The markets continue their volatility. Amid all the choppiness from 7/1/2013 – 9/30/2013, the S&P500 was up approximately 4.68% while the All-Climate Portfolio was up approximately 2.93%, net of fees over this same time period.

We will keep our focus on managing the risk of capital loss as we go forward while incorporating a posture of a tighter-framed management model to better manage the continued “choppy” markets. “Tightening the screws” is what my Grandpa use to say; this will enable us to better manage net performance while still keeping a solid eye on minimizing any potential draw-downs.

Now to the present: Do the words “Debt-Crisis” ring a bell just a slight bit? – It looks like we are playing with fire, again. We “seemingly” are better off now that the days of the credit crisis and Great Recession days of 2007-2009 but, business and consumer confidence continues to remain rather fragile, and economic growth is not nearly as robust as we would like. It certainly isn’t helping that we continue to evade resolution to funding the government as Washington remains largely on lock down. And we are bumping up against the debt ceiling for certain… and considering the Dow Industrials plunged more than 2,000 points in just a few weeks in 2011 — when we last had a major debt-ceiling debacle — you can understand why markets have been rather “choppy” and on edge. The well respected issue of Institutional Investor, May, 2011 put it quite correctly when the cover referred to some of the best managers in the world stating over the next few years… “The NO.1 JOB IS NOT TO MAKE A LOT OF MONEY. IT’S TO CONTROL RISK.”

Overall, I am sure you all know from my previous correspondence that I am quite leery of the progression of events this year. First, we saw the bond market begin to collapse in early 2013. Second, we saw notable under-performance among financial shares in the summer. Then in the past few weeks, we saw even more narrowing in the stock market as well as a and a decline in the value of the U.S. dollar. Given the market volatility and turmoil over the past few weeks the worst-case scenario would be for a simultaneous selling of all U.S. assets. Seeing U.S. stocks slump and the dollar fall could be considered a a sign that foreign investors in our markets are getting more and more worried about what is (or isn’t) happening in Washington. Even though bonds have bounced a bit the rally has been anemic given their overall decline in value this last year. So – we keep our fingers crossed for some positive headway in Washington – there could be a “last minute deal” like the “last minute deals” we’ve seen in the past. We will know soon – hopefully.

Government ShutdownI’ve been sharing for a while now that the next great financial crisis looms in the not too distant future. I may sound rather pessimistic but trees don’t grow to the sky forever with this kind of debt fertilizer. Who knows, the catalyst could be a number of different things but I am confident we will do just fine in the All-Climate Portfolio. Why? Because of the design of active investment management. Active management is not a “buy and hold” process, it’s active. And active management will be what is necessary to weather the markets ahead… “this deal ain’t over yet.” There is still a significant amount of de-leveraging the world needs to unfold… this means markets will correct and adjust. How much remains a big question, however, active management is prepared for slight or significant adjustments in prices and I expect our process to be profitable in rising or falling markets. The All-Climate Portfolio is poised for our continued, volatile future.

As always, please feel free to contact us with any questions or concerns.


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