Paul Dietrich's Global Investing Trends Report

How Does Foxhall Determine We Are Entering Into A Bear Market?

Posted November 20, 2007 · 0 Comments

Dear Paul,

 

I know you have been warning for several months that the U.S. economy is slowing, but what are the exact “stock market triggers” that FOXHALL CAPITAL uses to determine that the stock market has moved into a bear market or recession?  How do these triggers “specifically work” and exactly when will you notify clients that FOXHALL CAPITAL believes we have entered into a bear market or recession and FOXHALL CAPITAL is moving its investment portfolios to it FOXHALL DEFENSIVE INVESTMENT STRATEGY?

 

As many of you know, I live on a horse farm in the Middleburg area of Northern Virginia.  Some years ago, I had a farm manager who would come to work everyday wearing both a large leather belt around his waist AND a pair of suspenders.  I always admired his sartorial eccentricity.

 

If you think about it, it was a great risk management strategy-if you wanted to minimize the risk of your pants falling down!

 

THE FOXHALL CAPITAL “BELT & SUSPENDERS” STRATEGY

 

At FOXHALL CAPITAL, we also have our own “BELT AND SUSPENDERS” risk management strategy to make sure our FOXHALL CAPITAL clients have moved to a DEFENSIVE INVESTMENT STRATEGY within a very short period of time after the stock market enters into a bear market or recession.

 

EXACTLY WHEN DOES A BEAR MARKET OR RECESSION START?

 

As a group, the U.S. Government, the U.S. Treasury Department and major U.S. economists have a miserable record in predicting past bear markets and recessions.  For example, in 1929, days after the stock market crash, the HARVARD ECONOMIC SOCIETY reassured its subscribers: “A severe depression is outside the range of probability.”  In a survey in MARCH OF 2001, 95% of American economists said there would not be a recession, even though one had already started.

 

According to THE ECONOMIST magazine, “Today, most economists do not predict a recession in America, but the profession’s pitiful forecasting record offers little comfort.”

 

FOXHALL’S PRIMARY DEFENSIVE STRATEGY TRIGGER

 

FOXHALL CAPITAL continuously monitors, on a daily basis, the long-term stock market trends in both U.S. and global markets.  But on the last Friday of every month, Dave Morton and I meticulously review all of our current holdings in each of our FOXHALL investment strategies.

 

We compare the long-term performance of each holding with (1) the S&P 500 INDEX, which is a broad measure of the U.S. stock market, and (2) to a U.S. MONEY MARKET FUND, which is essentially cash.

 

Our theory is we really don’t want to own any investment that is both UNDER-

PERFORMING the S&P 500 INDEX and UNDERPERFORMING cash.

 

If we find a specific investment holding begins to decline on a long-term relative strength basis against both the S&P 500 INDEX and to our money market fund, we replace it with another holding that is currently out-performing.  At FOXHALL CAPITAL, we believe “there is always a bull market somewhere in the world.”

 

However, if the U.S. stock market or an Asian stock market, for example, begins to decline into a bear market or recession, we almost immediately see many, if not all, of our equity investment holdings begin to under-perform our money market fund trigger.  If there are no other investment options that are outperforming our money market fund, you will see FOXHALL start to invest large segments of your portfolio in money market funds, bond funds or some other defensive investment strategy.

 

This entire process of moving to bonds and other defensive investments all takes place within a very short period of time

 

-WEEKS NOT MONTHS.  This is our FOXHALL PRIMARY DEFENSIVE STRATEGY TRIGGER.

 

FOXHALL’S SECONDARY DEFENSIVE STRATEGY TRIGGER

 

At FOXHALL CAPITAL, we never try to “time” the market or try to “anticipate” whether the market will go up or down.  We simply try to follow the stock market in the direction it is already going-this is technically called stock market “TREND FOLLOWING.”

 

Years ago, we created a proprietary, computer generated quantitative model, called the

FOXHALL CAPITAL LONG-TERM MAJOR STOCK MARKET TREND TRIGGER.  I know that is a very long and convoluted title, but what it does is track the U.S. stock market trend direction, and since World War II, it has had a good record of identifying major stock market corrections, bear markets and recessions.

 

For example, in the last bear market and recession, this “trigger” indicated the stock market was entering a bear market on October 16, 2000 and it did not “trigger” a change of direction to a bull market until June 6, 2003.

 

When this system “triggers” a market trend change of direction to a bear market or recession, we will notify by email all of our Advisors, Brokers and Reps on the day after the “trigger date” that FOXHALL is switching from an overall OFFENSIVE INVESTMENT STRATEGY to a DEFENSIVE INVESTMENT STRATEGY.

 

Once this happens, FOXHALL will start moving any investments that begin underperforming our MONEY MARKET FUND TRIGGER to cash, bond funds or other very defensive investments.  AND FOXHALL WILL PATIENTLY TRY TO MAKE MONEY FOR OUR CLIENTS IN BONDS AND OTHER DEFENSIVE INVESTMENTS UNTIL THE NEXT BULL MARKET BEGINS.

 

CONCLUSION

 

By using this two-strategy “BELT AND SUSPENDERS” approach, our goal is to have moved our FOXHALL client’s investment portfolios to a DEFENSIVE INVESTMENT STRATEGY, while the economists are still arguing whether we have entered into a recession or not.

 

Until next week…

 

-Paul Dietrich

dietrich@foxhallcapital.com

800-416-2053

 

Disclosure:  The opinions and portfolio information provided in the Foxhall Global Outlook are subject to change at any time, and are not to be construed as advice for any individual nor as an offer or solicitation of an offer for purchase or sale of any security.  Client accounts may differ from model allocations due to many reasons.  All investment strategies offer the potential for loss as well as gain.  Individuals should consult with their financial professional to determine an investment strategy appropriate for their objectives, risk level, and time horizon prior to investing.  Past performance is not a guarantee of similar future performance.

 

 


Back to Blog

 



Subscribe
Subscribe to my blog via RSS or email.

Search

About Paul Dietrich
Paul Dietrich is the Chairman, CEO and Co-Chief Investment Officer of Foxhall Capital Management, Inc. (Foxhall).  Foxhall currently manages investments for individuals, mutual funds and private institutions throughout the United States. Paul Dietrich is also a portfolio manager to a publicly traded mutual fund, the Foxhall Global Trends Fund.
Learn more about Paul Dietrich

Latest Video:

Paul Dietrich on FOX Business





Tags

dividends foreign sales stagflation Global Hard Asset risk management tools stop-loss targets growth strategy agribusiness commodity funds Japan's economy developed markets economy U.S. Treasury bond markets protecting investors buy & hold commodity foreign exchange megatrends investment trends funds energy barrels per dollar positive economic trends summer doldrums investment speculation economic indicators economic development economist recovery lost decade emerging economies

Archives
August 2013
July 2013
May 2013
April 2013
March 2013
October 2012
September 2012
July 2012
June 2012
May 2012
March 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
January 2011
December 2010
July 2010
June 2010
May 2010
March 2010
January 2010
November 2009
September 2009
July 2009
June 2009
May 2009
April 2009
February 2009
January 2009
December 2008
November 2008
October 2008
September 2008
August 2008
July 2008
June 2008
May 2008
April 2008
March 2008
February 2008
January 2008
December 2007
November 2007
October 2007
September 2007
August 2007
July 2007
June 2007