was $348,200.

The pace of home-price appreciation ramped up in December, according to the

latest report from S&P CoreLogic/Case-Shiller. Case-Shiller’s 20-city home price index

posted a 2.9% year-over-year gain in December, up from 2.5% the previous month. Month-

over-month, the index increased 0.4% between November and December. Despite the end-

of-year ramp, the overall rate of home-price growth was slower in 2019 than the previous

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year. In the details of the report, Phoenix (+6.5%), Charlotte, N.C. (+5.3%), and Tampa

(+5.2%) led the way with the largest gains.

Confidence among the nation’s consumers remained high in early February, but that

was before fears of the coronavirus took hold. The Conference Board reported consumers

were still very optimistic about the economy in early February with its index rising to

130.7—its highest reading in six months. However, analysts were quick to point out the cutoff

date for the survey was two weeks ago—before the outbreak of the COVID-19 virus spread

outside of China. Confidence is still fairly high by historical standards — the index hit an 18-

year peak of 137.9 in late 2018 — but it’s unlikely to hold up if the latest coronavirus keeps

spreading. Economists at Jefferies LLC wrote, “Looking ahead, confidence is going to

depend on how everything plays out with coronavirus.”

Americans bought more new cars and spent more money on food and hotels in

January, but overall spending has slowed since last summer. The Commerce

Department reported consumer spending increased a tepid 0.2% last month, a tick below

forecasts. Incomes shot up 0.6%, the biggest gain in 11 months, but the increase included

annual cost-of-living increases in Social Security benefits as well as tax credits tied to the

Affordable Care Act. Inflation, as measured by the Personal Consumption Expenditures

Index (rumored to be the Federal Reserve’s preferred gauge), rose a scant 0.1% for the

month, lifting the increase over the past year to 1.7% from 1.5%.

The economy expanded at a 2.1% pace in the final quarter of last year, but the U.S.

will struggle to achieve even that rate of growth in the months ahead if the coronavirus isn’t

contained. The Commerce Department forecasts a 2.1% growth rate in the first quarter of

2020 as well. However, tourism and travel-related businesses are already warning of softer

sales and profits as cancellations increase. Consumer spending, the main engine of the

economy, was revised down a notch to show a mediocre 1.7% pace of growth in the fourth

quarter. Outlays had risen 3.2% in the prior quarter. The trade deficit was also sharply

lower, giving the biggest boost to GDP.

International Economic News: Canada’s economic growth slowed in the final quarter

of 2019 to its worst performance in almost four years. Statistics Canada reported growth

came in at an annualized 0.3% in the fourth quarter, due in part to strikes, bad weather, and

shutdowns. The number matched economists’ estimates as well as the Bank of Canada’s

prediction. The Bank of Canada meets this coming week and market expectations of a cut

jumped as the Canadian economy faces challenges from the coronavirus outbreak and rail

blockades by environmental groups. The central bank hasn’t adjusted interest rates since

October 2018.

Across the Atlantic, Bank of England governor Mark Carney stated the United Kingdom

is already feeling the economic impact from the coronavirus outbreak. Carney stated that the

British economy, which relies heavily on tourism revenues and manufacturing, is already

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seeing the impact. “What we are picking up with some of our bigger companies and

companies around the world, like for Jaguar Land Rover in the Midlands, things are getting a

little tight,” he said. Data out earlier this month showed that the British economy stagnated at

the end of 2019.

The coronavirus, which has killed nearly 3,000 people worldwide and all but paralyzed

China for the past month, now is targeting Europe’s $19 trillion economy. “The economic

effects of a severe pandemic could be as bad as those of the global financial crisis,” Capital

Economics, a London-based research consultancy, warned clients this week. France has

banned indoor gatherings of more than 5,000 people and canceled the Paris half-marathon

that was expected to attract 40,000 runners this week. Germany’s Federal Statistics Office

reported exports had fallen by 0.2% in the fourth quarter of last year—confirming that

Europe’s largest economy was stagnating even before the coronavirus outbreak began.

In Asia, with factories forced to remain closed after the traditional lunar New Year’s

holiday shutdown, China’s official Purchasing Managers’ Index (PMI) plunged further in

February than at any time in the past 12 years, China’s National Bureau of Statistics reported.

The release confirmed fears that China’s economy was in bad shape and fanned speculation

that it may even contract in the first quarter. Larry Hu, chief China economist at Macquarie

Capital in Hong Kong, said in a note that Beijing might report negative growth for “the first time

since the Cultural Revolution”. The manufacturing PMI, which measures factory activity,

dropped to 35.7 in February – below the previous all-time low of 38.8 set in November 2008

during the global financial crisis.

Japanese Prime Minister Shinzo Abe announced a $2.5 billion emergency economic

package to help fight the coronavirus outbreak. Abe said at a news conference that Japan is

at critical juncture to determine whether the country can keep the outbreak under control

ahead of this summer's Tokyo Olympics. Earlier this week, Abe announced a plan to close

all schools for more than a month, taking them through the end of the Japanese academic

year. The emergency package includes financial support for parents and their employers

affected by the school closures. He said that much about the virus is still unknown, and that

“fighting against an unknown and unclear enemy is not easy. Frankly speaking, this battle

cannot be won solely by the efforts of the government,” Abe said. “We cannot do it without

understanding and cooperation from every one of you, including medical institutions, families,

companies and local governments.”

Finally: If you blinked twice, you likely missed this week’s market plunge. In fact, as

researchers at Deutsche Bank illustrate in the chart below, it’s been the fastest correction

for the benchmark S&P 500 index on record. The time taken for all of the major indexes to

give up more than 10% of their value has been just six days. A little over a week ago, on

February 19, all three major indexes were hitting record highs. What a difference a week

makes!

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GET A PHYSICAL! We invite you to attend a seminar and come in for a “financial

physical”, even if you think your current approach is fine. Much like going to the doctor for a physical despite feeling great, you want to make sure any negative issues you may not be aware of are caught early and addressed. For example…

Have you addressed your investment process and adjusted it for what is going on in

the world?

Do you need a process to help manage losses during the next bear market?

If not, what are you waiting for?

At the bottom of the 2007 - 2009 bear market the S&P-500 index returned to

levels last seen in 1996.

The drop didn’t retrace only a few months or even a couple years.

We discuss many of these issues on the weekly radio show and invite you to listen.

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WEEKLY FOCUS – THINK ABOUT IT

“It is much easier to sell “Look what I did for you” than “Look what I avoided for

you”.”

Nassim Nicholas Taleb – The Black Swan: The Impact of the Highly Improbable

Yours truly,

Rial R. Moulton, CFP®, CPA / PFS, RFC Donald J. Moulton, CFP®, RFC

Certified Financial Planner™ Certified Financial Planner™

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to

add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission

to be added.

Registered Representatives offering securities and investment advisory services through Cetera Advisors LLC, member

FINRA/SIPC. Cetera is under separate ownership from any other entity. The Standard & Poor's 500 (S&P 500) is an unmanaged

group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-

weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index

of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. Opinions expressed

are subject to change without notice and are not intended as investment advice or to predict future performance. Consult your

financial professional before making any investment decision. You cannot invest directly in an index. Past performance does not

guarantee future results. Investments in securities do not offer a fixed rate of return. Principal, yield and / or share price will

fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested.

No system or financial planning strategy can guarantee future results.

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https://www.epsilontheory.com/body-count/?utm_campaign=website&utm_source=ET%20Newsletter&utm_medium=Email

https://www.insidermonkey.com/blog/coronavirus-fatality-rate-or-death-percentage-the-most-accurate-estimate-817752/

https://d1yhils6iwh5l5.cloudfront.net/charts/resized/66803/large/02.26.2020_black_swan_cartoon.png

https://www.goodreads.com/work/quotes/2157806-the-black-swan-the-impact-of-the-highly-improbable?page=4

The Barclays Capital Credit Index is an unmanaged index composed of U.S. investment-grade corporate bonds. The Barclays Global Aggregate Bond Index (formerly Lehman Brothers Global Aggregate Index), an unmanaged market-capitalization-weighted

benchmark, tracks the performance of investment-grade fixed income securities denominated in 13 currencies. The index reflects reinvestment of all distributions and changes in market prices.

The Barclays U.S. 1-10 Year TIPS Index is an unmanaged index composed of inflation-protected public obligations of the U.S. Treasury that have a remaining maturity of one to ten years.

The Barclays U.S. Aggregate Bond Index is an unmanaged benchmark index composed of U.S. securities in Treasury, Government-Related, Corporate, and Securitized sectors. It includes securities that are of investment-grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $250 million.

https://www.epsilontheory.com/body-count/?utm_campaign=website&utm_source=ET%20Newsletter&utm_medium=Email

https://www.insidermonkey.com/blog/coronavirus-fatality-rate-or-death-percentage-the-most-accurate-estimate-817752/

https://d1yhils6iwh5l5.cloudfront.net/charts/resized/66803/large/02.26.2020_black_swan_cartoon.png

https://www.goodreads.com/work/quotes/2157806-the-black-swan-the-impact-of-the-highly-improbable?page=4

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The Barclays U.S. TIPS Index is an unmanaged index composed of all U.S. Treasury Inflation- Protected Securities rated investment grade, have at least one year to final maturity, and at least $250 million par amount outstanding.

The Barclays U.S. Treasury Index is an unmanaged index composed of U.S. Treasuries. The CDX IG 12 is a benchmark high-grade derivatives index, which measures the cost of insuring a basket of U.S. investment-grade corporate debt against

defaults. The Chicago Board Options Exchange Volatility Index (VIX) tracks the expected volatility in the S&P 500 over the next 30 days. A higher number indicates

greater expected volatility. Common usage: The Chicago Board Options Exchange Volatility Index (VIX), a barometer of market volatility. The Dow Jones Industrial Average is a widely followed market indicator based on a price-weighted average of 30 blue-chip stocks that trade on the New

York Stock Exchange which are selected by editors of The Wall Street Journal. The Dow Jones Wilshire Real Estate Securities Index (RESI) is used to measure the U.S. real estate market and includes both real estate investment trusts

(REITs) and real estate operating companies (REOCs). It is weighted by float-adjusted market capitalization. The JP Morgan Emerging Market Bond Index is a total-return, unmanaged trade-weighted index for U.S. dollar-denominated emerging-market bonds,

including sovereign debt, quasi-sovereign debt, Brady bonds, loans, and Eurobonds. The JP Morgan EMBI Global Diversified Index tracks the performance of external debt instruments (including U.S.-dollar-denominated and other external-

currency-denominated Brady bonds, loans, Eurobonds and local market instruments) in the emerging markets. The JP Morgan GBI-EM Global Diversified Index tracks the performance of local-currency bonds issued by emerging market governments. The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of

developed markets. The MSCI World Index represents 23 developed market countries. The MSCI All Country World Index is a market-capitalization-weighted index composed of over 2,400 companies, and is representative of the market

structure of 46 developed and emerging market countries. The index is calculated with net dividends reinvested in U.S. dollars. The MSCI EAFE Index is an unmanaged, market-capitalization-weighted equity index that represents the developed world outside North America. The MSCI Emerging Markets Index is a free float-adjusted market-capitalization-weighted index designed to measure the performance of global emerging

market equities. The NASDAQ Composite Index is a market-value-weighted index of all common stocks listed on the National Association of Securities Dealers Automated

Quotations (NASDAQ) system. The Russell 1000 Index includes 1000 of the largest U.S. equity securities based on market cap and current index membership; it is used to measure the

activity of the U.S. large-cap equity market. The Russell 2000 Index includes 2000 small-cap U.S. equity names and is used to measure the activity of the U.S. small-cap equity market. The S&P 500 Index is a capitalization-weighted index made up of 500 widely held large-cap U.S. stocks in the Industrials, Transportation, Utilities and

Financials sectors. Investing Terminology Alpha is a measure of a portfolio’s return above a certain benchmarked return. Alternative Investments are investments that are not one of the three traditional asset types (stocks, bonds and cash). Alternative investments include

hedge funds, managed futures, real estate, commodities, and derivatives contracts. Asset-Backed Securities (ABS) are bonds backed by a pool of loans or accounts receivable and commonly include payments from credit cards, auto loans

and mortgage loans. Austerity refers to measures taken by a country’s government in an effort to reduce expenditures and a budget deficit. Beta is a measure of the volatility or systematic risk of a security or a portfolio in comparison to the market as a whole. Book-to-Price Ratio is the inverse of the price-to-book ratio, which is calculated as the market value of a security divided by its book value. A lower the

price-to-book ratio for a security may mean the security is undervalued, and vice versa (the higher the book-to-price ratio, the better the value). Commercial Mortgage-Backed Securities (CMBS) are pools of commercial mortgage loans that are packaged together and sold to the public. They are

usually structured in tranches, or classes of risk, so that investors can determine how much risk they want to take on. In general, CMBS carry less prepayment risk than loans backed by residential mortgages.

Corporate Bonds are debt securities issued by corporations to raise money; these bonds usually pay higher coupon rates than government or municipal bonds.

Correlation Risk refers to the change in the marked to market value of an asset when the correlation between the underlying assets changes over time. Credit Ratings are an assessment of the risk of default of a company or country. The higher the credit quality (or rating), the lower the perceived risk of

default. Cyclical Sectors or Stocks are those whose performance is closely tied to the economic environment and business cycle. Managers with a pro-cyclical

market view tend to favor stocks that are more sensitive to movements in the broad market and therefore tend to have more volatile performance. Debt-to-Equity Ratio is calculated as long-term debt divided by common shareholders’ equity, and measures the amount of a firm’s leverage, or debt. Donor Advised Funds are private funds administered by a third party and created for the purpose of managing charitable donations on behalf of an

organization, family, or individual. Duration is a measure of a security’s price sensitivity to changes in interest rates. Specifically, duration measures the potential change in value of a bond

that would result from a 1% change in interest rates. The shorter the duration of a bond, the less its price will potentially change as interest rates go up or down; conversely, the longer the duration of a bond, the more its price will potentially change.

Excess Returns are investment returns from a security or portfolio that exceed a benchmark or index with a similar level of risk. Grantor Retained Annuity Trust is an estate planning technique that minimizes the tax liability existing when intergenerational transfers of estate assets

occur. An irrevocable trust is created for a certain term or period of time. The individual establishing the trust pays a tax when the trust is established. Assets are placed under the trust and then an annuity is paid out every year. When the trust expires, the beneficiary receives the assets estate and gift tax free.

High Yield Debt is rated below investment grade and is considered to be riskier. Managed Futures strategies use futures contracts as part of their overall investment strategy. They provide portfolio diversification among various types of

investment styles and asset classes to help mitigate portfolio risk in a way that is not possible in direct equity investments. Market Capitalization is calculated as the number of company shares outstanding multiplied by the share price, and is used to determine the total market

value of a company. Momentum is the rate of acceleration for an economic, price or volume movement; it is used to locate trends within the market. Mortgage-Backed Securities (MBS) are pools of mortgage loans that are packaged together and sold to the public. They are usually structured in tranches,

or classes of risk, so that investors can determine how much risk they want to take on.

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Option-adjusted spreads estimate the difference in yield between a security or collection of securities and comparable Treasuries after removing the effects of any special features, such as provisions that allow an issuer to call a security before maturity.

Peripheral Eurozone Countries are those countries in the Eurozone with the smallest economies. Price-to-Book Ratio is calculated as the market value of a security divided by its book value. A lower the price-to-book ratio for a security may mean the

security is undervalued. Private Foundations are charitable organizations that do not qualify as public charities by government standards. A private foundation is a nonprofit

organization which is usually created via a single primary donation from an individual or a business and whose funds and programs are managed by its own trustees or directors.

Quantitative Easing refers to expansionary efforts by central banks to help increase the supply of money in the economy. Recapitalized/recapitalization refers to injecting fresh equity into a company or a bank, which can be used to absorb future losses. This generally takes

place through the company issuing new shares. In the case of a government or organization recapitalizing a bank, it usually results in the government or organization owning a stake in the bank.

Spreads: Yield spreads represents the difference in yields offered between corporate and government bonds. If they tighten, this means that the difference has decreased. If they widen, this means the difference has increased.

Standard Deviation: Statistical measure of historical volatility. A statistical measure of the distance a quantity is likely to lie from its average value. It is applied to the annual rate of return of an investment, to measure the investment's volatility (risk). Standard deviation is synonymous with volatility, in that the greater the standard deviation the more volatile an investment’s return will be. A standard deviation of zero would mean an investment has a return rate that never varies.

Treasuries are U.S. government debt obligations that are backed by the full faith and credit of the government. Often, they are used as a proxy for a risk-free asset when comparing other risky assets.

Yield Curves illustrate the relationship between the interest rate, or cost of borrowing, and the time to maturity. Yields move inversely to prices. The Barclays Capital 1-10 Year US TIPS Index: Barclays Capital 1-10 Year US TIPS Index measures the performance of inflation-protected public obligations of the U.S. Treasury that have a remaining maturity of one to ten years.

Other Sources: All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com,

guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.

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