market climate and weather forecast

Market Climateand Weather Forecast

Presented by Herb Geissler, Managing Director of The St.Clair Group

Rational Investing/VectorVest Special Interest Group of Pittsburgh AAIINovember, 2012

"It is not the strongest of the species that survives, nor the most intelligent,

but the ones most adaptable to change." Charles Darwin

Secular Bear Market RequiresDifferent Strategies Than During

Bull

Avoiding losses is more important than going after

big gains

Kuznets’ Infrastructure cycle averages 17.6 years for each bull or bear phase

PE Likely To Halve Before Bear Ends

88

Spending Problem is Severe

Congress Must Bite the BulletSequestration on March

1 would trim 10% from 36%

Ominous Triple Top Implies Halving of Market

Value

1500

Hirsch Foresees Six More Years of Pain

Little Book of Market Cycles: Jeff Hirsch

Dow plunges from 14,000 to

8,000

Bear Market Post-Election Years Are Barely Profitable

15 % drop

Current Bull Rally is In-line With Past Pattern

March peak

6 % dropTo April

Low

10% FallCorectio

n

15% FallCorrection in 2014

February 2013February 2013 Long-Term Long-Term

Strategic ConclusionsStrategic Conclusions

1. At mid-point of Kuznets’ cycle, upside is limited; cautious selections and disciplined timing (in and out) are essential. Even bonds are risky now.

2. Deleveraging heavy borrowings, after spending beyond our means, increases unemployment and will cause recessions during next several years.

3. But benchwarmers can’t score points. Look for emerging trends early (eg: fracked natgas) and clearly (Ag commodities vs Industrial minerals)

4. Disciplined timing to lock-in gains is a survival skill in this roller coaster market.

Market Tracks GDP

WLI Tracks GDP andEvidences Past Year of

Recovery

Positive and rising PMI’s support rising marketMarket rises when ISM is above 50, except right after 9/11/2001

Consumer Spending is supporting retail,

wholesale, healthcare and services sectors

Stalling CAPEX Raises Doubts

recent “up-tick” was driven by tax-credits expiring

Financials Often Are Harbingers of Market

Recoveries

Fed Stimulus Liquidity Has Been Real Driver of Bull Market

February 2013February 2013 Intermediate-Term Intermediate-Term

Strategic ConclusionsStrategic ConclusionsLiquidity from Fed still flowing strongly, keeping interest rates lowU.S manufacturing sector becoming healthier,Unemployment is stabilizing temporarily,Europe is resolving its sovereign debt concerns,Emerging Markets are regaining strength. All support bullish US stock market for next few months.

But political uncertainties necessitate investing methods with great selectivity (eg: watch sector rotation) and also using caution in strategies and vehicles.

Remember: we are still in the Kuznets Bear Phase

Weather Forecastfor More Active Investors

When the facts change, I change my position.What do you do, sir?

- John Maynard Keynes

12-Month Moving Average Helps Avoid Major

Collapses

7% above Bear-Zone

IVY Invests Very Defensively

IVY Invests Very Defensively

MTI15 Signaled Exit Before Election,

Confirmed Bull’s Return at Thanksgiving,

But Now is Dangerously Close to 1.6

Topping Flagged Last Week by % of S&P Stocks Above

MA50

Bull’s End Is Confirmed When Summation Index Crosses its

MA20

Traders Still Showing No Fear,

Suggesting a Mild Correction

50/50/0 Rules Shows Rollover,

But Not Yet Confirming Exit

Investors Fleeing Bonds, Fueling Liquidity into Stocks

And Gold Has Not YetRegained Its Luster

High Quality Dividend Stocks Are Favored During Weak Bull

PeriodsRevealing Weakness of Today’s Bullish Levels

Contra ETFs Remain a Risky and Bad Bet

February 2013February 2013 Short-Term Short-Term

Strategic ConclusionsStrategic Conclusions1. Hot market is now chilling out

Topping out and roll-over patterns reveal current risks Tight stops and caution is prudent for stockpiling ammunition

2. Liquidity from QE and bond sell-off provides cushion

Pending correction likely to be a mild 5-10%, making it a buying opportunity rather than a sell-off trigger signal

Simple spreadsheets can signal when to sell and re-buy

3. Preferred Havens are Cash and/or strong and “safe” dividend equities

REITs, Production MLPs, Utilities, Food Makers considered to be attractive havens

Watch for Financials (XLF) to sustain break-out before leaving bunker

Remember: we are still in the Kuznets Bear Phase

Any QuestionsBefore re-grouping into discussion

clusters?