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How the Market Works

Roy Rogers

Posted by kdadmin on October 15th, 2013.

“I am more concerned about the return OF my money, than the return ON my money.”
– Roy Rogers

One of the best things about paying through the nose for detailed, timely economic analysis by the top firm in the country (MacroAdvisers) is that I’m advised of the likely impact of market events by a disinterested third party. So, when I’ve been having a nagging “spidey sense” about the market, and I get a memo from my them, it’s cause for deeper analysis.

For example, in early September, 2012, I had concern about TLT (a 20 year treasury bond ETF). I discussed my concerns with them, read their analysis, and promptly dropped our position in TLT. At that point, it was trading at $124.33/share. Now it’s trading at $104.54. That’s a 16% loss during a time when the S&P 500 was up by nearly 25%. (Source: Yahoo Finance)

Roy Rogers
After reading yesterday’s (10/15/13) detailed analysis of the potential default scenarios (brought to you by the clods in Washington), I thought it wise to be happy about our nearly 12% average one year trailing returns (this includes having a lot of money in cash for the last quarter). So, I sold everything (except your tiny pet positions for those of you that have them).

We’re now sitting in cash. According to the analysis, the upside of staying in the market is slow growth, the downside is either total catastrophe or mild catastrophe. I figured you’d be happier with a bird in the hand.

Some of you will experience sizable long term capital gains, but I think that’s better than sizable capital losses, regardless of your tax situation.

For those of you who have 401k accounts and are my clients, I would advise that you login and sell your positions to cash, (or whatever non-treasury based stable value or money market fund you have). I’ll be calling you about this as you need to do it before market close (at 3:00pm central time). Doing it before 2:00pm is a better choice as sometimes you’ll need tech support.

If Washington magically pulls a rabbit out of the hat, we’ll get back in, but I’d rather not be the last person without a chair if the music stops.

Call me if you’d like to discuss this further.
Happy Fall.


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