Seasons of Change
Seasons of Change

Things sure look good out my window. Trees budding new leaves and colorful flowers popping up low and high. Soon hummingbirds will buzz around my porch and our boys will invite their friends over for an afternoon splash in the lake. It's a beautiful time of the year.

Wonderful thing about the seasons, we always know what's coming next. It would be nice if the economy and markets could be so predictable. In a way they have been, it's just that their seasonal clock is much longer than what we are sometimes willing to wait.

I recently made adjustments to the investment brokerage accounts beginning with J7M. These are what I refer to as the "Managed" or "Advisor Enterprise" accounts.

Most indications point to higher interest rates in the future than we have today, which typically means trouble for many traditional bond portfolios. For that reason I continue to tighten the bond strategy. I removed the Low Duration bond fund in some of the higher equity portfolios to not cause unwanted drag in performance. I'm thus far pleased with my reintroduction of Pimco All Asset late summer 2016 and continue to use as a core holding. I reduced some exposure to Fidelity Strategic Income and increased Floating Rate slightly.

My goal with bonds is to provide liquidity and stability where needed (mostly for retirement distributions), and some diversification in the event of equity surprises.

I've discussed adding REIT's to the mix (sometimes complementing bonds) with many of you and will likely continue that theme moving forward.

Aside from swapping Franklin Growth with Edgewood Growth Retail, my equity changes were minimal. I put more emphasis on Alger Focus fund and took away from Nuveen Small Cap Value, in some cases removing Nuveen altogether. As the name implies, the Alger Focus Fund is a very focused fund - buying a select number of smaller company stocks that have little to no debt. Because of the fewer holdings and style of investing, I fully expect there could be deeper volatility swings with this fund. But I intend on holding it as a core small cap for the foreseeable future.

debt to gdp

Take a look at my chart above. The past three presidency eras have marked three unique economic "seasons" (as measured by the largest debt expansion comparing business, household and federal). During the internet technology boom we had massive business expansion well above household or the federal government. With the collapse of the market after Y2K, President Bush and company enabled an environment ripe for a personal debt extravaganza. We all know how that ended with the financial crisis of 2008. President Obama ushered in the season of federal government borrowing, rising far above the reaches of all others. For a short stint all lines converged in 2015 (household, business, government expansion) and then by the end of 2016 jolted to separate headings like magnets pushing polarization's.

Exactly where we are headed next is difficult to tell, but there is a definite theme in all charts I keep - GDP (gross domestic product) rises or falls in relation to debt expansion (or contraction). Thus far what I've seen from the new administration is a desire to cut regulations, keep interest rates low, and be in no hurry to curb deficits. For now, I'm staying with my belief that there is continued market upside and economic growth in the near future. Will there be a nasty bill to pay when interest rates are higher? Probably - that day could be ugly. But it appears that it's not today's problem. So make your money while you can and sock it away!

James Studinger


James Studinger
JPStudinger Group LLC
100 W. Long Lake, Suite 120
Bloomfield Hills, MI  48304
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. JP Studinger Group, LLC is not affiliated with Kestra IS or Kestra AS

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

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