OverRidge Wealth Advisors

6300 Ridglea Place, Suite 1020

Forth Worth, TX 76116



October 2016


The New Oxford American Dictionary sums up our title this way: “used as an intensive after a word or phrase to express impatience.” Words/phrases that come to mind are: elections, politics, stock market, volatility, Federal Reserve, oil, interest rates, economy, jobs, wages, investing, fear, uncertainty, and a few dozen others we could add with a five minute discussion. Times are uncertain for sure so we thought it time to “talk out” a few things as we wind down the final quarter of 2016. Let’s start with a comment or two about the elections, much as we hate to enter the political fray.

The current season has brought on its own life cycle of recrimination and tension. Extracting the polemics, financial markets always have a problem with political change because of the uncertainty. You will no doubt see this inquietude for the remainder of the election cycle and into the early part of the new administration. We have seen this before and should not be surprised. Just know that our goal is to extract the facts and not the suppositions when it comes to politics. That said, let’s move on.

First let’s revisit our macro-indicators. You may recall, from our last letter, we presented three areas of focus that give us actionable signals about the markets and the economy. The goal here is to read specific markers that tell us when to reduce your investment exposure. Each one is very specific to a certain aspect of the market and triggers a one-third reduction in your holdings. This allows us to methodically balance your holdings rather than react to short-term market whims. The first indicator is based on market trend – using two longer-term moving averages to assess market symptoms. The second indicator is an assessment of the macro-economic picture using 14 key metrics. This is a longer-term measurement that gives us a better picture of the economy as a whole. Our third and final indicator is an assessment of financial stress. Using publications from two Federal Reserve Districts, we create a weighted value that indicates dislocations in the credit/bond markets. As you can see we don’t base our decisions on any one factor or data set. The idea to conflate the myriad of information into direct signals that give us clearer readings concerning the broad and overarching factors affecting investors.





October 2016

Our second topic addresses some changes we’ve taken in portfolio construction. As you know we prefer individual stocks as the core to our investing strategy. Of course this doesn’t fit every client, but certainly most. So for those that fit this profile, we decided to reduce the risk profile a bit through reduced allocations to each individual holding and the addition of a broad-market Exchange-Traded-Fund (ETF): the DVY (iShares Select Dividend ETF) for dividend portfolios and the VTI (Vanguard Total Stock Market ETF) for growth portfolios. This change did necessitate some trading in your portfolios but we believe for good reason. The remainder of the year portends a lot of volatility for many of the reasons indicated in our opening paragraph. Every day, there are reminders the market doesn’t seem to be trading on fundamentals but on headlines and inferences. One day it is oil; the next interest rate increases by the Fed; or currency movement; or even lawsuits that affect individual companies. Then of course, we’ll mention that dreaded election again. And a most germane issue: earnings season. We have just begun the saga for the third quarter so stay tuned for the excitement. So, we think with the markets trending to events and a jittery earnings bias, it is better to stay on defense for the time being. We hope you agree, but if you have questions, don’t hesitate to call for more details.

The next topic is recession. Of late we hear a lot about the U.S. heading toward imminent recession. We say – BUNK! We would agree it is always possible but it is much better to deal with probabilities than possibilities. So let’s take a look at some hard data. First, the New York Federal Reserve publishes a “Probability of Recession” indicator based on bond yields. Currently that indicator (below) shows an 8.4% probability. Pretty low! Now this can change of course, but it is not screaming recession like many of the nattering nabobs of negativity.










October 2016


Also there’s the Chicago Federal Reserve National Activity Index which is no where near signaling the end of the business cycle (translated recession) – next chart:




Then on the private side there’s a publication by Recession Alert and one by the Economic Cycle Research Institute – both signaling no recession imminent. So, what’s a forecaster to conclude: we’re really not on the verge of recession? So let’s take a breather on this one for now. We’ll keep you up to date on the facts not the fiction.

October 2016

Let’s close with a word on the dollar. As you may know, it is the world’s reserve currency. We hear a lot of chatter that the dollar is in demise and soon will fail. According to the International Monetary Fund’s – Current Composition of Official Exchange Reserves, the U.S. Dollar is almost two-thirds of the allocated global reserves. A collapse of the dollar would be a highly exaggerated possibility to say the least. They – whoever “they” are – should stifle.




Until we talk again our best to you and yours!




Lee Johnson                                                                                                            Andy Heinz

President / CEO                                                                                                         VP / CIO


P.S. We know you have friends and family members who are concerned when reading the current financial headlines. If you feel like we could help them, please feel free to let them know that we are available if they would like to talk.