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Maybe not what you want, but probably what you need.

Investing successfully for the long term requires a balance between give and take, choosing the pros and the cons of different investment approaches, taking the good with the bad, and accepting the risks with the rewards of investing. In other words,…

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Investing successfully for the long term requires a balance between give and take, choosing the pros and the cons of different investment approaches, taking the good with the bad, and accepting the risks with the rewards of investing. In other words, you can't have it both ways. You can't have your cake and eat it too; you will have to make some tradeoffs between what you want and what you need. Some investors expect to have all of the good without any of the bad, to get the rewards but not take the risks, to participate in all the upside and avoid all the downside. That is not possible and never will be. Chasing investments or investment strategies that promise the reward without the risk is foolish and will always lead to disappointment. It is much better for you to make an honest assessment of what tradeoffs you can tolerate and invest accordingly.

If you are the type of investor that likes to have your investment accounts at all-time highs whenever the market is making all-time highs, you should probably just be a passive index fund investor. You can do this with low-to-no-cost ETFs that give you exposure to the same market indices discussed on the financial news networks every day. When the news proclaims the market is at all-time highs, if all of your money is in an S&P 500 index ETF, then you will feel great that your account is also at all-time highs. Of course, when the S&P 500 is in a bear market, your account will be too.

It is important to realize, though, that choosing to be a passive investor tied to a particular index doesn't free you from having to make tradeoffs with your investments – you are still accepting the good and bad of passive investing and making a tradeoff with all the other ways one could invest. The "good" is the long-term returns of the index, the strong bull market periods, never underperforming the market, and having your account at all-time highs when CNBC is lauding the market highs. The "bad" is that you will never beat the market, you'll have high volatility, you'll have periods of sheer terror when massive drawdowns occur during bear markets, and there will be long periods of time spent just recovering losses after a bear market has bottomed with a drawdown of 30%, 40%, or 50%.

If you want the "good" listed above, you have to be willing to accept the "bad" too. You can't have one without the other.

People often choose to invest differently from a passive, index-based portfolio, in hopes of having their allocation change drive some outperformance to the market. It takes effort to do things differently, so unless there is an expected benefit, why else would one attempt it? The reasons could be numerous, but at the end of the day, if you do anything different than passive index investing, you are implicitly (or explicitly, for some) making tradeoffs in these good and bad aspects to investing. You are changing what risks you are willing to accept for the returns you seek.

If you are an investor with a typical benchmark 60% stock (SPY) and 40% bond (AGG) allocation, you have many portfolio-construction levers to pull (i.e., tradeoffs to make) in your effort to "beat the market". You may stay passive and chose to incorporate allocations to other index ETFs, such as the Nasdaq Composite or to the Russell 2000, because you think they'll outperform the large-cap stocks of the S&P 500. That outperformance could come from larger upside returns or smaller downside returns. Some tradeoffs you just made are that you may not be at all-time highs at the same time as the S&P 500 but you may have lower volatility because your portfolio is more diversified. You could also change your bond allocation away from AGG by incorporating longer- or shorter-duration bonds, or higher or lower credit quality, etc. These are all tradeoffs you are making with the "free and easy" benchmark portfolio, and you should be aware of them and why you are willing to make them.

Maybe instead of passive investing you move to a more active strategy that involves stock picking, like trying to invest in a subset of S&P 500 stocks that will outperform the index. Stocks could be selected based on fundamental analysis, technical setups, or factor-based screening. You are still trading benchmark performance, with its specific risk and reward profile, for a different investment approach that may or may not have better returns or risks. One should assess if the new risk and reward profile is desirable and justifies the difference from the benchmark. One also should understand the tradeoffs made and if they are acceptable – i.e., if the difference from the benchmark is tolerable by the investor.

We think it is very important to have a good understanding of why you may want to be invested differently and the tradeoffs that are being made with the different allocation. Knowing and understanding how and why your portfolio will behave differently than the benchmarks is key to having the discipline often required to stick with something that is different.

We choose to invest differently because we know that the "bad" that comes with passive investing is just not acceptable to the vast majority of investors. We primarily manage strategies that are rules-based and 100% tactical. This means that we can move from being 100% invested in the stock market to being 0% invested in the stock market (100% defensive) based on the rules of our tactical ETF strategies. Why do we choose to manage money this way? For two main reasons: (1) the math of compounded returns, and (2) we believe it is what clients NEED, whether they recognize it or not.

#1, The Math of Compounded Returns

Let's use a real-world example to illustrate. The US stock market had its first bear market in more than 11 years during 2020, due to the global pandemic. Here are the monthly returns of the S&P 500 since 2020, and the average and cumulative compounded returns during these years.

The S&P 500 has an average return each month of 1.54%, while the cumulative compounded return over this time period is 33.33%.

As mentioned in previous articles, our Trend Plus strategy did very well at getting out of the way of the COVID bear market and avoided all of the drawdown that occurred during the first half of 2020. Below are the results of Trend Plus over the same time period.

Trend Plus has an average return each month of 1.50%, while the cumulative compounded return over this time period is 34.45%.

Trend Plus had a smaller average monthly return than the S&P 500 but the compounded return on Trend Plus is greater – and compounded returns are what matter to investors. This result is what we mean by the "math of compounded returns." If you can avoid large negative months (or quarters, or years), your returns can compound at a higher rate over time since large negative numbers destroy compounding – it's just math. Same as the trend-following truism that says, if you are able to miss most of the bad times, you don't have to participate as much on the upside to still come out ahead. 

#2, What Clients Need

For reason #2, we have found that most clients cannot tolerate large drawdowns. They NEED an investment approach that focuses on risk management rather then what they say they WANT, which is typically to achieve outsized returns. Most investors cannot successfully ride the bear market down 33.9% (like we saw the S&P 500 drop in 2020) and continue to hold onto their position until the market fully recovers. In theory, this type of investor must exist (academic finance is entirely based on their existence), but in practice, we never find them. The losses in bear markets are far too great to withstand. This is especially true for investors that are nearing retirement or already retired. Bear market losses can completely devastate your retirement plans when time isn't on your side to wait for a recovery. Thus, clients NEED risk management and a way to avoid the devastation of bear markets, while still getting "good" returns during bull markets.

Over the same months shown in the tables above, when the S&P 500 suffered the 33.9% drawdown, the Trend Plus maximum drawdown was only 10.7%. This happened in October 2020 just after the S&P 500 had fully recovered from the bear market (notably, our drawdowns occur at different times than the market's). We firmly believe that drawdown is the best measure of risk (as discussed in previous articles), and so our Trend Plus strategy was able to deliver higher compounded returns over this time period while taking significantly lower risk – that is why we invest differently.

There is no such thing as an investment strategy that gets it right all the time or has all the good without any bad. People always look for the holy grail of investing, something that provides the upside returns of the S&P 500 and somehow avoids the downside. It doesn't exist. What can exist is an acceptance of which risks and "bad" results you can tolerate, then find the strategy that provides the best returns based on accepting those risks.

The tradeoffs we make to manage money through our tactical strategies are numerous, and we have to fully accept the "bad" aspects of our approach. We suffer whipsaw trades and often underperform the benchmark portfolios, we frequently are not at new highs in our strategy when the market is making all-time highs, we have down days and months when the market is up, etc., etc. We are willing to make all of these tradeoffs in order to achieve the results that we and our clients NEED, even if it's not always what we WANT.

For tactical strategies, like the ones we manage at McElhenny Sheffield Capital management (mscm.net/strategies/), we think it is better to understand what market environments will cause underperformance and accept that "bad" as a tradeoff for the "good" that we provide at other times. Namely, when the major corrections and bear markets come, we typically do very well and tend to come out ahead.

If you are interested in using our trend following or other tactical strategies, you can reach out to Grant directly by email (grant@mscm.net). Grant manages various tactical strategies at MSCM for individual investors and other registered investment advisors, and Greg is a senior advisor to the firm.


Dance with the Trend,

Greg Morris

Grant Morris

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Spread & Containment

The Coming Of The Police State In America

The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now…

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The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.

Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.

The message has been sent: Only the police can do this job. Whether they do it or not is another matter.

Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.

In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.

The law-abiding will suffer and the criminals will grow more numerous. It will not end well.

When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.

If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.

We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.

My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.

It goes like this:

1) lockdown,

2) loss of moral compass and spreading of loneliness and nihilism,

3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,

5) a rise in uncontrolled immigration/refugees,

6) an epidemic of ill health from substance abuse and otherwise,

7) businesses flee the city

8) cities fall into decay, and that results in

9) more surveillance and police state.

The 10th stage is the sacking of liberty and civilization itself.

It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.

But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.

It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.

Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.

As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.

The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.

Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.

By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.

The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.

Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.

The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.

The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.

But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.

What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.

As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.

The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.

Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.

Tyler Durden Sat, 03/09/2024 - 16:20

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Government

Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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Uncategorized

February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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