2016 First Quarter

Kreitler Financial:

The wild ride experienced by stock markets in 2015 seems intent to not let up. A January swoon that gave us the worst opening week in history, then the worst first ten days, and then the worst starting month had the financial press falling over itself with superlatives to describe the action. By the end of February markets rebounded, down only -5.3% (Russell 3000) for the year. Investors now face the question of whether this is the end of the declines or just a pause. 

In this quarterly newsletter, we’ll explore some of the big drivers of 2015, take a look at some of the significant factors driving the market today, and discuss portfolio positioning in today’s turbulent markets. Importantly, the opening month of the year has no statistical relevance to the performance of financial markets in the remaining 11 months.  

Markets and Investing

2015 Overview

2015 was a challenging year for investors around the world. Globally, large company stocks indices were flat for the year. This end result masked the huge swings from the big gains in the first half to the losses of the second half.  Emerging markets faced the steepest losses.



2015 Total Return

S&P 500 (US Large Cap)


Dow Jones Ind Avg (US Large Cap)


Russell 2000 (US Small Cap)


MSCI Developed EAFE (Foreign Large Cap)


MSCI Emerging Market


Barclays Aggregate Bond Index



Overall, investors dealt with a frustrating period. We remain impressed that markets fared as well as they did given some of the huge uncertainties they faced, some of which remain unresolved issues today. 

On a positive note, the markets digested a tremendous amount of negative news in 2015 without suffering significant losses. The volatility experienced along the way was uncomfortable to many. With the perfect lens of hindsight, the big drivers of last year were: 

China: The volatility that we discussed extensively in our 2015 Third Quarter Newsletter continued as Chinese policy makers attempt to reassure the markets that they could prevent growth from slowing too much or capital flight. 

Rising Dollar: The Federal Reserve’s first rate hike since 2006 and the relative safety of the US markets caused a strong rise in the dollar. As a result, US companies faced stiffer price competition from foreign rivals and lower profits on their foreign activities when returned home. Global portfolios faced headwinds for US investors as the value of their holdings were affected by exchange rates. 

Commodity Price Collapse: Energy prices continued to drop due to an oversupply. From its 2014 high of almost $110/bbl, oil declined about 75%. This was a windfall to US consumers. Continued low prices will likely result in some bankruptcies, but the surprise in 2015 may have been the willingness of producers to continue pumping oil at a loss. Another component to the commodity slump was decreased demand from China for raw materials for construction and other capital spending. This set off a wave of volatility in emerging markets, with the MSCI Emerging Market Index off -14.6% for 2015.  

These major trends continue to concern the markets today.


2016— Where to After a Challenging Start?

Global markets sold off hard in the first part of the year before rebounding mid-February. The recent low on February 11 saw the S&P 500 off about -14% from its summer highs before rallying. Without the relative performance of a few of the largest companies, the average company in the index reached bear market territory, typically defined as losses of -20% or more. Most international markets have also entered bear territory. Where do markets go from here, and what should long term investors do about it? 

First, investors should recognize that the significant declines over the past 6+ months have repriced assets based on the markets’ new perception of risk. There can certainly be declines from here, but there are better values in the markets than there were last summer. 

Second, the rapid swings in the markets reinforce the importance to investors of controlling risk at all times—even when everything seems great, as it did last summer—since market disruptions are unpredictable and can unfold rapidly.  

Our investment strategies attempt to make money over the long term by holding risky assets that should deliver superior returns over full market cycles. We employ diversification in an attempt to limit the risk posed by any one type of investment, because we recognize that long returns are not achieved in a steady fashion. The market volatility that makes investing uncertain is also what drives risky assets to provide better long term returns. While diversification cannot protect investors from all losses, it can reduce the impact of market moves to make it more comfortable to stay with long term strategies. During big market moves, investors need to recognize that they must hold to their long term strategies so as to achieve the potential benefits of investing. 

Looking forward, one question is whether the US market is trying to go through a bottoming process and if a buying opportunity may emerge. Alternatively, will significant additional losses occur from today’s prices? We continue to monitor what we view as the big risks to the markets.  In addition to last year’s trends, possible risks may be:

  • Additional interest rate increases create a US recession.
  • Commodity price declines lead to bankruptcies or defaults in unexpected places.
  • The junk bond markets continue to worsen.
  • Banks that have ties to energy firms are vulnerable to bad loans.
  • Sovereign wealth funds are now net sellers instead of buyers due to reduced oil money. 
  • The strong dollar risks a US recession as US companies are less competitive. 

We think these factors are generally well known in the markets and likely priced into assets. 

A greater question to us is whether current central bank polices have reached their limits. Some countries now have negative bond yields. This has never happened before. Successive rounds of quantitative easing have been less effective. Former Federal Reserve Governor Richard Fisher explained in a January 5 CNBC interview, “What the Fed did, and I was part of it, was front-loaded an enormous … market rally in order to create a wealth effect... and an uncomfortable digestive period is likely now.” “The Fed is a giant weapon that has no ammunition left." 

We continue to take a long term view and strive to control risk, permitting us to hold assets with potential for long term appreciation. As part of our normal process, we continue to monitor cash and liquidity levels in our portfolios to help get through potentially rocky periods. For long term investors, the markets may yield opportunities. 


Wealth Management Topics


Social Security Deadline April 29, 2016

For those who will be full retirement age, but have not yet filed for social security, the deadline for the strategy known as ‘File and Suspend’ is April 29, 2016. Filing and suspending permits your own benefit to grow while a spouse or dependent claims a benefit on your earnings history. Also, those who file and suspend can at a later date claim a lump sum benefit of what they would have received had they simply filed for benefits. The file and suspend strategy will no longer work for those who file after April 29. 

In our 2015 Fourth Quarter Newsletter, we included a supplement describing some of the major changes in Social Security. You can locate a copy on our website or call us for information.


Tax Deadlines 

April 15 is the deadline for filing taxes without an extension.  If you or your tax preparer need assistance with gathering investment tax forms, please let us know and we would be happy to help. 

April 15 is also the deadline for making 2015 IRA contributions, including the popular ‘backdoor Roth IRA’ contribution. 


Happenings at Kreitler Financial

We are hiring a Relationship Manager to expand the talent of our team. Anyone interested can learn more on our website.

Recently, we were featured in the Raymond James 2015 Annual Report. You can see the excerpt on our website.  

Charlie appeared on WTNH television discussing year-end tax tips. 

Bob attended a two day seminar hosted by Yale EDHEC at the School of Management on advanced portfolio construction. Charlie attended an invitation only advanced planning conference in Colorado. As part of our ongoing due diligence efforts, Charlie and Bob traveled to Texas in February for two days with Dimensional Fund Advisors for a comprehensive review of their investment process and culture. 

Please call if you have questions or would like to discuss individual issues. We love to hear from you.

With warm regards,

Charles F. Kreitler, CFP®
Robert P. Kreitler, CFP®
Founding Partner

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Charles Kreitler, CFP®, and Robert Kreitler, CFP®, and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and investors may incur a profit or loss regardless of strategy selected. Inclusion of any index is for illustrative purposes only. Individuals cannot invest directly in any index and index performance does not include transaction costs or other fees, which will affect actual investment performance.  Past performance does not guarantee future results. RJFS does not provide tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors.

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