Page 1

February, 2016

THE S&P 500: IT LOOKS LIKE WE ARE IN A CYCLICAL BEAR MARKET AND WHY!

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By Stephen B. Blumenthal, Founder and CEO, CMG Capital Management Group, Inc. ypically, when 50.0% of the stocks are down more than 20.0% (definition of a bear market), a bear market has already started.

Presently, 50.0% of the stocks in the S&P 500 Index are down more than 20.0%. In all past incidences, except for two, the S&P 500 was already in a bear market. One exception was in the late 1990’s. From the point at which more than 50.0% of the S&P 500 stocks were down over 20.0%, the S&P 500 continued to gain another 16.0%; however, six months later, we were in one of the worst bear markets in history.

MONOPOLY IS GOING CASHLESS. COULD WE BE NEXT?

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors Nearly everyone can recall playing Monopoly as a child, and for many, the game served as their first exposure to handling different denominations of cash. It was exhilarating to have someone land on your Park Place property, complete with hotel, and in turn receive a fistful of $50s and $100s.

China Sinks The U.S. Stock Market

The other exception was in 2010, when more than 50.0% of the stocks were down more than 20.0% from their one-year Cyclical Bear Market, continued on page 6

A new generation of players might never get the chance to experience this, however, as Hasbro Gaming just released an “Ultimate Banking” version of the popular board game that nixes the funny money in favor of play credit cards and an electronic scanner. You could argue it’s just a game, but Monopoly has always had a reputation for being a reflection of capitalism as it operates in the “real” world (which is why it was banned in communist states such as the Soviet Union). The cashless version of the game is no exception, as it comes at a time when calls to limit—or in some cases eliminate—the use of cash Monopoly Is Going Cashless, continued on page 16

EARNINGS SEASON IS INDICATING TROUBLING TIMES MAY BE AHEAD

By Louis P. Stanasolovich, CFP , CCO, CEO and President of Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc. ®

Results overall for earnings so far are fair to poor. Transportation firms are showing a significant decline in trading activity. Historically, transportation is one of the stronger performers in the latter stages of an economic expansion. This weakness is concerning. Earnings Season Is Indicating Troubling Times May Be Ahead, continued on page 16

EARNINGS RECESSION EXPERIENCES SINCE 1990 By Phil Segner, CFA, Research Analyst, The Leuthold Group, LLC

Since 1990, the S&P 500 has posted seven periods of at least two consecutive quarters with negative Earnings Per Share (EPS) growth (See S&P 500 EPS LTM Growth chart). There was a cluster of earnings recessions in the earnings dead zone of the early 1990s, where 11 of 14 quarters posted EPS contractions. The next instance coincided with the Tech bubble as EPS shrank in every quarter of 2001. Not to be outdone, 2008 and 2009 posted a string of eight consecutive quarters, shrinking Last Twelve Months (LTM) Earnings Recession Experiences Since 1990, continued on page 12

THE GLOBAL INVESTMENT PULSE February, 2016

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ABOUT LEGEND FINANCIAL ADVISORS, INC.® Legend Financial Advisors, Inc.® (Legend) is a Non-Commission, Fee-Only U.S. Securities and Exchange Commission (SEC) registered investment advisory firm with its headquarters located in Pittsburgh, Pennsylvania. Legend provides a multitude of services, including Wealth Advisory Services, which incorporate Financial Planning and Investment Management strategies to affluent and wealthy individuals as well as business entities, medical practices and non-profit organizations. We analyze each client’s financial strengths and weaknesses, then recommend creative solutions for improvement. Additionally, we work closely with our client’s other professional advisors to achieve optimal results. WHY LEGEND IS DIFFERENT? 1. Legend is compensated exclusively by client fees, known as a Non-Commission, FeeOnly firm. Unlike Legend, fee-based advisors and brokerage firms have numerous conflicts of interest due to the fact that they receive commissions. 2. Members of Legend’s Financial Advisory Team have been selected by National Publications such as Worth, Medical Economics and Barron’s more than 50 times as “The Best Financial Advisors In America”. 3. Unlike most advisory firms and all brokerage houses, Legend and its advisors have chosen to be governed by the Fiduciary Standard of Law. Fiduciaries are required to work in their clients’ best interests. 4. Legend designs dynamic, creative and personalized financial planning and investment solutions for its clients. 5. Legend emphasizes low-cost investments where possible that are allocated and traded in a tax-efficient manner.

ABOUT EMERGINGWEALTH INVESTMENT MANAGEMENT, INC. EmergingWealth Investment Management, Inc. (EmergingWealth), is the sister firm of Legend Financial Advisors, Inc.® (Legend) and is a Non-Commission, FeeOnly Securities and Exchange Commission (SEC) registered investment advisory firm. EmergingWealth provides Investment Management services to individuals as well as business entities, medical practices and nonprofit organizations whose wealth is emerging. All investment portfolios are sub-advised by Legend. Both Legend and EmergingWealth share a common advisory team, Investment Committee and Fee Schedule.

LOUIS P. STANASOLOVICH, CFP®, EDITOR Louis P. Stanasolovich, CFP® is founder, CCO, CEO and President of Legend Financial Advisors, Inc.® (Legend) and EmergingWealth Investment Management, Inc. Lou is one of only four advisors nationwide to be selected 12 consecutive times by Worth magazine as one of “The Top 100 Wealth Advisors” in the country. Lou has also been selected 12 times by Medical Economics magazine as one of “The 150 Best Financial Advisors for Doctors in America”, twice as one of “The 100 Great Financial Planners in America” by Mutual Funds magazine, four times by Dental Practice Report as one of “The Best Financial Advisors for Dentists In America” and once by Barron’s as one of “The Top 100 Independent Financial Advisors”. Lou was selected by Financial Planning magazine as part of their inaugural Influencer Awards for the Wealth Creator award recognizing the advisor who has made the most significant contributions to best practices for portfolio management. He has been named to Investment Advisor magazine’s “IA 25” list three times, ranking the 25 most influential people in and around the financial advisory profession as well as being named by Financial Planning magazine as one of the country’s “Movers & Shakers” recognizing the top individuals who have done the most to advance the financial advisory profession. 2

THE GLOBAL INVESTMENT PULSE February, 2016


NEGATIVE INTEREST RATES ARE A TAX ON BANK DEPOSITS By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

Negative interest rates are essentially a tax on one’s bank deposits, intended to discourage saving. If hard cash were no longer available to squirrel away in one’s mattress, gold might be the only other option. However, nominal interest rates aren’t the only driver. Gold’s relationship with real (after inflation) interest rates is what occurs when (The Consumer Price Index or CPI) inflation is subtracted from the government bond yield. When inflation rises,

real interest rates are pushed lower, and when they turn negative, gold becomes more attractive. The Labor Department recently reported that core (CPI minus energy and food costs) inflation in January increased 0.3%, its largest monthly gain since August 2011, when gold hit its all-time high of $1,900.00 per ounce. For the 12-month period, the Consumer Price Index hit an impressive 2.2%, its strongest showing since June 2012. Both of these ratings beat analysts’ estimates and should be constructive for gold.

Source: This article was excerpted from “Monopoly Is Going Cashless. Could We Be Next?”, by Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors, (Advisor Alert, February 19, 2016), www.usfunds.com COPYRIGHT 2016 U.S. GLOBAL INVESTORS REPRINTED WITH PERMISSION OF U.S. GLOBAL INVESTORS PULSE

DOW JONES FOUR-YEAR PRESIDENTIAL CYCLES Election Year

First Presidential Year

Second Presidential Year

Third Presidential Year

Presidential Election Pattern Based on Daily Data (1900-01-02 to 2015-12-31) Trend Is More Important Than Level

As of: January 8, 2016 COPYRIGHT 2016 CMG CAPITAL MANAGEMENT GROUP, INC.

Source: Ned Davis Research via CMG Capital Management Group, Inc. On My Radar, January 8, 2016, www.cmgwealth.com REPRINTED WITH PERMISSION FROM NED DAVIS RESEARCH AND CMG CAPITAL MANAGEMENT GROUP, INC.

THE GLOBAL INVESTMENT PULSE February, 2016

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CORRELATION BETWEEN OIL AND STOCKS HIGHEST EVER SINCE 1980 By Eric Bush, CFA in Markets, GaveKal Capital

Stock prices and oil prices have been moving in a more positive correlated fashion recently than at any point since 1980. The 65-day correlation between Brent Crude Oil and MSCI World Index peaked at 52.0% on November 13, 2015 and has since fallen back a bit to 41.0%. The 200-day moving average is also at 41.0% and continues to climb higher. The current correlation of 41.0% is the highest correlation between stocks and oil prices ever over the history compiled for both series by GaveKal Capital. (See “Correlation Between Oil and MSCI World Index” chart below.) Of course there have been certain sectors of the stock market that have been highly correlated to the price of oil for quite a while. And fortunately for investors, there have been sectors that have had a negative correlation. In the first chart below,

we show GKCI Developed Market cyclical sectors (Consumer Discretionary, Energy, Financials, Industrials, Information Technology, Materials) relative to the overall stock market (blue line). The red line shows the five-day moving average for Brent Crude Oil. Over the past five years, these two series have had an 85.0% correlation. As oil has fallen, cyclical stocks have fallen with it.

with oil prices. To the tune of a -84.0% correlation over the past five years. Consequently, growth counter-cyclical stocks have been the best way for investors to buck the drag that oil prices have had on stock prices. (See “GKCI DM Cyclicals Relative to GKCI DM Index” and “GKCI DM Growth Counter Cyclicals Relative to GKCI DM Index” charts on page 5 top and bottom, respectfully.)

In the second chart, we show GKCI Developed Market growth countercyclical sectors (Consumer Staples and Health Care) relative to the overall stock market (blue line). Once again, the red line shows the five-day moving average for Brent Crude Oil. This time we have inverted the right-hand scale so as to better illustrate the relationship. Here, we see growth-counter cyclicals have actually had a NEGATIVE relationship

Source: This article was excerpted from “Correlation Between Oil and Stocks Highest Ever Since 1980”, by Eric Bush, CFA in Markets, GaveKal Capital, (GaveKal Capital Blog, February 18, 2016), http:// blog.gavekalcapital.com COPYRIGHT 2016 GAVEKAL CAPITAL REPRINTED WITH PERMISSION OF GAVEKAL CAPITAL

CORRELATION BETWEEN OIL AND MSCI WORLD INDEX 0.6

0.41 0.41

0.4

0.2

0.0

-0.2

-0.4

-0.6

-0.8

’80

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65-Day Correlation Between Brent Crude & MSCI World Index 200-Day Correlation Between Brent Crude & MSCI World Index As of: February 18, 2016 COPYRIGHT 2016 GAVEKAL CAPITAL

Source: GaveKal Capital, GaveKal Capital Blog, February 18, 2016, http://blog.gavekalcapital.com REPRINTED WITH PERMISSION FROM GAVEKAL CAPITAL

Correlation Between Oil And Stocks Highest Ever Since 1980, continued on page 5

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THE GLOBAL INVESTMENT PULSE February, 2016


Correlation Between Oil And Stocks Highest Ever Since 1980, continued from page 4

GKCI DM CYCLICALS RELATIVE TO GKCI DM INDEX Compared To Oil Correlation: 0.84 102

140

100 120 98 100 96 80

94

60

92 50.64

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90 32.17 88

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(INDEX) GKCI DM Cyclicals Relative to GKCI DM Index (Left) (MOV 5D) Crude Oil Brent ($/bbl) – Price (Right) As of: February 18, 2016 COPYRIGHT 2016 GAVEKAL CAPITAL

Source: GaveKal Capital, GaveKal Capital Blog, February 18, 2016, http://blog.gavekalcapital.com REPRINTED WITH PERMISSION FROM GAVEKAL CAPITAL

GKCI DM GROWTH COUNTER CYCLICALS RELATIVE TO GKCI DM INDEX Compared To Oil (Inverted) Correlation: -0.84 150 142.81 32.17

140

20

40 130 60 120 80 110 100 100 120 90 ‘11

‘12

‘13

‘14

‘15

140

(INDEX) GKCI DM Growth Counter Cyclicals Relative To GKCI DM Index (Left (MOV 5D) Crude Oil Brent ($/bbl) – Price (Right) As of: February 18, 2016 COPYRIGHT 2016 GAVEKAL CAPITAL

Source: GaveKal Capital, GaveKal Capital Blog, February 18, 2016, http://blog.gavekalcapital.com REPRINTED WITH PERMISSION FROM GAVEKAL CAPITAL

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Cyclical Bear Market, continued from page 1

high. In that instance, we did not see a bear market. So, in effect, there was just one exception.

than 20.0%. Note three red arrows in early 2008.

The chart is below (data).

3. Yellow oval circles illustrate several periods.

1. A bear market has typically already started when 50.0% of the S&P 500 stocks are down more than 20.0%. On Wednesday, January 13, 2016, 49.8% of the stocks were down more than 20.0% (As of the end of February, this number is higher).

4. The two exceptions are 1999 and 2010. Though we know what ultimately followed 1999. 2010 stands the only exception. So when this much deterioration occurs in the underlying constituents, there generally is a bear market.

Source: This article was excerpted from “A Cyclical Bear Market (Here’s Why)”, by Stephen B. Blumenthal, Founder and CEO, CMG Capital Management Group, Inc., (On My Radar, January 15, 2016), www. cmgwealth.com COPYRIGHT 2016 CMG CAPITAL MANAGEMENT GROUP, INC. REPRINTED WITH PERMISSION OF CMG CAPITAL MANAGEMENT GROUP, INC.

2. The grey shaded areas show the beginning at points in time more than 50.0% of the stocks were down more

PERCENTAGE OF S&P 500 STOCKS IN BEAR MARKETS Daily 1/3/1973 to 1/13/2016 (Log Scale)

As of: January 15, 2016 COPYRIGHT 2016 CMG CAPITAL MANAGEMENT GROUP, INC.

Source: S&P Dow Jones Indices via CMG Capital Management Group, Inc. On My Radar, January 15, 2016, www.cmgwealth.com REPRINTED WITH PERMISSION FROM CMG CAPITAL MANAGEMENT GROUP, INC.

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THE GLOBAL INVESTMENT PULSE February, 2016


“Do You Want A Second Opinion?” To see if your investment portfolio is built to navigate the pitfalls and opportunities ahead, call us today for a “Free Second Opinion” at (412) 635-9210.

www.legend-financial.com THE GLOBAL INVESTMENT PULSE February, 2016

7


MONTHLY RISK AVERSION INDEX (RAI) MOVED UP BUT STILL “LOWER RISK” RANGE

Note: The Risk Aversion Index combines ten market-based measures including various credit and swap spreads, implied volatility, currency movements, commodity prices and relative returns among various high- and low-risk assets.

4

4

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2

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1

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0

0

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2010

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As of: February 5, 2016 Source: The Leuthold Group, LLC, Perception Express, February 5, 2016, http://leuth.us/bond-market COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

3.25 3.00

The Leuthold Group Copyright ® 2016

EARNINGS ADVANCE/DECLINE RATIO First Month Of Each Quarterly Period Based On Reported Earnings

Earnings Reports For Jan. 2016 (Q4 2015 Results)

2.75

2.50

SOFT LANDING

SOFT LANDING

2.25

AVERAGE 1.83

2.00

1.75

1.50 1.25

1.00

RECESSION

RECESSION

RECESSION

0.75 0.50

Earnings Growth Rates Are Continuing To Decline.

0.25 83 84

85 86 87 88

As of: February 5, 2016

89 90

91 92

93

94 95

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97

98

99 00 01 02 03

04

05

06

07

13 14 15

Source: The Leuthold Group, LLC, Perception Express, February 5, 2016, http://leuth.us/market-internals

REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

8

08 09 10 11 12

THE GLOBAL INVESTMENT PULSE February, 2016


SECULAR BEAR MARKET WATCH April 1, 2000 to January 31, 2016 (15 years and 10 months) Annual Compound Return

Total Return

Consumer Price Index (Inflation)

2.07%

38.39%

90-Day Treasury Bills Index-Total Return

1.66%

29.76%

Barclays Aggregate Bond Index-Total Return

5.37%

129.05%

HFRX Global Hedge Fund Index

2.15%

40.03%

S&P 500 Index (U.S. Stock Market)

3.62%

75.58%

MSCI EAFE Index (Developed Foreign Equities)

2.55%

49.04%

MSCI Emerging Market Index (Equities)

5.24%

124.68%

Newedge CTA Index (Managed Futures)

5.53%

134.75%

Dow Jones–UBS Commodity Index-Total Return (USD)**

-1.53%

-21.62%

Dow Jones U.S. Real Estate Index-Total Return (USD)**

10.61%

393.98%

9.16%

301.01%

Gold Bullion

SECULAR BEAR MARKET WATCH (CONTINUED)

* Compound and Total Returns include reinvested dividends. MSCI Indexes do not include dividends prior to 2002. Newedge Index is equally-weighted. ** USD = U.S. Dollar

April 1, 2000 to January 31, 2016 (15 years and 10 months)

Source: Bloomberg Investment Service As of: January 31, 2016

COPYRIGHT 2016 LEGEND FINANCIAL ADVISORS, INC. ® REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC. ®

Note: During Secular Bear markets U.S. Stocks have historically returned a little more than inflation or a little less than inflation—plus or minus 1.50%—and generally last between 15 to 25 years. The last Secular Bear market (1966 to 1982) lasted 17 years and underperformed inflation by approximately one-half of one percent per year. The other Secular Bear markets since 1900 were 1901 to 1920 and 1929 to 1949. In both cases, the U.S. Stock market outperformed inflation by approximately 1.50% per year. All of the aforementioned performance numbers are pre-tax. The performance of the U.S. Stock market so far in the current period (April 1, 2000 to the present) certainly appears to indicate that we are in a Secular Bear market. Long-term returns (over the next 10 years) for the S&P 500 will probably be slightly worse than the last 15 years and 10 months. Current 10 year normalized P/Es (long-term valuations) indicate approximate annual compound returns of slightly less than 3.00% over the next 10 years. Of course during the next 10 years, returns during various periods will be significantly higher and lower than the expected return. For example, the more the stock market rises in the near term, the less returns after that period will be and vice versa. THE GLOBAL INVESTMENT PULSE February, 2016

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BARCLAYS U.S. HIGH YIELD BOND MINUS TREASURY BOND YIELD High Yield Bond Yields Rise Again 20

Differential Median: 5.13

15

10

Jan-16: 7.77%

5

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As of: February 5, 2016 COPYRIGHT 2015 THE LEUTHOLD GROUP, LLC

1997

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2011

2013

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Source: The Leuthold Group, LLC, Perception Express, February 5, 2016, http://leuth.us/bond-market REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

SMALL CAP TO LARGE CAP HISTORICAL PRICE TO EARNINGS (P/E) RATIO Small Caps Are Still More Expensive

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As of: February 5, 2016

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2013

2015

Source: The Leuthold Group, LLC, Perception Express, February 5, 2016, http://leuth.us/market-internals REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

THE GLOBAL INVESTMENT PULSE February, 2016


HISTORICAL VALUATIONS, GROWTH VERSUS VALUE U.S. LARGE, MID AND SMALL CAP STOCKS All growth stock and value stock style categories, except small growth and mid-growth, appear expensive when compared to the Historical Averages (1982 to date) and the Percent Above/Below Historical Average Valuation sections in the chart below. Large, Medium, and Small Growth Stock categories again appear cheaper relative to the Value categories than the historical averages as evidenced by the Today’s Growth To Value Ratio versus the Historical Average Growth To Value Ratio. Median Price-ToEarnings (P/E)

Historical Averages 1982 to Date

Percent Above/Below Historical Average Valuation

Today’s

Historical Average

2000 Extreme

Growth Stocks

Value Stocks

Growth Stocks

Value Stocks

Growth Stocks

Value Stocks

G/V* Ratio

G/V* Ratio

G/V* Ratio

Large-Cap

20.8x

12.4x

19.8x

10.8x

5.0%

15.0%

1.68

1.97

5.80

Mid-Cap

22.2x

12.4x

23.3x

11.9x

-5.0%

4.0%

1.79

2.08

9.30

Small-Cap

26.0x

13.4x

27.3x

12.0x

-5.0%

12.0%

1.94

2.44

12.50

* Growth To Value Earnings estimates came down with prices in January. Growth is still cheap compared to Value.

As of: February 5, 2016 COPYRIGHT 2015 THE LEUTHOLD GROUP, LLC

Source: The Leuthold Group, LLC, Perception Express, February 5, 2016, http://leuth.us/market-internals REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

THE GLOBAL INVESTMENT PULSE February, 2016

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Earnings Recession Experiences Since 1990, continued from page 1

EPS by more than 50.0%. (See “S&P 500 EPS LTM Growth” chart to the right.) LTM reported earnings per share for the S&P 500 peaked at year end 2014. While it’s still near that all-time EPS high, each of the three quarters of reported 2015 earnings has suffered a contraction (YOY); meaning, we entered an earnings recession at the end of June. Thanks to evaporating earnings, LTM EPS now stands almost 5.0% below its all-time high. To see 2015 lumped in with the market meltdown years of 2001, 2008, and 2009 is a bit unsettling. S&P 500 In An Earnings Recession Today’s earnings recession is also unique, given that it is not (yet) being tied to an actual economic recession. While we don’t think we’re on the precipice of economic calamity, the longer that profits and revenues (which have also contracted for the past three quarters) fall short of their peaks, business activity will be adversely affected. A feedback loop of lower revenue and earnings leading to decreasing investment in capital and labor could develop. Not surprisingly, and as demonstrated by past earnings recessions, performance tends to lag in quarters with declining earnings. During the 32 quarters that experienced LTM EPS shrinkage since 1990, the S&P 500 had an average quarterly total return of +0.69%. On the other hand, the S&P 500 had a +3.43% average quarterly total return during the 70 quarters of EPS expansion. Is Energy The Culprit? What’s to blame for the current lack of earnings growth? An examination of year-over-year aggregate net income shows that although there were five sectors with negative, or near negative, reported year-over-year growth (See “Net Income Change by Sector” chart), Energy clearly receives the lion’s share of the blame for the absolute decline in earnings. (See “Net Income Change by Sector” chart at the top of page 14.) In Q3 of 2015, the S&P 500 reported aggregate net income of $272.8 billion, down only $3.6 billion from Q3 of 2014. By comparison, the five sectors that had lower year-over-year net income were down a combined $19.8 billion —but of that, the 40 Energy sector firms accounted for a whopping 87.0% ($17.3 billion) of that deficit! Earnings in the Materials sector (which often catches blame along with Energy), were off nearly 16.0%. Due to Materials’ small weight in the S&P 500, how-

As of: January 8, 2016 REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

Source: The Leuthold Group, LLC, Perception Express, January 8, 2016 http://leuth.us/special-interest

ever, the effect was relatively negligible. “Carving out” the malignant Energy sector in order to show “otherwise healthy” earnings growth in the rest of the S&P 500 has become a common sales spin. This technique may be akin to airbrushing your creepy uncle out of your family holiday photo, but yes, it does result in a rosier picture. If Energy is completely removed from both Q3 2014 and Q3 2015, the other nine sectors show positive year-over-year growth of 5.6%. In fact, we can simplify it further: remove just Exxon Mobil and the S&P 500 returns to net income growth YOY (XOM made $3.8 billion less in Q3 2015 YOY). But make no mistake, the Energy sector isn’t masking roaring earnings growth in the broad market. Our Up/Down earnings ratio in the “Stock Market Internals” section shows that only 52.0% of 4,200 firms reported year-over-year growth in earnings during Q3. This is the lowest reading for our Up/Down ratio since 2009. Margin Growth Necessary Besides the obvious—which is more favorable year-over-year comparisons eventually coming for the Energy sector (estimates continue to get pushed back as Energy prices keep sliding), how tricky will it be to get back to S&P 500 earnings growth and peak EPS? Without taking a position on commodity prices or the strength of the dollar, we believe the answer lies in margin growth.

If history is any guide, inverted corporate profit margins advanced five years predict a rough road for earnings growth in the coming years (See “Margins Are Excellent But Unfortunately A Inverse Predictor Of Future Profit Growth chart). What might lead us down that road? We believe low rates, tight spreads, and muted wage growth – the tailwinds that brought us record high margins are beginning to blow in a different direction. (See “Margins Are An Excellent Predictor Of Future Profit Growth” chart on the bottom of page 14.) For a number of years, our research has shed light on the underlying causes of the contemporary record high profit margins. From the late 1990s to the all-time margin peak in 2011, the sexier narratives of more automation, increased efficiencies, and offshoring jobs to lower wage locales simply maintained operating margins while lower interest expenses and, to a lesser extent, a lower tax burden juiced bottom lines. Source: This article was excerpted from “Earnings Recession Experiences Since 1990”, by Phil Segner, CFA, Research Analyst, The Leuthold Group, LLC, (Perception Express, January 8, 2016), http://leuth.us/ special-interest COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC REPRINTED WITH PERMISSION OF THE LEUTHOLD GROUP, LLC

Earnings Recession Experiences Since 1990, continued on page 14

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THE GLOBAL INVESTMENT PULSE February, 2016


THE OUTLOOK FOR OIL

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors BCA Research, an independent provider of global investment research, believes oil markets will rebalance in 2016, not because of a price collapse, but because production will continue to decline and consumption is expected to grow. Most of these downward production adjustments are being made in nonmember countries of the Organization of Petroleum Exporting Countries (OPEC). In the U.S. alone, production has declined by over 600,000 barrels of oil per day as the drilling rig count falls. Russia, however, is unwilling to cut its production in a bid to compete with OPEC. In November, the country hit a post-Soviet record of 10.8 million barrels produced per day. Also, as international

production sanctions are lifted in 2016 from Iran, even more oil is expected to be produced.

In all likelihood, then, oil prices probably need to remain lower for longer in order to rebalance the market.

For these reasons, Moody’s recently trimmed its 2016 oil forecast. They have indicated that West Texas Intermediate (WTI) crude will average $40.00 per barrel, down from $48.00. Some analysts are predicting prices as low as $20.00 per barrel. The projection for the Brent Crude Oil Index (An index for oil produced from the North Sea, which sits between Great Britain and Norway.) was slashed even more significantly, from $53.00 to $43.00.

Source: Parts of this article were excerpted from “Hope For The New Year: 3 Asset Classes for 2016”, by Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors, (Advisor Alert, January 2016), www.usfunds.com COPYRIGHT 2016 U.S. GLOBAL INVESTORS REPRINTED WITH PERMISSION OF U.S. GLOBAL INVESTORS

To put this in perspective, oil averaged $55.00 per barrel in 2015, compared to $85.00 in 2014.

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OIL’S DECLINE Oil’s decline from $100.00 to $30.00 per barrel wiped out over $110 Trillion dollars in value.

Proved Reserves

1,700,000,000 barrels

Price Decline

$70.00

Value Decline

$119,000,000,000,000 (Trillion Dollars)

As of: January 25, 2016 Source: 361 Capital, LLC, Weekly Research Briefing, REPRINTED WITH PERMISSION FROM 361 CAPITAL, LLC January 25, 2016, www.361capital.com

THE GLOBAL INVESTMENT PULSE February, 2016

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Earnings Recession Experiences Since 1990, continued from page 12

As of: January 8, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

Source: The Leuthold Group, LLC, Perception Express, January 8, 2016 http://leuth.us/special-interest REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

MARGINS ARE AN EXCELLENT BUT UNFORTUNATELY AN INVERSE PREDICTOR OF FUTURE PROFIT GROWTH Five-Year Annualized Growth In NIPA Corporate Profits (scale at left)

20 18

4.0 4.5

16 5.0

14

5.5

12 10

6.0

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6.5

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0

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9.0

NIPA Corporate Profits As A Percentage of Gross Domestic Product – advanced five years and shown in inverted scale (right)

-6 -8 -10

9.5 10.0

Concept courtesy of Hussman Research & Insight

1952

1960

1970

As of: January 8, 2016 COPYRIGHT 2016 THE LEUTHOLD GROUP, LLC

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1990

2000

2010

2020

Source: The Leuthold Group, LLC, Perception Express, January 8, 2016 http://leuth.us/special-interest REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

PULSE 14

THE GLOBAL INVESTMENT PULSE February, 2016


JUNK BONDS –THIRD AVENUE FOCUSED CREDIT BOND FUND NOT A PROBLEM FOR THE REST OF THE INDUSTRY By Blaine Rollins, CFA, 361 Capital, LLC

As modified by Louis P. Stanasolovich, CFP®, CCO, CEO and President of Legend Financial Advisors, Inc.® and EmergingWealth Investment Management, Inc. “The Third Avenue Focused Credit Bond Fund situation is unique”, said Gary Cohn, president of Goldman Sachs. “They owned really low-credit-rated products which is not what the typical high-yield fund does. The long-term impact of rising rates remains a big question mark for the high yield universe. However, no one believes that the collapse of Third Avenue is going to contaminate the world.” (Editorial Note: The above paragraph is paraphrased.)

In part, that’s because today’s junk bond market—and the institutions that invest in it—lack two important ingredients of past crises: high leverage (heavy borrowing to finance the purchase of assets) and concentrated bets. While Third Avenue’s portfolio was concentrated in thinly traded, obscure bonds, it had no leverage. Its failure didn’t put any lender in peril, the way the collapse of Lehman Brothers lead to the crises at A.I.G. and throughout Wall Street.

Source: This article was excerpted from “Nothing Else Matters…”, by Blaine Rollins, CFA, 361 Capital, LLC, (Weekly Research Briefing, December 21, 2015), www.361capital.com COPYRIGHT 2015 361 CAPITAL, LLC REPRINTED WITH PERMISSION OF 361 CAPITAL, LLC PULSE

YIELD CURVE IS STARTING TO FLATTEN U.S. Treasury Yield Curve

4.5%

4.0%

December 31, 2013

4.0%

December 31, 2015

3.5%

3.0%

3.0% 2.5% 1.8%

2.0% 1.4%

1.5%

0.7%

0.5%

2.1%

2.3%

1.8%

1.1%

1.0%

0.8%

As of: December 31, 2015

30 Year

28 Year

26 Year

24 Year

22 Year

20 Year

18 Year

16 Year

14 Year

12 Year

10 Year

8 Year

6 Year

4 Year

2 Year

6 Month

0.4% 0.1%

1 Month

0.0%

3.0%

2.5%

Source: Bloomberg Investment Services Source: COPYRIGHT 2015 LEGEND FINANCIAL ADVISORS, INC.® Source: REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.®

THE GLOBAL INVESTMENT PULSE February, 2016

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Monopoly Is Going Cashless, continued from page 1

are intensifying. And to be clear, “cash” here means cash in your pocket, not cash in the bank. Source: This article was excerpted from “Monopoly Is Going Cashless. Could We Be Next?”, by Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors, (Advisor Alert, February 19, 2016), www. usfunds.com COPYRIGHT 2016 U.S. GLOBAL INVESTORS REPRINTED WITH PERMISSION OF U.S. GLOBAL INVESTORS PULSE Earnings Season Is Indicating Troubling Times May Be Ahead, continued from page 1

The U.S. is not in a recession nor is the likelihood that there will be one in 2016. Globally, however, there is just under an 80.0% chance of a recession in 2016. However, for the U.S. there are more signs of slowing growth and financial market sentiment measures are becoming terrible. There is no need to panic at this time. However, we will view the evidence and make adjustments accordingly. COPYRIGHT 2016 LEGEND FINANCIAL ADVISORS, INC.® REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.® PULSE

LESS CONSUMER SPENDING ON THE HORIZON By Blaine Rollins, CFA, 361 Capital, LLC

Federal Reserve (Fed) research and other studies estimate that up to 6.0% of any drop in household net worth gets passed through and results in less spending. It means that unless the stock market recovers soon, upwards of $150 billion in consumption will be lost in coming months—a drag of close to 1.0% of Gross Domestic Product. Source: This article was excerpted from “Eerily Similar?”, by Blaine Rollins, CFA, 361 Capital, LLC, (Weekly Research Briefing, January 25, 2016), www.361capital.com COPYRIGHT 2016 361 CAPITAL, LLC REPRINTED WITH PERMISSION OF 361 CAPITAL, LLC

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THE GLOBAL INVESTMENT PULSE February, 2016


2016 PERFORMANCE YEAR-TO-DATE January 1, 2016 to January 31, 2016 (1 month)

Year-to-Date Total Return Consumer Price Index (Inflation)*

0.17%

90-Day Treasury Bills Index-Total Return*

0.02%

Barclays Aggregate Bond Index-Total Return

1.38%

HFRX Global Hedge Fund Index

-2.76%

S&P 500 Index (U.S. Stock Market)

-4.96%

MSCI EAFE Index (Developed Foreign Equities)

-7.21%

MSCI Emerging Market Index (Equities)

-6.49%

Newedge CTA Index (Managed Futures)

4.18%

Dow Jones–UBS Commodity Index-Total Return (USD)**

-1.70%

Dow Jones U.S. Real Estate Index-Total Return (USD)**

-4.03%

Gold Bullion

5.30%

Compound and Total Returns include reinvested dividends. Newedge Index is equally-weighted. * Currently on a one month lag. ** USD = U.S. Dollar Source: Bloomberg Investment Service As of: January 31, 2016

COPYRIGHT 2016 LEGEND FINANCIAL ADVISORS, INC. ® REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC. ® THE GLOBAL INVESTMENT PULSE February, 2016

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S&P 500 INDUSTRIES (GICS LEVEL III)

Percentage Decline From 2014 To 2015 Highs To Correction Lows (Through February 4th, 2016)

As of: February 5, 2016 REPRINTED WITH PERMISSION FROM THE LEUTHOLD GROUP, LLC

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THE GLOBAL INVESTMENT PULSE February, 2016

Source: The Leuthold Group, LLC, Perception Express, February 5, 2016, http://leuth.us/stock-market


LEGEND FINANCIAL ADVISORS, INC.® & EMERGINGWEALTH INVESTMENT MANAGEMENT, INC.’S INVESTMENT MANAGEMENT SERVICES Legend Financial Advisors, Inc.® (Legend) and EmergingWealth Investment Management, Inc. (EmergingWealth) offer Personalized Investment Management Services to individuals and institutions. Investment portfolios are developed to match the client’s return and risk requirements, which are determined by the clients’ completion of a Risk Comfort Zone Questionnaire, with the guidance of a Legend Wealth Advisor or EmergingWealth Advisor, respectively. Each type of investment portfolio is managed to achieve the short, intermediate and long-term investment objectives of the client, as may be applicable.

INVESTMENT PROCESS Investment Portfolios: Unlike most financial advisory firms that offer one style of investment or portfolio type, we offer a wide array of investment portfolios that usually fit with the large majority of client needs. If necessary, we will create customized solutions as well. For the types of investment portfolios, please see our Investment Portfolios, Potential Return and Risk Spectrum Chart on the next page. For a detailed description of our portfolios, please contact Louis P. Stanasolovich, CFP®, founder, CCO, CEO and President of both firms for a confidential discussion at (412) 635-9210 or e-mail us at legend@legend-financial.com. Investment Research: Our Investment Committee performs extensive research to identify opportunities, mitigate risks and structure investment portfolios. Emphasis is placed on developing portfolios that maximize the potential return relative to the amount of risk taken. In-depth due diligence including face-to-face interviews in many instances with portfolio managers for open-end mutual funds is performed on each investment we select for a portfolio. Factors (both from a qualitative and quantitative standpoint) that we conduct a thorough analysis of each investment include, but is not limited to, liquidity (including the primary investment and/or the underlying investments, if utilizing pass through vehicles such as openend mutual funds or exchange-traded products), income taxation, all related costs, return potential, drawdown potential (historical declines from peak-to-trough), volatility and management issues (Anything having to do with the management team of a stock, open-end mutual fund or an exchange-traded product.). All portfolios for EmergingWealth are subadvised by Legend. Client Education: Education is very important to us. We are dedicated to educating each client about the different investment portfolio types and how they relate to market volatility, time horizons, and investment returns. It is our goal to ensure that the client understands and agrees with our investment philosophy. Furthermore, we assist each client in selecting a risk tolerance level with which they are comfortable. Ultimately, an investment portfolio is designed to meet the client’s objectives.

PERFORMANCE REPORTING Many investment firms only offer monthly brokerage statements, which provide minimal information; typically only account and investment balances. We, on the other hand, provide detailed quarterly reports that outline performance, income and management fees (among other items) in a simple, easy-to-read report. In addition, each performance report is sent with an extensive index page that illustrates the investment environment during the reporting period.

FEES To find out more about the fees for either Legend or EmergingWealth’s Investment Management services, please contact Louis P. Stanasolovich, CFP®, founder, CCO, CEO and President of both firms for a confidential discussion at (412) 635-9210 or e-mail us at legend@legend-financial.com. THE GLOBAL INVESTMENT PULSE February, 2016

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THE GLOBAL INVESTMENT PULSE February, 2016 © 2014 Legend Financial Advisors, Inc. ® All Rights Reserved

The Global Investment Pulse, February 2016 Issue  

The Global Investment Pulse, February 2016 Issue

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