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Chief Investment Strategist

Clarity Financial, LLC

________________________________________

lance@myclarityfinancal.com
281-501-1791
www.realinvestmentadvice.com

I Know, It’s Very Confusing.
This Simple Chart Should Clear It Up.

POLICIES DO MATTER
Clinton Platform












Anti-Second Amendment
Government Controlled Healthcare
Expand Immigration
Raise Minimum Wage
Pro-Legalization of Marijuana
Supports Climate Change
Legalize Abortion
Pro-LGBT/Transgender Rights
Increase Taxes
Anti-Isreal
Pro-Iran
ISIS – No Boots On The Ground
Supports Form Of TPP

Trump Platform













Pro-Second Amendment
Repeal/Replace ObamaCare
Build A Wall/Immigration Reform
U.S. – China Trader Reform
Focus On Job Creation
Reform V.A.
Climate Change Is A Hoax
Limit Abortion
Same Sex Marriage – State Issue
Lower Tax Rates
Pro-Isreal
Anti-Iran
ISIS – No Boots On The Ground
Opposes TPP

NOT SO MUCH FOR WALLSTREET
Average Pre-Election Year S&P 500 Performance
(Average Of 1960-2012)

REALINVESTMENTADVICE.COM

535
530
525
520
515
510

Average Return In Years Preceding
A Presidential Election Is: -2.7%

505
500
495
490
Jan

Feb

Mar

Mar

Apr

May

Jun

Jul

Aug

Sep

Average Pre-Election Year S&P 500 Performance

Oct

Nov

Dec

NOT SO MUCH FOR WALLSTREET
300

730

295

719

290

708

285

696

Bull Market Avg: 12.2%
Bear Market Avg: -6.9%

280

685

275

674

270

663

265

651

260

640
Jan

Feb

Mar

Mar

Apr

May

Average Pre-Election Returns (Secular Bull Markets)

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Average Pre-Election Returns (Secular Bear Markets)

Secular Bull Market Average

Secular Bear Market Average

Pre-Election Year Performance
(Secular Bull Markets vs Bear Markets)

NOT SO MUCH FOR WALLSTREET
Average Post-Election Year S&P 500 Performance
(Average Of 1961-2013)

REALINVESTMENTADVICE.COM

570
560
550
540
530
520

Average Return In Years Following
A Presidential Election Is: 11.4%

510
500
490
Jan

Feb

Mar

Mar

Apr

May

Jun

Jul

Aug

Average Post-Election Year S&P 500 Performance

Sep

Oct

Nov

Dec

NOT SO MUCH FOR WALLSTREET
REALINVESTMENTADVICE.COM

370

730

360

718

350

705

340

693

330

680

320

668

Bull Market Avg: 20.3%
Bear Market Avg: 8.4%

310

655

300

643

290

630
Jan

Feb

Mar

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Average Post-Election Returns (Secular Bull Markets)
Average Post-Election Returns (Secular Bear Markets)

Nov

Dec

Secular Bull Market Average

Secular Bear Market Average

Post-Election Year Performance
(Secular Bull Markets vs Bear Markets

So…Who’s Better For The Stock
Market?
Truth Is: It Probably Won’t Matter…

What Hath The Fed Wrought
• Recent Statements By Fed Chair Janet Yellen & Ben Bernanke

BERNANKE SAYS WE'RE LUCKY TO HAVE YELLEN LEADING THE FED

YELLEN: AMERICA OWES BERNANKE ENORMOUS DEBT OF GRATITUDE

YELLEN: WE WANT TO DO EVERYTHING TO HEAD OFF A FINANCIAL CRISIS

YELLEN: FED'S HANDLING OF FINANCIAL CRISIS WAS MAGNIFICENT

YELLEN: QE, FORWARD GUIDANCE HAVE HELPED ECONOMY RECOVER

YELLEN: WE DIDN'T SEE HOW HOUSING BUBBLE CREATED SYSTEMIC RISK

YELLEN: WE ARE TRYING NOW TO DO BETTER JOB OF SEEING RISKS

YELLEN: WE ARE FOCUSED ON SYSTEMIC RISK, FINANCIAL STABILITY

YELLEN: ECONOMY IS CONTINUING TO IMPROVE

Fed Balance Sheet Driving Asset Prices

REALINVESTMENTADVICE.COM
2200.0

4700000

2100.0

4400000

"Fiscal Cliff" Impact Muted
Excess Liquidity Sends Market
Into Overdrive.

4100000
3800000

1900.0

Market Troubles ?
Fed To The Rescue
With QE4?

1700.0
1600.0

3200000

1500.0

2900000

1400.0

2600000

1300.0

Bernanke Launches QE In
Anticipation Of "Fiscal Cliff"

2300000
2000000

1200.0
1100.0

Market Troubles ?
Fed To The Rescue

1700000

1000.0
900.0

1400000

800.0

Market Troubles ?
Fed To The Rescue

1100000
800000
Jan-08

1800.0

700.0
600.0

Jan-09

Jan-10

Jan-11

Fed Balance Sheet

Jan-12

Jan-13

Jan-14

S&P 500 Stock Price Index

Jan-15

Jan-16

S&P 500

Fed Balance Sheet

3500000

2000.0

QE Not Translating Into Economy

Fed Balance Sheet

4500000.0

4.0

QE 1 Worked To Provide A Push
To Economic Growth From Deeply
Depressed Levels.

3.0

4000000.0

2.0

3500000.0

1.0

3000000.0

0.0

QE 2, 3 & 4 Have Had A Much
Diminished Rate Of Return.

2500000.0

-1.0

2000000.0

-2.0

1500000.0

-3.0

1000000.0

-4.0

500000.0
Jan-08

Jan-09

Jan-10

Real GDP

Jan-11

Jan-12

Fed Balance Sheet Quarterly

Jan-13

Jan-14

2% Growth Rate

Jan-15

-5.0
Jan-16

GDP Annual % Chg.

5000000.0

REALINVESTMENTADVICE.COM

THE QE EFFECT – S&P 500
REALINVESTMENTADVICE.COM

382.36%

209.86%

$1.82

Total Percentage Increase In Fed Balance Sheet Total Percentage Increase In S&P 500 (From Low) $'s Of Fed Purchases To Create $1 of S&P Growth
(From Low)

THE QE EFFECT – ECONOMIC GROWTH
REALINVESTMENTADVICE.COM

$14.10

382.36%
27.12%
Total Percentage Increase In Fed Balance Total Percentage Increase In GDP (From Low) $'s Of Fed Purchases To Create $1 of GDP
Sheet (From Low)
Growth

THE QE EFFECT – EMPLOYMENT
REALINVESTMENTADVICE.COM

$47.16

371.64%
Total Percentage Increase In Fed Balance Sheet

7.88%
Total Percentage Increase In Full-Time
Employment

$'s Of Fed Purchases To Create $1 of Full-Time
Employment Growth

THE QE EFFECT – NOT IN LABOR FORCE
REALINVESTMENTADVICE.COM

$22.83

371.64%
16.28%
Total Percentage Increase In Fed Balance Sheet

Total Percentage Increase In "Not In Labor
Force"

$'s Of Fed Purchases To Create $1 of "Not In
Labor Force" Growth

The “Zero Bound” Effect
REALINVESTMENTADVICE.COM

The Federal Reserve & Financial Crisis

4096.0

20

Oil Crisis
???

Continental Illinois
15

2048.0

"Dot.Com" Crash

Savings & Loan
Crisis

Fed Funds Rate

1024.0

Crash of '87

10

Credit Crisis

Asian Contagion/
LTCM

512.0

5
256.0

Orange Country
CA Bankruptcy
0

-5
1976

128.0

64.0
1979

1982

Recessions

1985

1988

1991

1994

Real GDP (YoY % Chg.)

1997

2000

2003

2006

Effective Federal Funds Rate

2009

2012

S&P 500

2015

Warning: Declining Profit Margins
Peaks In Real Profit Margins vs. S&P 500

REALINVESTMENTADVICE.COM

11%

2048

10%

1024

512

S&P 500 (Log Base 2)

Profits As % Of Real GDP

9%
8%
7%

256

6%

128

5%
64

4%
3%
1957

32
1962

1967

Recessions

1972

1977

S&P 500 Stock Price Index

1982

1987

1992

1997

2002

2007

Real Profits As % Of Real GDP

2012

Expon. (Real Profits As % Of Real GDP)

Warning: Price-To-Sales Expensive

Warning: Economic Output Declines
Economic Output Composite Index

REALINVESTMENTADVICE.COM
70

10

60
5

0
LEI & GDP

40

30

-5

20
-10
10

-15
1974

0
1978

1982

1986

Recessions
LEI - 6 Mth % Change

1990

1994

1998

2002

2006

2010

2014

GDP (Quarterly Change at Annual Rate)
Economic Output Composite Index

Streettalk EOCI

50

Warning: Equity Ownership

Warning: MoMo & Yield Chase

Warning: Earnings

The Truth About Investing…
& Why “Buy & Hold” Doesn’t Work.

10000

65536

8000

16384
6000

8192
4096

4000

2048
2000
1024
0

512
256

-2000

128
-4000

64

-6000

32
1965

1973

1981

1989

Promised Growth Of $10000 At 7%
Actual S&P 500

1997

2005

2013

2021

Actual Growth Of $10000
Projected S&P 500

2029

2037

2045

2053

2061

Return Gap
Expon. (Projected S&P 500)

Actual Vs. Promised Returns

S&P 500 Index Actual & Projected (Log Scale)

32768

Thousands

Impact Of Bear Markets Are Have Substantial Effects On Outcomes

50

30%

45
40

20%

35
30

15%

25
10%

20
15

5%

10

0%

5

-5%

0
S&P 500 Real Rolling 20-Year Annualized Returns

CAPE Valuations

CAPE

Rolling 20-Year Returns

25%

MISSING THE 10-Best vs 10-Worst Days
640000

320000

160000

80000

40000

20000
1998 1999 2000 2001 2002
$100,000 Missing 10 Best Days

2003 2004 2005 2006 2007
$100,000 Missing 10 Worst Days

2008

2009 2010 2011 2012 2013 2014
$100,000 Invested In Index (Buy and Hold)

The Real Value Of Cash

Monthly Compound Real Return Of $100
Valuation Adjusted Return Of $100 (23x = Cash, 6x = Stocks)
P/E Capped At 25x
Annual Change In Inflation

8192

30
25

4096

1024

10

512

5
-

256

(5)
128
(10)
64

(15)

32
1/1/2010

1/1/2000

1/1/1990

1/1/1980

1/1/1970

1/1/1960

1/1/1950

1/1/1940

1/1/1930

1/1/1920

1/1/1910

(20)

CAPE Ratio, Inflation

15

1/1/1900

Inflation Adjusted Return Of $100

20
2048

Asset Selection Styles Rotate With Market Cycles
Finance
Technology
Cyclicals

Technology
Industrials
Basic Materials

Basic Materials
Energy
Staples

Energy
Staples
Healthcare

Healthcare
Utilities
Finance

Full Recovery

Market Top
Momentum

Early Recession
Value/Income

Bull Market

Bear Market
Value / Growth
Early Recovery

Contrarian Value
Late Bear Market

Market Bottom

Full Recession

Deep Value/Safety

Deep Value/Safety

Economy

Market

Sector vs. Portfolio Performance 2016 YTD
16.00%
14.00%

SELECTED BLUE CHIPS

12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Technology

Cylicals

Industrials Materials

Energy

Staples

Healthcare

Utilities

Finance

S&P 500 Bonds (7-10 60/40
Year)
Portfolio

Technology

Cylicals

Industrials

Materials

Energy

Staples

Healthcare

Utilities

Finance

S&P 500

Bonds (7-10 Year)

60/40 Portfolio

Portfolio Allocation For Late Economic Cycle

Dividends, 20.00%

Bonds, 35.00%

Staples, 10.00%
Other, 60.00%
Healthcare, 10.00%
Utilities, 10.00%
Selected Blue Chips,
10.00%

Cash , 5.00%

401k Plan Manager - Risk Management Analysis

REALINVESTMENTADVICE.COM

2000.0

75%

1500.0

50%

1000.0

25%

500.0
2006

0%
2007

2008

2009

X-Factor Allocation Weighting

2010

2011

S&P 500 Index

2012

2013

2014

Short-Term Simple MA

2015

2016

Long-Term Simple MA

X-Factor Allocation Weighting

100%

S&P 500

2500.0

60/40 Benchmark vs. Risk Adjusted 60/40 Allocation

$60k Invested In VFINX (stocks) & $40k in VBTIX (bonds) - Capital Appreciation Only

104000

$102,946.73

103000

$102,564.24

102000

$102,172.89

101000
100000
99000
98000
97000
96000
95000
94000
Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15

60/40 Model

Jul-15

Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16

Risk Adjusted 60/40 Allocation Model Performance

S&P Index

60/40 Benchmark vs. Risk Adjusted 60/40 Allocation

$60k Invested In VFINX (stocks) & $40k in VBTIX (bonds) - Capital Appreciation Only
325000
300000
275000
250000
225000
200000
175000
150000
125000
100000
75000
50000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

60/40 Model

Risk Adjusted 60/40 Allocation Model Performance

OIL, GOLD & INTEREST RATES

The Supply-Demand Relationship

With Oil Now Over Supplied, The Catalysts For Rally
Are Missing. Major Supply Reversion Must Occur.

22000

9000

20000

8000

18000

As Demand Hits Peaks,
Low Supplies Leads To
"Peak Oil" Fears Providing
Basis For Oil Price Spikes

7000

16000

6000

14000

5000

12000

4000
1980
source: EIA

10000
1985

1990

1995

2000

U.S. Field Production of Crude Oil (Thousand Barrels per Day)

2005

2010

2015

12-Mth Avg Consumption

Demand

10000

Supply

REALINVESTMENTADVICE.COM

The Supply-Price Imbalance

REALINVESTMENTADVICE.COM

10000

160

The Last Time Oil Supplies Were At This Level

140

9000

120
100

7000

80
60

6000

40
5000

4000
1980
source: EIA

20

Oil Price
Surge

0
1985

1990

1995

2000

2005

U.S. Field Production of Crude Oil (Thousand Barrels per Day)

2010

OIL PRICE / BBL

2015

Oil Price

Supply

8000

Interest Rates A Function Of Economic Growth, M2 Velocity & Inflation

REALINVESTMENTADVICE.COM

15.0

2.3

13.0

2.2
2.1

9.0

2.0

7.0
1.9
5.0
1.8
3.0
1.7

1.0

1.6

-1.0

1.5

-3.0
-5.0
1959

1.4
1964

1969

1974

Gross Domestic Product

1979

1984

Inflation (CPI)

1989

1994

10-Yr Treasury Rate

1999

2004

2009

2014

Velocity of M2 Money Stock

Monetary Velocity

Interest Rates, GDP, Inflation

11.0

To Schedule An Appointment For A
Personal Review Of Your Assumptions
& Plan
GO TO: www.realinvestmentadvice.com
Schedule An Appt. Button.

Intro By: Lance Roberts
Editor For Real Investment Advice
Chief Investment Strategist
Clarity Financial, LLC.
lance@myclarityfinancial.com

Richard Rosso, CFP, CIMA
Contributing Editor For RIA &
Head Of Financial Planning
Clarity Financial, LLC.
richardrosso@myclarityfinancial.com
Tel: 281-501-1791

Q&A
Lance Roberts
Chief Investment Strategist
Clarity Financial, LLC

________________________________________

lance@myclarityfinancal.com
281-501-1791
www.realinvestmentadvice.com