Gary D. Halbert has been writing his Forecasts & Trends Newsletter, (now in e-letter format) for over 30 years. During that time, Gary has shared his keen insights on economic, market and even political events that can and do affect your pocketbook.

With the market reaching new record highs on a regular basis, investors are reasonably concerned about how long the current bull market rally can last. Just as in the late 1990s and then again in the mid 2000s, there is no shortage of “experts” offering opinions on the answer to that question. Unfortunately, many of these opinions come from sources that do not have the depth of knowledge and experience that Gary brings to the table.

If you like what you see in Gary’s writing, we’ll provide a link for you to sign up for Gary’s e-letter, free of charge, at the end of Gary’s article.

All the best,


Are the Markets Due for a Correction? What to Do in an Uncertain World

After the election of Donald Trump as President, the markets surged and continued to increase after he was sworn into office. In the Spring, however, the market rally took a breather as it became more evident that neither the repeal and replacement of Obamacare nor tax cuts nor infrastructure spending will be a cakewalk for the Republicans.

In addition, interest rates are going up. Add to that the foreign policy crisis with Russia and Syria, and rapidly escalating tensions with North Korea.

Uncertain man The stress on the stock and bond markets is increasing quickly and many are worried about the possibility of an imminent downward correction (or worse), especially since we haven’t had a major correction in many years.

What happens in the coming months is far from certain and many investors are very nervous. Wouldn’t it be nice to have some strategies in your portfolio that are not highly correlated to the stock and bond markets, just in case the worst happens? Fortunately, there are some options I’ll share with you today. But first, let’s look at the increasing risks the markets are currently facing.

Reality of Governing Sets In

One of President Trump and the Republicans’ big promises was the repeal and replacement of Obamacare. As we all know, their attempts to do so have failed miserably. It’s very possible they will not be able to come together and agree on an alternative approach. So what does that mean for the economy?

Many analysts agree Obamacare will eventually implode if nothing is done to fix it. Healthcare is a big part of the economy, and a failure of this magnitude could have a significant impact on the markets.

In addition, perhaps one of the biggest reasons for the stock market’s surge since Trump’s election is the promised cuts to corporate and individual tax rates. Keep in mind that part of the reason the GOP started with the repeal and replacement of Obamacare is that they were planning to use some of the savings from their healthcare changes to help pay for the tax cuts. With no such savings now available, it will make passing tax cuts even more difficult.

Republican leaders had hoped to have tax cuts finished by August. Now many are saying that’s just not realistic anymore. It could be the fall or even later before anything is done on this. Republicans disagree on a number of things, including the size of the cuts, how to pay for them and some more controversial proposals like the Border Adjustment Tax.

US Leaders The future of the infrastructure spending bill is also uncertain. This would pump billions into the economy on so-called “shovel ready projects.” It remains to be seen though if the Republicans can come up with something that can pass both Houses of Congress.

These promises are a big part of the reason for the market’s surge after Trump was elected. Failure to accomplish any of these could impact the markets in a negative way.

Interest Rates Are Going Up

In December and then again in March, the Federal Reserve raised interest rates. They also indicated they plan to have at least two more rate hikes this year, and potentially three next year. Rising interest rates increase the costs for companies to borrow money. Many existing loans are tied to the LIBOR so when rates increase, so do the costs for companies to service their debt.

Furthermore, the Fed recently warned about weakening credit demand and tightening lending standards, which will make it more difficult to get a loan. Companies often depend on loans to fund expansion projects. When the availability of credit declines, it is usually not good for the stock and bond markets.

And let’s not forget that the US has a $20 trillion national debt. When interest rates go up, so does the cost to service this debt. This makes even less money available for government spending projects.

Hotspots Around the Globe

In addition, there are a number of global hotspots that could weigh on the markets. The limited US strike on Syria has caused concerns over escalating US military involvement in Syria and elsewhere. It has also put a big strain on US-Russia relations, which were already at a low-point. Any type of direct US and Russian military conflict could have a very negative impact on the markets.

It could also weigh heavily on the energy markets. Conflicts in the Middle East often push energy prices higher. And don’t forget Russia has vast energy resources. Rising energy prices often are not good for the markets.

Kim North Korea is also a major hotspot, given that they have a nuclear weapons arsenal and a nutty leader who might just be crazy enough to use them. Any confrontation between the US and North Korea could escalate very quickly, and the result could be very negative for the stock and bond markets.

Add to that the strain it would put on US-China relations, which would likely impact trade. President Trump has sharply criticized China for unfair trade practices, and any problems between the US and China, especially with growing tensions with North Korea, could lead to a trade war with negative global implications. Remember China has the second largest economy in the world.

Are We Past Due for a Correction?

The US has just completed its eighth consecutive year of economic growth. For reference, the average post-World War II recovery period averaged just 61 months, roughly five years. Private jobs have grown for 85 consecutive months. The markets recently reached all-time highs. The last really significant market correction was during the 2007-2009 time-frame.

Many believe the markets are past due for a correction. This recovery is getting long in the tooth, so it may not take much for it to turn lower, perhaps significantly. Remember, the S&P 500 lost over 50% from 2007-2009.

When the markets are at or near to all-time highs, and there is a great deal of uncertainty, they can be more susceptible to negative news or events. It often doesn’t take much to cause a big move in one direction or the other.

Most everyone reading this understands how important it is to diversify your investment portfolio. With the fate of Obamacare and tax cuts unclear, interest rates rising, tensions increasing around the world and the stock markets at or near all-time highs, there is a great deal of uncertainty in 2017. This makes diversification even more important.

Yet proper diversification today requires more than a passive buy-and-hold allocation to stocks and bonds, since they can both suffer when markets drop. It requires alternative investments that are not highly correlated to the stock and bond markets, ones that can potentially do well even if the markets drop. And if the markets keep going up, you want strategies that can still prosper.

So what’s an investor to do?

Investors Need Options and Theta Research Has Them

In a nutshell, Theta Research tracks the actual performance of separate managed accounts traded by Investment Managers who employ tactical strategies. These model-based strategies are often based on quantitative methods designed to actively position portfolio assets where they can avoid much of the damage caused by a market correction. Some models even use inverse funds to “short” the markets during periods of high volatility.

Once these actual returns have been documented, Theta Research also provides subscription services so that both individual investors and professionals can analyze and evaluate each manager’s performance. My RIA firm, Halbert Wealth Management, had been a Theta Research subscriber since its inception back in 1999. It not only serves as an important analytical resource for our due diligence efforts, but also as an important source of actively managed investment strategies that employ systematic trading models.

Using Theta’s Professional Subscription, Advisors can produce detailed ranking reports over a wide range of time windows, allowing you to determine how the strategies performed in past market environments. The best part, however, is that every performance number published by Theta is based on the actual performance of a representative account. Theta publishes no backtested or other hypothetical performance information.

Learn More About Theta’s Database of Actively Managed Investment Strategies

Follow the link to learn more about Theta Research subscriptions and how you can use this resource to access top active Investment Managers. While there, you’ll even be able to run through a Demo of the system to better evaluate its functionality and capabilities. (Note that the Demo site does not have live data, but rather example returns you can use to evaluate the site.)

By subscribing to Theta, you have access to a growing list of active investment managers, each with verified actual track records. In these days of market uncertainty, it’s important to know which managed accounts can both talk the talk and walk the walk of tactical model-based investment management.

The active strategies tracked by Theta have the potential to do well, even if the markets drop. They also have the potential to do well if the markets continue to rise. Plus, they are often not highly correlated to the stock and bond markets and can help you diversify your portfolio away from traditional stocks and bonds. (Past performance is no guarantee of future performance.)

If you have any questions or want to learn more about Theta Research, call Theta’s Marketing Director, Mike Posey at (512) 826-5553 or send him an e-mail at .(JavaScript must be enabled to view this email address).

If you are worried that the stock markets are in nosebleed territory, and that the Fed is now seriously committed to raising interest rates significantly, you owe it to yourself to at least check out the active investment strategies tracked on Theta’s database.

Thank you for your continued confidence,

Gary D. Halbert


Past results are not necessarily indicative of future results.

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Posted by MPosey on 07-18-2017 in Company NewsPermalink