trump rally - part 2 underway?...relative outperformance and underperformance to this risk-free...

THE Global View REPORTQ1-2018 Highlights

TRUMP RALLY - PART 2 UNDERWAY?

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The Global View ReportFebruary 6, 2018

Dina Fliss

With the U.S. and global economies on a tear, investors have been concerned that with fiscal policy creating real economic growth, the Fed and other Central Banks can begin to “normalize” interest

rates. For years we have heard about the New Normal, whereas interest rates would never return to historical norm because of the level of debt held by governments, corporations and individuals.

The Federal Reserve controls the “price of money” meaning the rate of interest charged on all levels of debt. With the newly appointed Fed Chairman, Jerome Powell replacing retiring Janet Yellen, the markets are expecting Powell to be more pragmatic than Yellen. Powell’s experience is as a banker businessman whereas Yellen is an economist.

As of this writing the futures market is pricing in a more than 50% probability for three interest rate increases and a 17% probability for a potential fourth. To understand how that may affect stock prices, one must understand how it affects the price of all existing bonds.

When interest rates rise, the price of bonds fall (think of a see-saw). Conversely, when interest rates fall, bond prices rise. The reason is because as interest rates move, the price of the bond reacts to the original price the bond was issued at. For example, if the original bond was valued at $1,000 and promised to pay 4% ($1,000 x 4% = $40) and now interest rates rise to 5%, then the price of the bond falls in relation to the same yield ($40 divided by 5% = $800). You have lost $200 in principal of your original investment.

Rising interest rates can also pull down the price of stocks, especially if the company carries a lot of debt and needs to borrow more to operate. If the company holds bonds on its balance sheet and interest rates rise, the value of the bonds fall, reducing the overall net worth of the company. Plus the cost of borrowing rises.

To determine a company’s book value, you would simply divide its net worth by the number of shares outstanding. Lower net worth with the same number of shares equals a lower price per share. Once market participants do the math, market prices adjust down accordingly.

Of course, all of this happens at the speed of algorithmic trading catching most investors off guard. This is why we believe having a tactical manager for BOTH bonds and stocks is necessary.

When will the market fall next is not an “if” but “when” and it helps to understand where investor psychology is. There’s plenty of data informing us that investors are in a FOMO mood (fear-of-missing-out) and are willing to put cash into the market. After all, with investor confidence

Will Rising Rates Tank the Stock Market?

Change in Interest Rate

1.00% 2.00% 3.00% 4.00% 5.00%

Impact on Bond Prices2 Year

Treasury -1.41% -2.80% -4.16% -5.72% -7.08%

5 Year Treasury -4.26% -8.31% -12.17% -16.02% -19.56%

10 Year Treasury -8.23% -15.74% -22.53% -28.69% -34.34%

30 Year Treasury -17.44% -30.04% -41.72% -50.27% -57.02%

“Bull markets are born on pessimism, grow on skepticism,

mature on optimism and die on euphoria.” Sir John Templeton

Source 1

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high and money market rates still at ridiculously low interest rates, investors have been willing to move out on the risk spectrum and go for it.

However, investors tend to be horrible market timers, moving back into the market near market tops and capitulating at market bottoms. At Global View Capital Management we expect that volatility will return and believe that a strong defensive discipline helps to keep the investor invested through all market conditions by allowing tactical money managers to move through all cycles. After all, the markets can move irrationally higher from here before prices adjust to the underlying fundamentals of the business and economy.

To put it all into a long term perspective, the chart below shows the S&P 500 over the last 118 years. There were long periods of time where being in stocks was great and other times where not. During secular bear markets, being in cash or bonds would’ve been a better choice. In fact, about two-thirds of the time stocks are a better choice. Having a tactical manager that can maneuver through all market cycles while reducing severe drawdowns can help to keep investors focused on what’s most important, having money serve your life rather than being your life.

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The world is changing rapidly and we want to keep you abreast of the changes that are most relevant!

We are holding a series of special webinars for clients called, “Global View Big Ideas for 2018,” where we will cover the most requested topics of late such as “How does the Tax Cuts & Jobs Act impacts my financial life?” “Is the market overvalued, how can I invest in emerging technologies?” “Should I invest in blockchain and bitcoin?”, to name a few.

Global View has been performing serious research into all of these areas and has begun to implement it’s “Leading Edge” strategies (see chart on page 5) for our investors to gain access to these areas of interest. There are number of planning and investment opportunities that may be available to you, so please join us for this powerful webinar.

One of the most exciting areas of our research last year was in the area of disruptive innovation. We have identified five disruptive innovation

Chart of the Month

platforms that may be equally as big as the three biggest innovations in the late 1800s. They were the internal combustion engine, the telephone and electric lighting. In just 20 short years from 1860-1880, the way we lived and worked for the past 150 years was transformed.

We believe that the innovation platforms currently developing could be as transformative and evolve at a faster rate than in the late 1800s. What is particularly exciting to us here at Global View is that five innovative platforms are evolving simultaneously: genome sequencing, automation, energy storage, connect mobile devices/artificial intelligence, blockchain technology and all of these are synchronizing globally.

Most of the growth in the stock market since the financial crisis of 2008 has been a product of financial

Source 4

https://attendee.gotowebinar.com/register/6132781579212008705



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engineering, (mostly as stock buybacks) not addressing top line revenue growth through innovation. From the depths of the financial crisis, a whole new generation of creative geniuses developed new solutions and these innovations are wreaking havoc on traditional business models.

Combined with tax reform, these innovation platforms have the potential to be unleashed at a pace that most of Wall Street has yet to acknowledge and recognize. In addition, the economic models utilized by both the government and the Fed view the world through models developed after 1950. What they may be missing was that in the late 1800s unit growth and productivity exploded as costs dropped, inverting the yield curve. By today’s model metrics, an inverted yield curve has traditionally signaled a recession. However, we may well be in the early stages of real economic growth. We may witness violent swings as the old economy moves through a creative destruction phase and to make room for the new economy to emerge. Having a tactical manager should be essential.

The stars are aligning and we have identified a convergence

of disruptive innovation in several sectors.

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$149,185

10/14 ‘15 ’16 ‘17 ’18

$100,000

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$150,000

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GTAC Tactical Leading Edge Strategy (net of 2.4% fees)

S&P 500 Total Return Index

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Market Trends Quickview

The Market Trends Quickview™ is designed to help investors with a simple “at-a-glance” view of major asset classes and sectors across world markets to determine their relative strength rankings. In addition, these trend signals which generate a BUY ( ) or SELL ( ) are the proprietary research of AdvisorGuide LLC (AG), the research arm of Global View Capital Management, Ltd. The intermediate trend signals are designed to identify 2-4 opportunities over a 12-month period. The long-term trend signals are designed to identify major market movements spanning several years.

The daily signals are rooted in the science of Adaptive Channel Breakouts, a proven methodology that highlights when price movement breaks out of its natural trend channel. Relative strength is determined by the fluctuation of price movement of each asset class and sector relative to each other. This is a technical representation of the aggregate buyers’ demand and aggregate sellers’ disdain for an asset class or sector without consideration of the underlying fundamentals. This can be easily understood by the basic tenets of supply and demand.

The Market Trends Quickview™ uses a *Relative Strength Ranking (AG% Rank) to compare performance on a scale of 0 (strongest) to 100 (weakest). Additionally, relative strength analysis includes money markets (cash) in order to quickly ascertain relative outperformance and underperformance to this risk-free asset (cash).

Names IT Signal LT Signal *AG% Rank 1M Return 3M Return YTD Return

Dow Jones Industrial Average 0 3.40% 10.96% 28.11%DJ UBS Crude Oil Index 1 5.44% 15.64% 4.10%

S&P 500 LargeCap Index 8 1.98% 6.64% 21.83%Dow Jones Transportation Average 25 5.43% 7.43% 19.02%

NYSE Financial Index 28 1.81% 5.85% 18.31%MSCI Canada Index (iShares) 40 2.56% 2.32% 13.24%

Money Market Fund 43 0.10% 0.30% 1.02%PSE Technology Index 44 0.63% 4.77% 30.78%ML Treasury Bill Index 45 0.10% 0.24% 0.81%

S&P 400 MidCap Index (iShares) 46 0.79% 6.25% 16.24%MSCI EAFE Index (iShares) 51 0.54% 3.01% 21.88%

ML High Yield Bond Master II Index 69 0.32% 0.41% 7.47%Russell 2000 SmallCap Index 72 -0.26% 3.34% 14.65%ML US 20 Yr Treasury Index 73 1.45% 2.37% 8.69%

London Gold - Afternoon Fix Index 85 0.56% 0.62% 12.66%TIPS Bond Index (iShares) 88 0.33% 0.54% 0.88%

Dow Jones Utility Average 90 -5.58% 0.73% 13.35%

DJ China Broad Market Index 92 -1.08% -0.73% 6.26%US Dollar Index 97 -0.26% -0.06% -10.03%

Barclay’s 7-10 Yr Treasury Index (iShares) 98 -0.34% -0.81% 0.77%

As of 12/31/17

Source and disclosure 7

Money Market Ranking: 43

It is important to acknowledge that it is impossible to know where the top and bottom is, but it can be of significant value to know the new trend, once established. Having professional help that takes disciplined action is an important step to staying consistent through all market conditions.

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As of 12/31/17

Dina Fliss

Trends in the U.S. Economy: The U.S. economy is experiencing one of its most explosive growth phases since the financial crisis of 2008. There’s plenty to be optimistic about:

• The Tax Cuts & Jobs Act passed by Congress and signed into law on December 20, 2017 ushers in the biggest changes in tax code in more than 30 years. Although the primary thrust of the reform bill was to fundamentally change how businesses will be taxed, there were a number of significant planning moves that individuals should consider, including, new tax rates, deductions and how families pass on wealth to their heirs.

• American businesses are incented to invest and grow their businesses. Among the incentives contained in the tax reform bill are immediate deductions for capital spending (as opposed to a 10-year depreciation schedule) and a reduction from a 35% corporate tax rate to 21% for C-Corps. For all other corporate structures known as “pass-throughs” there are significant incentives to hire, increase wages and make investments to receive the 20% tax deduction. 95% of all businesses are pass-through entities.

• A one-time only repatriation tax of 15.5% on cash and only 8% on illiquid assets. An estimated $3 trillion dollars of profits from U.S. corporations have been parked in off-shore jurisdictions. Previously to bring those profits home, corporations were taxed at 35%. The tax reform bill is moving the old corporate tax system from a worldwide tax system to a territorial system. The new

territorial system will finally be in line with the rest of the world. As trillions come back onshore, the U.S. will be the greatest beneficiary and in turn, our economy and workers.

• The stock market has been on a tear. For years since the financial crisis, Central Banks around the world printed over $15 trillion to support both the bond and stock markets. Stocks were one of the primary beneficiaries as asset prices grew. However, monetary policy can only achieve stability for so long before fiscal policies become necessary for real economic growth, innovation and productivity. Pro-growth policies from Washington D.C. have been the salvo that Central Banks have been calling for.

• Consumer confidence is high. Each quarterly report indicates that consumers are willing to spend, borrow and invest across the housing, retail, financial and consumer discretionary sectors. 2018 corporate guidance is exceeding 2017 as businesses are gearing up for an increase in consumer activity. Consumer spending will likely surpass $14 trillion in 2018.

As a result, expectations about the economy are changing rapidly. The Atlanta Fed is now projecting real GDP growth at a 5.4% annual rate of growth in the first quarter, which would be the fastest growth for any quarter since 2003. The real economy is finally showing signs of an overdue acceleration, acting as a tailwind for equities, not a headwind.

Global Economic & Industry Trends Driving Performance

As the Fed and central banks withdraw their

stimulus programs, volatility will return!

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Dina Fliss

Global Growth & Industry Trends: According to the International Monetary Fund (IMF), 99.6% of countries are slated for growth for 2018.

• A new version of the Trans-Pacific Partnership has formed without U.S. involvement. However, there are provisions to include the U.S. should we choose to join. The current administration prefers to strike trade agreements on a bilateral basis; meaning, between the U.S. and one other party or country at a time. This allows the U.S. to more easily protect its interests. Historically, foreign governments have subsidized their “home corporations” in order to artificially lower costs and undercut U.S. companies.

• Automotive – The prospects of autonomous vehicles powered by electrification will require governments and policy makers at all levels to build up utility grids as we shift from the internal combustion engine to electric AVs. Battery storage innovation will solve the distance anxiety and oil companies are committed to adding electric charging stations at gas stations.

• Retail – The Economist predicts that global ecommerce will grow by a whopping 20% in 2018. Amazon is currently in the lead (77% market penetration) of voice-activated assistants and software via Alexa. 50% of ecommerce sales (globally) are estimated to be conducted from China alone, as merchant Alibaba is expected to grow by more than 40%.

• Technology – As the Internet of Things, augmented reality, virtual reality and the promise of 5G networks take shape, this hot tech trend could be as disruptive to broadband (Wi-Fi) as the mobile phone was to landlines.

• Telecom – The average revenue-per-user is falling in every region of the world, as free apps such as messaging replace voice. If there’s an infrastructure deal in the U.S. between public and private partnership, the commercial opportunities to fund by traditional private means could accelerate the emergence of 5G, leading the way for the rest of the world.

While the global economy is stable, and the U.S. is the strongest it’s been in years, volatility should be expected in 2018. So, where’s the Boogeyman? Will it be rapidly rising interest rates, a return of inflation, a geopolitical crisis, or a recession that knocks this bull market over?

We believe that’s what a tactical manager is for: to stay close to the exit should conditions change. While our technical indicators and research partners are showing “risk on,” we will continue to take advantage of what the current market conditions are providing and stay vigilant to play defense when necessary.

Continued Global Economic & Industry Trends Driving Performance

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Barry Arnold

Happy 9th Birthday, Mr. Bull!

In just over one month, investors will be celebrating this bull market’s ninth year of existence (assuming we haven’t devolved into a bear market by then). As we all painfully remember, the Financial Crisis of 2008 culminated in an incessant “waterboarding”

of daily declines in early 2009. One day after another in January and February, the equity markets just bled. That finally came to an end on March 9, 2009, when the current bull market was born. In honor of this bull’s upcoming 9-year milestone, we list a few interesting tidbits and factoids of this historic bull run:

1. January 2018 marks the 15th consecutive month that the U.S. stock market, as measured by the S&P 500 Index, has gone up.

2. This is the longest monthly “winning streak” since 1959.3. The S&P 500’s recent 402-trading-day-streak without a 5% pullback (from 6/28/16 to 1/31/18) now

ranks #1 dating to 1928. [With this past week’s market action, that streak is over.]4. The #2-ranked streak of 394 days occurred from 12/21/94 to 7/11/96. Interestingly, after a correction

of -11.9%, the stock market DOUBLED over the next two years.5. The U.S. stock market has added $8 trillion in market value (+33%) since the 2016 presidential election

and now totals nearly $32 trillion (see chart below, courtesy of SirChartsAlot, Inc.).6. According to The Chartist Newsletter (01/25/18), this bull market has been in effect for 3253 days – the

2nd-longest on record. The longest bull market? It lasted 4494 days through the entire decade of the 1990s (12/4/1987-3/24/2000).

7. “As January goes, so goes the year.” According to popular technical indicator, the January Barometer, 2018 should be a positive year after the S&P 500’s +5.6% romp in January.

8. Thank you, Eagles! According to the speculative (yet surprisingly accurate) Super Bowl Indicator, anytime an NFC team wins the big game, the year is likely to be bullish. Philadelphia’s victory over the Pats is good for the bulls!

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1 Source: Calculated by GVCM using data from Bloomberg2 Source: Global Money Trends Magazine, July 4, 20143 Source: GVCM and MetaStock,Inc. Monthly data from 1/1/1900 – 1/31/2018.4 Source: ARK Invest5 Source: GVCM and AdvisorGuide, Inc. Monthly data 10/31/14-01/31/18.6 Source: Forbes Magazine June 6, 20057 Source: GVCM and AdvisorGuide, Inc. Monthly data from 1/1/2017-12/29/17.8 Source: SirChartsAlot.com

Disclosure: the research signals in the chart above are from actual long-term trend signals based upon relative strength and momen-tum indicators. GVCM utilizes the signals as guidance in determining a proprietary combination of technical, quantitative, and economic indicators to specific exchange traded funds and mutual funds selected for the various investment programs offered for our client accounts. Buys and Sells may have or may not have occurred on the exact dates shown and do not necessarily reflect transactions applied to every individual account. The chart is for illustrative purposes only and is limited to general information pertaining to GVCM’s investment programs.

All performance returns are HYPOTHETICAL in nature. The GVCM program results DO NOT represent actual trading using client as-sets but were achieved by means of retroactive application of a computer model with the benefit of hindsight to demonstrate how thecombination would have performed in the historical period noted. The investment return and principal value of an investment may belower or higher than the performance as shown; and an investor’s investment upon redemption may be more or less than their originalcost.

Information contained in this material is intended solely for informational purposes only and is not an offer or solicitation to buy or sellany security, index, mutual fund or Exchange Traded Fund (ETF); nor to offer investment advice. GVCM does not guarantee the accuracyor completeness of this information, nor does GVCM assume any liability for any loss that may result from reliance by any person uponany such information or opinions. Such information and opinions are subject to change without notice and are for general informationonly and is not a complete analysis of every material fact. All investment strategies involve the risk of financial loss. Past performancedoes not guarantee future results.

Advisory services offered through Global View Capital Management, LTD. (GVCM). GVCM is a SEC Registered Investment Advisory Firm headquartered at

N14 W 23833 Stone Ridge Dr., Suite 350, Waukesha, WI 53188 | (262) 650-1030 | gvcmanagement.com

trump rally - part 2 underway?...relative outperformance and underperformance to this risk-free...

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