Market Notes

June 6, 2018

Eagle, Colorado

All eyes are on trade talks this week with the G7 meetings coming up in Charlevoix, Quebec, Canada on Friday and Saturday. The press is coining it the “G6 + the United States”. Given the current state of geo-politics, this meeting could produce some market moving tweets!

In the last blog on May 14th, we noted a “breakout” in equity prices and this gave us cause to stay bullish on the markets but we also noted that:

“Even with this technical breakout we could see markets trade sideways for a while for any number of reasons.”

Well – that about sums up what has happened over the past couple of weeks. We were a little concerned that the financial media had really gotten hold of the chart patterns we had been referencing and to some extent when everyone is looking for the same thing to happen it almost never does. We call this the “pain trade” – the market moves in the direction that will hurt the most short-term speculators the worst – in this case, nowhere. We don’t worry about these gyrations too much in our core investment portfolios. For the long-term we are still in a measurable up-trend and until we have evidence to the contrary we are staying long (invested).

We are continuing to evaluate bonds of high-quality companies as an alternative for a portion of some of the bond ETFs that we currently hold and last week we bought our first CD in many years (at a yield of 1.75% for 2 months!). We still like the bond ETFs in our portfolio and wouldn’t choose anything else for diversified open-end investments. However, it is the very “open-end” structure of the instruments that we are questioning in this case.

You see, bonds don’t trade like stocks do. Pretty much anywhere in the world anyone can hop on a computer and go on over to, open an account and buy shares of stock in a few minutes. Buying bonds is different. Normally, you have to get on the phone and talk to a human and arrange the transaction the old fashioned (and relatively slower) way. Selling bonds is often even slower. As a result of this slower way of transacting business, the SEC mandate that ETFs allow us to buy and sell all day long puts the fund in a risky spot. For example, if enough investors on any given day decide to liquidate their position and the portfolio manger is unable to “get on the phone” with enough counterparties fast enough how could the fund generate enough cash to satisfy those redemptions? We aren’t necessarily suggesting that this will happen, just that it could. We have already taken steps to protect our portfolios from this risk by allocating to closed-end funds. But: TINSTAFL – There is no such thing as a free lunch – so in exchange for protection against the risk described above in ETFs, closed-end funds come with an increased level of price volatility which has been a drag on performance 2018, YTD.

On that same topic, 2018 has been tough for balanced portfolios. The typical 60% stock and 40% bond portfolio typically balances equity and bond returns but according to Jason Goepfert at

“Over the past few months, there was a 5-year high in days where stocks sold off and bonds did too.”

Sentimentrader produces some of the best data research available – we love it. Thankfully, Jason goes on to say:

“Other times when bonds failed to provide a cushion for stocks did not consistently lead to losses, though.”

So, as our president likes to say – we’ll see what happens.

We are watching closely, looking for opportunities to take gains where appropriate and allocate to value.


Shane Fleury, CIO

Elevate Capital Advisors


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