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Morning Tack

Jim: Hi everyone,

If you are a client in Seattle, San Francisco, Dallas, Chicago, Tampa or Montreal, you can ignore the next few sentences. The rest us are feeling the pain of the rain and it doesn’t look like it’s going to let up on the east coast until Sunday or Monday. Last week, the world championship bicycle races were in Richmond and the predicted rain never materialized, this week it is making up for that.

Bernie is at the annual Raymond James Women’s Conference in St. Petersburg Florida and is expected to be back in the office Monday and back on our mid-week, midday market update call next Wednesday.

Today’s comments will be limited to the guidance suggested by Jeffrey Saut, our head strategist at Raymond James and our data partners at Dorsey Wright, where we pull information used in our investment decisions.

Jeff points out that the sentiment on the street is confusion, there are so many opinions out there that he reflected on a 30-year old market note from Bob Farrell at Merrill Lynch in the 1980’s. It will be attached to this transcript once posted on our website. Most of it I won’t bother quoting for that reason, but a few points are worth highlighting because they resonate so clearly with the reality we are faced with as investors.

1. Markets tend to return to an average over time.

2. Excesses in one direction will lead to an opposite excess in the other direction.

3. The public buys most at the top and the least at the bottom.

4. Fear and greed are stronger than long term resolve or planning.

5. When all experts and forecasts agree – something else is going to happen.

The hardest part of what we do is not just managing expectations and making sure we are aligned with you, but like a car without oil, our relationship will not work well with managing expectations or anything else, without a basis of trust.

To try to build this, we spend much more time than the average financial advisor team when you refer a new client to us. We educate new clients on our investment process and our service plan, but not without securing a foothold on the new client’s investment experience, past accomplishments, current objectives and knowledge of the risk tolerance of all account holders.

At the end of the day, some clients still think we have the keyhole to the future. In fact, our investment ownership process gives signals that are more often correct, but nothing we do has a guarantee. We have managed to do quite well in our signature portfolio model, what we call the Staby Equity account. Elsewhere, we have been market performers with two portfolio models and better than market performers in the rest.

In volatile times, especially the mid-August period this year, we wait until markets settle out before making changes, we look for 3 days of positive or flat markets as our optimal period to do so and we came close in the last few days, which is why I moved this week’s mid-week market update call to today from this Wednesday, as I was hoping we’d be making those changes today. What I plan to do is reduce some of our more market sensitive holdings today or Monday, as I don’t want to wait much longer without doing so.

Scott Brown, our chief economist, tells us we have an economy running with some efficiency and with low to neutral inflation warnings. What the markets tell us is that some of the investor world believes that and the other part does not. Our own indicators are helping us push the buttons to reduce our positions for the time being and we will do that over the next trading session or two.

We will try to take advantage of the premiums in the options that trade parallel to our holdings and see if we can add some credits to increase safety and income. We don’t have a positive consensus in our indicators and we will act accordingly.

We are the only industry besides weather forecasting where we are expected to know the future. Sometimes we can base expectations on our indicators and past history, but the reality is that the future is not ours to know. If the weather disappoints us, we can wear different clothing or carry umbrellas. In our world, we need to sell something or try to protect capital in limited ways. There are few umbrellas that keep umbrella holders completely dry, and similarly we cannot avoid the full force of gravity. Fortunately we have a plan that shows that we can do that, but not in every model we run.

Lastly, our investors know the drill. That drill is that theoretical investors want to be fully invested when the market is roaring higher and substantially in cash when it’s going in the opposite direction. The operation of managing that is the task at hand that would require a magic wand to do it perfectly, something we don’t have. But we end up somewhere in the middle thanks to healthy indicators and an understanding of managing risk and how it can change.

Those are my comments for today, are there any questions or comments. If not, I will wish you one great weekend and Bernie and I will be back with you next Wednesday at 12:00 noon, ET

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. It is not possible to invest directly in an index.

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