by Dexter Lyons, NAAIM Member
Bottom line: As of 5/13/16, SPY is up 0.95% YTD (10.3% MDD) and is only 2.5% from an all-time-high BUT what catalyst will sustain it above this resistance ceiling?
1) On a risk-adjusted basis, senior loans, floating rates and munis with 2:1 leverage makes a lot of since to me …..in this current market.
2) The annualized rate of a 2:1 leveraged portfolio in senior loans, floating rates and munis is about 26% with draw downs of about 1/10% since 4/8/16.
3) A 26% annualized rate of return with minimal risk (so far) is a decent return in this market environment.
4) Return should always be viewed in the context of risk and if you are not monitoring your risk on a daily basis, please hire someone who does that for a living.
5) I can not control the return I get but I can attempt to limit my draw downs and to me it is all about managing the risk (draw downs) in this market environment.
6) At the end of the day, it is not what you make……… it is what you keep that matters and “hope” is not an investment strategy.
7) It takes discipline and hard work to succeed long-term in this business and it is only by the Grace of God that I am able to do what I do with such passion.
8) I was blessed in my younger years with great returns and now my focus is more on safety then growth …….if the market is rewarding me for taking risk.
9) The last estimate of GDP growth came at 0.5% which is zero growth in my opinion therefor I do not see interest rates rising anytime soon so bonds should do well.
10) Janet Yellen (Fed Chair) said that she would not rule out the use of negative interest rates if needed to bail us out of trouble down the road (is she trying to tell us something?).
11) The Retail Index (XRT) is down 9.9% since 3/31/16 which means the consumer is not consuming which leads to a further slowdown in growth expectations.
12) The Copper ETF (JJC) which is a leading indicator for economic growth is down 10% since 4/29/16 which tells me that things are not as good a the media tries to spin it.
13) The dollar (UUP) has bounced up 2% from a recent bottom and it looks like the dollar will trend up for a while because on a relative basis it is the shortest midget.
14) If the dollar bottom is in and it does trend higher (which I expect) then oil, junk bonds and emerging market stocks and bonds should fall hard as recessionary pressures around the globe force us into a steep correction.
15) In my opinion, the market is preparing us for lower growth and lower interest rates so bonds should do well (if interest rates go down then bond prices must go up).
16) The oil rig count fell (8th straight week) by 10 to 318 which is the lowest rig count since October 2009.
17) Brazil began an impeachment trial of its current president and 2/3 of its congress is under investigation so relatively speaking the US is not so bad after all.
18) No matter what happens, God is still in control and that gives me a Peace that surpasses all Understanding.
1 Chronicles 12:32 “[the] Sons of Issachar were known for their Understanding of the times….”
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Dexter P. Lyons
Senior Portfolio Manager
106 Valerie Drive . Lafayette, LA 70508
Office 337-983-0676 Dexter@LIONX.net
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Managing Market Risk Since 1990!