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 | December 2019


                                      
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"Do Not Fight the Fed! The Stock Market is Going Higher!"

That was the title of our November newsletter ... and the stock market did not disappoint climbing another 3.56% (S&P 500) for the month.

We have entered the sweet spot of the year (November - April) for the stock market.  The Fed has recently cut rates a third consecutive time and has indicated it will do what is necessary to protect the economy, i.e., additional rate cuts or bond buy backs.  And we're entering the fourth year of the presidential cycle when, according to Ned Davis Research, since 1900 stocks have gained 9.5% on average.

Although it would not surprise us to see a some volatility over the next couple of months given the market's strong run-up, we remain bullishly optimistic that any pause will be short-lived and that next year is set to deliver strong returns.

In this newsletter we will highlight an interesting and bullish technical observation, some important tax dates, and exciting steps we are taking to improve the client experience.
Sideways Windup, Revisited

In our August 2017 newsletter, we first wrote about the "sideways windup" - the tendency for the market to trend upwards for period after it has made no progress for a while. Often, the length of the uptrend (in terms of weeks or months) is roughly equivalent to the length of sideways action.

We first clicked to this idea after reading Warren Buffett's 1999 Fortune magazine article where he noted that the Dow gained one (1) point from December 31, 1964 to December 31, 1982. While the market had its ups and downs from 1964-1981, it essentially went sideways for 17 solid years. Of course, the next 17 years (1982-1999) saw the Dow gain over 1200%.

In August 2017, we identified a 22-month sideways period from December 2014 (when the S&P traded at 2093) to early November 2016 right before the Trump election (when the S&P traded at 2083). Here is the chart we showed you:



Of course, 22 months from early November 2016 is early September 2018.  The market topped in late September 2018 before correcting nearly 20%.

We are currently operating under a couple of sideways windups.  First, the big picture:



The March 2009 correction to 667 on the S&P took the market back to 1996 levels. This 12-13 year sideways action implies that this historic bull market may run into late 2021 (give or take a few months) should the uptrend last roughly as long as the sideways action.

More recently, the December 2018 correction brought us back to the March 2017 high of 2401, implying that an equivalent uptrend would last until October 2020 (blue lines below).   Further, the recent correction this fall to 2875 took us back to the January 2018 top of 2873, implying that an equivalent uptrend would last until the summer of 2021 (red lines below).



Now, we don't use these sideways windup patterns in our everyday trading, but instead rely on our hedge signals and leading economic indicators.  However, it is very interesting to watch these patterns develop.  Come latter 2020 and into 2021 as these uptrends may be due to conclude, we will be on high alert for signs of market weakness.
Year-End Tax Related Deadlines

We want to remind you of a few of the more common approaching year-end activies with potential tax implications for 2019, and remind you that action ordinarily must be taken by December 20, 2019 in order for TD Ameritrade to meet the December 31 tax deadline.  If you do not custody with TDA Ameritrade, you should check dates with your custodian.
  • Required Minimum Distributions (RMDs): Clients who are 70½ or older must take an RMD from their IRA and/or their QRP for the 2019 tax year. All RMDs must be withdrawn by December 31, 2019, except those for clients who turned or will turn 70½ during this calendar year; these clients may defer their first distribution until April 1, 2020.
If you have already taken the required distribution for 2019, you don't have to do anything else. 

You can take your RMD easily by transferring securities or cash to a non-retirement account at TD Ameritrade. With an internal transfer,you don't have to sell securities to satisfy their RMD.

You can also establish a systematic payment to ensure the annual RMD is satisfied every year. 
  • Roth IRA Conversions: Roth Conversion Forms must be submitted in good order by December 20. 
  • Charitable Gift Deadlines
    1. Gift requests of mutual funds
    2. Gift requests between accounts custodied at TD Ameritrade
    3. Gift requests of cash delivered via check and/or federal funds wire
    4. Gift requests of equities and fixed-income products to external accounts
  • Establishng a 2019 QRP: Qualified Retirement Plans for 2019 must be established by December 31, 2019.
In Closing - We're Improving the Client Experience!

I'm excited to report that we have hired a consultant to help us refine and optimize the client experience. The first thing they have asked us to do is "make your clients the voice." In other words, if we're going to improve service it makes sense to survey the clients on the receiving end of our service model.  

Accordingly, over the next few weeks, I will be reaching out to several clients to learn more about how you perceive and describe us.  We want to raise the bar and when we meet next following this exercise, I plan to outline some value added services I think you'll appreciate.

"When you're finished changing, you're finished."
Benjamin Franklin

S incerely,

Marty Kerns
President & Chief Executive Officer
Parker Binion
Chief Investment Officer
About Kerns Capital Management

Kerns Capital Management is a leading asset management firm with a focus on tactical, liquid alternative investment strategies.  We are value-oriented investors in equity, long/short equity, credit and volatility, and apply the same attention to risk in the deployment of capital that has guided us since our inception as a fiduciary investment manager to corporate pensions, trusts and high net worth individuals. Kerns was founded in 1996, and is based in Houston, Texas.

For more information on our products, including fund performance, please visit www.kernscapital.com or contact Martin Kerns or Parker Binion at 1 (800) 945-2125 or  ir@kernscapital.com
IMPORTANT DISCLOSURES

Performance data represents past performance and is not a guarantee of future results.  Performance current to the most recent month-end may be lower or higher, and can be obtained by calling 800-945-2125.

The S&P TR 500 Index is an unmanaged composite of 500 common stocks. This index is widely used by professional investors as a performance benchmark. Total return includes reinvestment of dividends. You cannot invest directly in an index. The Dow Jones Industrial Average is a price-weighted average of 30 of the largest and most widely held stocks traded on the New York Stock Exchange and the Nasdaq. The Nasdaq Composite Index is a market-capitalization weighted index of the more than 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depository receipts, common stocks, real estate investment trusts (REITs) and tracking stocks.