THE HO CHI MINH TRAIL AND SLIPPERY MARKETS

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BAM MARKET WRAP

September 25, 2015
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THE HO CHI MINH TRAIL AND SLIPPERY MARKETS

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WHERE WE HAVE BEEN

To this point, September has been a down month continuing the market free-fall that happened in late August. As of yesterday, the S&P was down 2% for the month and 6% for the year. Last week the Fed basically flipped a coin and decided to leave interest rates alone leading to a resumption of the down-trend. The Fed pointed to a weakening global economy as reasoning for holding rates steady. There are strong opinions on both sides and the Fed was (and continues to be) in a box. Raise rates and potentially slow an already sluggish recovery or hold steady and leave investors wondering if things are that bad! It is not an enviable position. Many (us too) are beginning to lose faith that the Fed knows what it is doing. Just yesterday Chairwoman Yellen spoke and declared that an interest rate hike was likely by the end of the year as global concerns were easing. We must have missed something as it doesn't look like much has changed since last week. The confusing rhetoric is adding to an already muddled market.

WHERE WE ARE HEADED

John Boehner's sudden announcement today that he is resigning as Speaker of the House adds another question mark in an already explosive political environment. Opinions vary widely on whether or not the Speaker's resignation makes it more or less likely that a government shutdown will happen next week. At this point there is no way to know but it does add another uncertainty and the markets do not like uncertainty. Despite the uncertainty, markets remained up this morning though gains have been pared as of this writing. The downtrend that began in August remains in play and the character of this decline is very different from the V bottoms that have been the market norm over the last couple of years. We continue to believe that the markets will re-visit the lows of August (some 4% below today's levels). It will be imperative that those lows hold or much more significant losses could be in store. At this point, we believe that those lows are more likely than not to hold and the result would be a rally headed into year-end. As always, time will tell and we are watching closely for signs that the selling is over. For now, however, the markets remain very vulnerable and investors would be well-served to remain vigilant and cautious on the long side.

HOW WE ARE DOING

Our portfolios have been in cash for the better part of the last six weeks and have avoided the market losses to this point. It is much easier to sleep at night not worrying about the wild swings that have been prevalent in the markets over the last several weeks. The market weakness that we are currently seeing will yield to renewed strength at some point and our portfolios will be in an enviable position to capture gains rather than to recover losses. We don't pretend to know when strength will return but we are evaluating data each day to get a better feel for when the odds shift in our favor. An opportunity is coming but for now we are happily sitting on the sidelines watching as it all plays out.

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Tidbits
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RISING PRICES - Over the 5 years 1977-1981, inflation (as measured by the Consumer Price Index) advanced by +61.5%, an increase of +10.1% per year. Since then, only 1 calendar year (1990) has produced annual inflation of at least +5%. Over the 12 months ending 8/31/15, inflation has advanced +0.2% (source: Department of Labor).

COVERS JUST TWO WEEKS - The Treasury Department implemented a policy in early 2015 requiring that it maintain a daily cash balance of at least $150 billion in the government's "checking account," roughly equivalent to 15 days of average spending by Uncle Sam (source: Treasury Secretary Jacob Lew).

COST OF DOING BUSINESS - 68% of the total employee cost that an employer pays in the private sector is for wages and salaries. The other 32% is for the various benefits that are either legally required (e.g., Social Security) or are simply provided to attract and retain workers, including insurance, retirement plans and paid leave (source: Department of Labor).

CONSEQUENCES - The International Energy Agency (IEA) predicted on 9/11/15 that continued low oil prices will force high-cost oil fields to close down, reducing the supply of American oil in 2016 by 400,000 barrels a day. For the week ending 9/11/15, US oil production was 9.117 million barrels a day (source: IEA).

BAILOUT NEEDED? - The US Postal System last earned a profit in 2006. Since then, the US Postal System has lost $17.7 million a day for the last 8 years, i.e., 2007-2014, a total loss of $51.7 billion (source: Tax Foundation).

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Kelly and I are enjoying this whole empty nest thing. We recently took a trip that I had won in a contest and traversed the US, heading first to San Diego for 2 days, a stop-over in Denver for a day and then to Boston for 2 days. It was a whirlwind trip but so much fun. In San Diego we visited the zoo and spent a day hiking trails along the coast. One of the trails (the Ho Chi Minh Trail) was a harrowing experience as the worn sandstone slipped under our feet with 15-30 feet crevices below should we have a misstep. We made it through 3/4ths before remembering that we had kids at home and college to pay for! Despite not finishing, it was the highlight of our trip and the views were breathtaking. Our time in Denver and Boston were equally as fun though a little less exciting.

We trust you are enjoying the cooler nights, football Saturdays, Sundays, Mondays, and Thursdays and the coming fall season. Thank you, as always, for entrusting us with your finances. We take the responsibility very seriously.

Sam and Bo

Your financial partner for twenty years and counting because managing your money never gets old.

We continue to make posts to our blog throughout the week so check it regularly if you want to see our thoughts. You can access it by following the link below.

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In these uncertain times, a trusted financial adviser is more important than ever. Whatever comes over the upcoming months and quarters, the markets are certain to have lots of volatility and wild swings. Europe, the US economy and dysfunction in Washington, and continued trouble in Iran and the Middle East to name just a few. If you have family, friends and neighbors that may benefit from our services, would you please forward this email and/or provide our contact information to them. We purposefully do not spend time marketing our services so that we can devote all of our resources to managing your assets. Thank you to all who have provided us referrals - it truly is the greatest compliment you can give us.

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Remember to visit our blog for market comments and observations in between newsletters. We try to provide a few comments in between newsletters and certainly when there is a particularly interesting market day. You can access it by clicking here.

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Sam Bills - (865) 525-1329

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Bo Bills - (615) 371-5928

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BAM Market Wrap is produced and distributed regularly via email by Sam C. Bills, Jr. of Bills Asset Management 3001 Flagstone Drive, Franklin, TN 37069 Phone (615) 371-5928 Fax (615) 250-4903 - www.Billsasset.com

Bills Asset Management is an independent registered investment advisor (RIA) not associated with any financial institution. Data used in this publication is gathered from reliable sources, although completeness and accuracy cannot be guaranteed. Performance results do not take into account any tax consequences and are not predictive of future results. This publication does not give any specific investment advice, does not provide financial planning services, or consider any individual's financial situation, needs or goals. This publication may not be reproduced or retransmitted in whole or in part without the consent of the author, Sam C. Bills, Jr.

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