2016 Investment Outlook

The investment landscape has changed considerably, in the past several years, with U.S. stocks soaring to levels widely considered to be overvalued with the no-less-than Nobel Prize winner, Dr. Robert Shiller — noted author of the prescient “Irrational Exuberance” — publicly speculating several times this year that we may be in a bubble. While his widely-cited, cyclically-adjusted P/E ratio (The “Shiller P/E” or CAPE) is historically at higher levels, it is still only about half as it was in the last stock bubble, which peaked in 2000 (the 2008 carnage was more a side effect of the real estate bubble than one in its own right), and the regular P/E is only about 1/5 of the 2000 level. We think the current bull still has some gas, but it has become tired and spotty. While many bull markets continue long after fair value measures have been breached, certainly the “easy money” seems gone from stock gains, and the elusive gains in 2014 and 2015 have been frustrating for many investors. While the mid-fall rally has recently stalled — and possibly iced by the barbaric events in France — we still expect a Santa Claus bump up by year end, and for 2015 to finish, perhaps somewhat weakly, in the black. While we expect the bull market to linger for another year or two on momentum — and because of a real lack of attractive alternatives — a short-term bear market will become inevitable at some point.

We do not believe that the strategies, which worked well since the 2009 bottom — broad exposure to the U.S. market with all boats in the S&P 500 rising on the tide — will be effective going forward. Market performance over the last two years seems to underscore this. Going forward, successful investors will need become more nimble and attentive to specific asset types, trends, and values that offer exceptional opportunity. We believe that a focus on active management and specific stock picking will become critically important for those who would do well.

The inevitability of U.S. interest rates increasing — nearly alone in the world — means that the dollar will continue to rise until other countries normalize. This has good and bad aspects. Many foreign stocks are relatively cheap on their own merit and cheaper still with a strong dollar, though real payoffs may have to wait a few years until the dollar weakens again. Rate rises also mean that bonds will finally begin a long period of decline — don’t be tempted to buy bonds in a rising rate environment until rates stabilize. The U.S. markets will continue to present many choice opportunities, but the widespread value bloat means that investors must be extremely selective, diligent, and attentive to prosper. We think picky will rule.

In anticipation of such changes, Camarda has developed a number of more concentrated portfolios over the past several years, which buy a limited number of individual stocks and target growth (Columbia), dividend income (Strong Stock), or both (Viking). We’re quite proud of these, and have also developed several timing/tactical portfolios, including Chartis, of which we are especially proud. We encourage you to talk with your Portfolio Advisor to discuss whether these new portfolios might better serve your needs as the world changes yet again. Long-time ISIS® investors may well want to consider these, but to continue to address these changing perspectives, Camarda — for the first time in years — will also significantly retool the asset allocation investment system we’ve called ISIS™, and change its name to AIMS™ (Allocated Investment Management System), both to recognize this change, and to dissociate from the reprehensible terrorist organization of similar name. We expect this process to be completed by early 2016, and will keep you apprised.

Threading the needle in the uncertain years to come — especially as the civilized world comes increasingly compelled to adopt a war footing — will prove to be a real challenged, but, rest assured, your Camarda team remains focused on the challenge, and we are confident we will master it.

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