Weekly Update

February 26, 2016 Update

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You wanted more Turbo, you got MORE TURBO!

Like a sailboat needs wind to move through the water, our Turbo Model needs market volatility in order to be most effective. The past few years have seen an unprecedented level of calm in the markets with stocks going over three years without a -10% correction, an event that usually occurs at least annually. Without this up and down, back and forth movement in the markets, our Turbo Model cannot beat the market. It finds no opportunity to exploit. This lack of foothold for Turbo led to decent but below-market performance in 2012-2014. Not seeing the typical market waves, Turbo began looking for smaller waves, becoming more sensitive to smaller shifts in stock prices in an effort to find any hint of the volatility that drives its performance. Unfortunately, this increased sensitivity led to a series of performance-damaging whipsaws, especially in 2015, as unusual v-shaped market recoveries had become the norm. Initially, you figure the low volatility calmness of stocks is temporary. But when it goes on year after year and after many a disgruntled subscriber note, we decided we must search for a better solution.

TimingCube has been publishing its proprietary market models since July 2001. We strongly prefer to keep our models “pure” with no change, no reaction to short-term shifts in market behavior, assuming that our extensive testing will deliver investing models that will survive the test of time without change. In the almost 15 years since inception, we have made only one change to our original Classic Model, that one occurring in 2006, almost a decade ago.

In order to publish a new, improved version of a Model, we must find a solution that improves performance across the entirety of the Model testing history, a steep hurdle of 15-20 years of market data. Thus, we cannot simply react to a short-term change in market behavior, but must genuinely and substantially improve the Model, make it better in almost every way. To address the inability for Turbo to perform in calm markets, we needed to find a solution that gave us better performance in those calm markets, but ALSO better performance in the more typical higher-volatility markets. After almost a year of research, we are very pleased to announce that we have found a solution and are today rolling out an upgrade of our Turbo Model!

The results of the new, improved Turbo Model are even a step above those of the original, as required by our policy noted above. While still not a world-beater in performance during calm markets, the upgraded Turbo Model does a much better job keeping up with the market in that environment while still having the power to explode with performance when market volatility returns to typical levels. That results in extraordinary returns over time.

It is said that the definition of stupidity is to try the same thing over and over while expecting different results. After watching Turbo struggle over and over in the calm markets of recent years, we needed to find a better solution to get your investment accounts (and ours!) back on track to the high level of returns we have become used to over the past 15 years. We are thrilled to bring to you, our very valuable subscribers, a better Turbo Model!

What is the IMF?

The International Monetary Fund (IMF) was set up in 1944 to help stabilize the global financial system after World War II. It continues that role today, providing liquidity to improve the efficiency and minimize the systemic surprises in the global monetary system. Recently, the IMF has been a leading player in working with the European Central Bank (ECB) to resolve sovereign debt problems in Greece and Portugal, et al. Thus, we can think of the IMF as working with governments on issues of government debt, primarily, and perhaps getting into issues of currency as well.

The IMF is sometimes confused with the World Bank. Also created at the Bretton Woods conference in 1944, the World Bank’s role is to help nations develop. Thus, it’s finance work tends to be aimed at poorer countries looking to improve the economic growth and efficiency. The World Bank can provide assistance as well as funds for these aims. Thus, the World Bank’s work is more focused on economic development and the citizens, if you will, of a nation, rather than its government finances.

The IMF and World Bank are both comprised of all the world’s nations as members with each nation funding each organization. The size of the funding has an influence on the voting structure of the institutions. Thus, it has been that Europeans and Americans have been at the helm of these organizations in the past. With the increasing economic clout of China, Brazil, India, Russia, et al. there are calls for broader leadership in these global financial institutions. It would seem only a matter of time before this occurs, as it likely will in all other global bodies.

Market Update

Stocks continued to take their cues from movement in the oil market. Monday saw a rise in oil with a report that the market could stabilize in 2017 as production in the U.S. declines. Industrial stocks were buoyed by merger rumors between Honeywell (HON) and United Technologies (UTX). Broad market indexes found their way to +1.5% gains. The oil rally was undone Tuesday by Saudi Arabia’s oil minister pouring cold water on speculation of any production cut agreement while Iran expressed no desire to join recently discussed production freezes. Stocks pushed lower by -1.3% on the oil weakness. The weakness continued into Wednesday morning before a report showing an inventory drawdown in gasoline and an oil inventory report that met expectations.
Those reports helped stocks reverse higher shifting from -2% losses to a +0.4% finish. The positive momentum rolled into Thursday with financial stocks bouncing back from an early-week swoon to help stock indexes to a +1.1% gain. Financials had been hurt by JP Morgan’s news of a rise in their loan loss reserve sparking further fears of credit market defaults. A report showing a rise in personal income and spending as well as a lift in the Fed’s preferred inflation indicator raised interest rate hike concerns to keep Friday’s market from building on the mid-week rally. The concerns left stocks flat on the day.

Warm wishes and until next week.