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Events & Resources 

The Red Sky Report delivers timely market trend commentary, highlights unique risks and opportunities and educates investors about the realities of behavioral finance.

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Outraged

Okay, so the current administration and the Federal Reserve is now the lender, buyer, and soon to be employer of last resort for the United States of America. This is now my third tour in 20 years of this crap, and I’m outraged!

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What You Need to Know Now

After taking interest rates to zero, and recognizing the ineffectiveness of that move, the Federal Reserve is turning to QE to infinity. They are becoming the buyer (lender) of last resort in a market that only knows sellers. They are now staging outright purchases of their own Treasury bonds, state muni bonds, mortgage backed securities and as of this am, Investment Grade bonds. They are not (yet) doing so with High yield corporates – risk is assumed for those who play in that game, or in anything leveraged like REITs. As a result, we are witnessing the Fed playing God with who will survive (Treasuries and investment grade stuff) and who will die (junk corporate bonds, REITs, and other devices of leverage or poor quality). I have mixed emotions about all of this. I see their move as necessary but ultimately yielding out of control Federal debt with another possible downgrade. I see inflation, both real and persistent, and I see an environment of higher taxes for years to cover all of this spending regardless of who is in office. Short term gain for long term pain. Maybe that phrase should be printed on every US dollar from here as a reminder. Anyway, for those of us who took profits in bonds several weeks ago before they fell 10-15%, we have bought back knowing that the Fed has the firehose on full blast.

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The Plan

As we alluded to last week, we are constantly looking to balance the risk and reward in our investment programs. We want to use volatility in our favor, especially where we are fairly hedged (Tailwind Equity) and/or holding cash (currently all other models). More often than not, cash is a weigh station for us—a temporary place to park capital. We rarely move from a cash to fully invested position all at once, especially during this type of volatility. We enter and exit positions based on the risk management of our process. Most times it is incremental. That said, we are seeing some evidence in our sentiment indicators that current moves are getting overdone (needless to say, a 20% overnight decline in oil doesn’t happen every day …).

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Hansel and Gretel

Hansel and Gretel is one of the classic fairytales from the Brothers Grimm. We all know the story— children, neglectful parents, witch, oven … a trail of rocks (and to the children’s downfall, breadcrumbs). It has to be said—the stock market is the real-life Witch of the current narrative …. We always lean on our process during markets such as these. We started reducing risk to the stock market about a month ago and continue to remain on the defensive until we see things have settled down a bit. Here is what our risk management process has dictated:

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The Durable Investment Portfolio – Investing 101

Sometimes it takes a waterfall, flash crash, stock market event like this to begin to appreciate what we mean by a “durable” portfolio. Our clients know that we have a unique method to our investment approach. As a quick update, I’ll illustrate what we’re doing inside our flagship All Season strategy which houses the majority of our client’s assets. My hope is that you’ll begin to understand what goes into a portfolio that is designed to survive and thrive in all markets… or create wealth and defend it as we like to say in our shop.

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What Does Risk Management Look Like When Markets Fail?

I used to watch a lot of Star Trek in my teen days. Maybe it was an escape of sorts; To go where no man has gone before! Captain Kirk was awesome. Occasionally, the starship Enterprise would get hammered by alien “torpedoes” and Kirk would just take it in stride, bouncing around in his captain’s chair for a minute, no emotion, no screaming, no fear. Finally, he would calmly say, “Scotty, damage report please”. This morning I asked our own Scotty (John Burkholder) to run a performance report on our investment strategies from the top of the market 2/14 through yesterday’s close which should serve as a very short-term bottom. I was pleased to see our risk controls working quite well during the market’s mini crash of the last 7 trading days.

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Tailwind Equity

As the firm celebrates its 25th year in business, I wanted to talk about the new set of investment strategies that we launched in the fourth quarter of 2018. When coming up with new strategies we wanted to add complimentary approaches to our arsenal, while sticking to our philosophy—Create Wealth. Defend It. The missive this week is a re-print of the announcement for our new Tailwind Equity strategy (see below), which has been running for a little over a year with our own corporate money. At the end of last year several clients took advantage of investing in the strategy as well. The next window for client investment will be June 2020.

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Making the Turn

“Making the Turn” is our company name for any household typically falling in the age range of 61-70. It’s an important time in life as households are 3-5 years either side of retirement. This is a confusing and anxious transition along a lot of fronts.

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What is Driving This Market?

I wish I could say it was a strong economy-- or strong earnings-- but I can’t. Those who made our Solution Series last week in the Denver office got a chance to see and understand what’s really driving the US financial markets now. We are finalizing the video edits to that presentation now and will deliver it to you all shortly. But for this update, I’ll provide a sneak peek into this issue as it seemed to be the most captivating subject.

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The Builder

“The Builder” is our company name for any household that typically falls in the age range of 40-60. Typically, these households are in their highest earning years and are focused on building assets as they approach retirement, helping to pay for educational costs, early support for aging parents and accumulating wealth. Tax efficiency is important to this group of high-income earners as well as adequate insurance and early structuring of estate plans. The Builder is on a plan and working hard to stick to it. The Builder likes the idea of vacation homes, personal health, wellness and enjoying experiences with growth family. They might also be considering a second career. There is a growth orientation to Builder investments but an equal interest in capital protection understanding they have a lot more to lose now and many who depend on them financially. This blog is for YOU!

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When is it Time to Switch Investment Strategies?

At some point in time, investors ask themselves this tough question. It’s understandable considering how much emotional currency we place on our own perceived success or failure with investing. Did I have a good year with my investment? Tough question. Relative to what? The markets? My own goals or design of my portfolio? My expectations? What my friends say? What CNBC says? No wonder, we all feel that sense of anxiety about how we’re doing and whether we should change investment strategies. There are clear answers to these questions for mature investors who understand markets and themselves. Let’s dive in.

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Three Days To Get These Done

My desk is full of “to do” lists. As I crossed off my final item, I thought I would share these with you all while we still have 3 business days left in the year, the decade, to help with your personal finances. The point of these “to dos” is simple. It about exercising our financial discipline, saving for our future and reducing our taxes. Today, I see far too many folks out there looking for a quick buck, a short cut or a fast track to financial independence. There is no such thing. There are other things you can do right up until tax deadline, but these must be done before year end. This is going to a brief update with the intention of pushing you to get these done. I’m not going to go into all the details of income limits, amounts, etc. because I think it’s important that everyone work to improve their financial literacy. You can find a ton of information with simple google searches and we’re happy to help in person, but I’ll provide links to some good information below for your researching pleasure.

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Unconventional Thinking

We are going to break our rules a bit with this update and do some forecasting as we head toward the end of the decade. We’ll highlight some good evidence suggesting that the winners of the last decade (or two) are not likely to be the winners of the next decade. 60/ 40 investors should read this carefully as there are some dire looking outcomes for this widely held stock/ bond blend. Today, we are seeing the potential next generation of leadership in sectors and asset classes develop. As we cross into the next decade, it may be just that time.

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Rotten Apples

Regular readers know that we are neither bullish nor bearish on the general stock market. We leave that to the forecasters who must have a lot of time on their hands. We do call out risks and opportunities as we see them however, focusing more on sectors, specific investments, behavioral economics, and systemic risks. If you hadn’t gathered, the theme for our commentary since April has been about selectivity – where you should invest your hard-earned capital and what to avoid. The market is a bucket of apples right now to be sure. You can find the good mixed in with a few of the rotten type. In this context, we should all be conscious of the rotten apple mantra, when the bad apples can ruin the whole batch. We’re hopeful that the rot stays contained. Today will be a clip fest of interesting charts and data I discovered in my weekly reading finishing with a couple of important reality checks that every investor should understand with total clarity.

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In Most Cases Stocks Are a Waste of Your Time

I get the appeal of owning shares of a specific company. Some part of our ego gets a little endorphin shot when we say, “I own that company”. However, in all but a few cases, given the rise of highly focused, sector-oriented exchange-traded funds, there is really very little reason to own individual names anymore. I’ll package this discussion inside the context of our New Power ESG strategy for our client’s benefit as well as any interested parties.

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Investing in Next Gen Companies as a Next Gen Investor

We’re very excited to rollout out our Next Generation services as we move into the 2020s. Today, while avoiding a complete spoiler, we’ll give you a little preview of what we’re planning. For this update, we’ll offer a compelling and timely suggestion to those young investors who are just getting started with their first investment accounts and want to participate in the global wave of Next Generation companies. Next-Gen investments for the Next Gen of investors! Feel free to pass this on to anyone (kids, friends, etc.) who is a younger investor. They will thank you!

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Get Ready for the Next Big Thing in Renewable Energy Investing

We talk a lot about “right place, right time” when it comes to making an actual investment decision. The environment for investing in energy storage, specifically large-scale battery manufacturers and associated companies, is approaching that right place, right time moment. Here’s what makes this investment option compelling and potentially actionable in the very near future. After reading this update, please reach out to us directly with your name and email to request a list of our top picks in this space – some we own already and others we expect to own soon.

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