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Jim: Hi everyone, today is Thursday, November 2, 2017 and this is our weekly market update call with financial news and information plus a review of our market indicators.

I keep getting negative nods from financial industry friends that we are not in a bubble. I don’t agree with that, but of course I only have a couple of bubble histories in my career to relate to. The most prominent bubble was the tech bubble that ended when the beginning of the longest bear market commenced in March of 2000. That bear market was the longest in stock market history and lasted 31 months and saw the major market index decline by 50%. That means if you retired on March 1, 2000 and had $2,000,000 in assets and started taking a 5% distribution and took it throughout that period, you had about $800,000 at the end of 2002. That’s how serious that decline was that followed that bubble. Not all bubbles finish out that way, that’s just an illustration.

During the bubble, traders claimed they can’t believe a top is near and investors made money at exorbitant rates. The safe rate of income at that time was about 6%, so anything above that is going to be an aberration and a risky extension of valuations. As investors, over the long, long term—assuming we don’t have to take income—are entitled to about an 8-11% annualized rate. Anything above that is considered riskier, anything below that is considered more conservative.

Bubbles have cheerleaders masqueraded as traders, novice investors and non-financial gurus. And, in my opinion, are accompanied by signs of activities and events that describe valuations that are out of reach of 99% of the population. Here are bubbles that I have identified just in the past 10 days:

• Last Friday a trader said out loud to the Wall Street Journal, “today’s tech stock surge could reflect an investor confidence that is out of whack with reality.” *
• Other quote from the same newspaper, “Friday, October 27 was the craziest behavior I have seen since 2000.”*
• Bill Miller, the investment guru money manager who was the leader on Wall Street in 1997 to 2000 [and who collapsed in the ensuing bear market] is currently bragging he is up 75% this year alone.**
• The US consumer savings rate is at its lowest in 10 years—that’s right, since 2007, you all remember that year.
• And finally for this week, the global demand for cognac is at its new highest record.***

*Source - https://www.wsj.com/articles/tech-stocks-roar-again-in-faint-echo-of-2000-1509143296

** Source - https://blogs.wsj.com/moneybeat/2017/10/27/30-of-your-assets-in-bitcoin/

***Source - https://www.wsj.com/articles/hennessy-struggles-to-make-the-most-of-growing-thirst-for-cognac-1509116402

Another sign we are in a bubble? Financial industry professionals are quick to point out we are not in a bubble.

This week's indicators . . . 

Our indicators begin with three large groups of stocks. These groups range in size from 2200 to 3600 companies. One group is comprised of companies that trade on the New York Stock Exchange, another is comprised of companies that trade in the Over the Counter Market and the third is a combination of those two groups. What distinguishes that third group is that it is made up of companies from each of the first two groups but only with stocks that have option agreements—that trade parallel to the stock—through the Option Clearing Corporation's exchanges.

The reason why we track large groups is because the law of large numbers is a lighthouse, if you will, as the probability of investment choice can be enhanced by tracking how the large group is changing inside.

All three groups are lined up in good shape to provide bullish support to purchases and current holdings. We have been reducing positions that have had any losses or not as robust a gain as its portfolio counterparts. We continue to look to add to our portfolios or replace with better candidates for growth.

We also rank 6 different asset classes. Right now the top three are domestic equities, international equities and fixed income. The bottom, less attractive 3 classes are cash, commodities and international currencies. Yes, that bottom three ranking is telling you that being in cash will most likely be better than being in the two classes behind it.

Interest rates? We follow the short term rate of the 13 week Treasury bill. That rate is at 1.06% and is up slightly from last week. The intermediate rates of the 5-year and 10-year treasuries have declined in the past week. They are now at 2.02% and 2.35%, respectively, both lower than last week as is the 30-year treasury, it is at 2.85%, Those 5, 10 and 30 year lower yields continue to support the fact that fixed income is ranked in third place as the place to be in the six asset classes mentioned above.

That's all for today's call. Does anyone have any questions or comments?

Opinions expressed are not necessarily those of Raymond James & Associates. The author's opinions are subject to change without notice. Information contained was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. There is no assurance these trends will continue or that forecasts mentioned will occur.

Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security.

There is an inverse relationship between interest rate moments and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices rise. One basis point is equal to 1/100^th of 1%, or 0.01% (0.0001).

Commodities are generally considered speculative because of the significant potential for investment loss. U.S. Treasury securities are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value.

International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets.

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