Business Conditions

Recession Odds Dip – Consumers Spending More

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Recession Odds Dip – Consumer Spending Still Rising 9/7/2016

Before we get going, I was recently asked what the point is of understanding whether or not we are entering a recession. This person had been told by their broker that to “ride the rallies you have to ride out the valleys.” Catchy, right?

The reason to understand when the economy is falling into recession is because around 80% of the time the stock market sells off hard when it does. The market usually takes a few months after the recession actually starts to figure it out, but once it starts selling most of the time it keeps going far longer than anyone other than a billionaire likes to see. The other reason- when the market itself starts into recessionary selling, 70% or more stocks follow the market down.

Think of it this way. If you were getting into your car this morning and you received a credible message that there was nearly an 80% chance you would get in a car accident today, and that about 70% of the cars on the road were also going to be involved in a crash today, would you crank it up and head for the freeway or would you decide to preserve your car (and maybe more than that) and stay at home?

Now that doesn’t mean that you should stay at home at all costs, but if those were my odds for the day, I’d sure like to know about them before I decided to take a drive.

So, my firm and I use what’s called the Recession Probability Indicator (“RPI”) to identify whether or not we are in (or entering) a recession. Think of it as a lookout in the crow’s nest of an old school sailing ship – he’s keeping an eye out for storms or rocks so the ship gets where it’s heading safely.

My firm and I use the RPI for the same reasons – to help steer client accounts away from storms and rocks so they can live their lives focused on what’s important to them rather than worrying about the next market crash. We aren’t going to see every single rock or approaching storm, but if we weren’t looking we wouldn’t see any of them. I think of it as Wealth Preservation 101. It’s basic.

Absent a recession, it’s best to stay invested. If you’d like more information on this idea, follow this link —> CLICK HERE.

So, if recession is what we need to pay attention to, are we in one yet?

Nope.

Consumer activity drives about 70% of the American economy and spending is still rising at +4.2% vs. last quarter. As a result, we are seeing a slightly reduced probability of recession vs. earlier in the year. This is subject to change, but for now the investment climate is stable and likely to stay that way for a while longer.

If you don’t know how the Recession Probability Indicator works, CLICK HERE. Make sure to scroll down to take a look at the tables below the description.

Below is an updated graph of the RPI. It runs on a 2 – 3 month lag.

If you’d like to take a look at the American Institute of Economic Research business conditions update CLICK HERE.

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To Smarter Investing,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.

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What’s Up With The Economy? Recession Probability and Business Conditions Update

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April 4, 2016

There has been a lot of economic doom and gloom talk over the last couple months, with media “expert” after media “expert” saying the US economy is about to fall into a recession. It comes with the predictable warnings about a bad bear market. The vast majority of these talking heads are just voicing opinions based on their own views and often get emotional when voicing their perspective. The problem with these “experts” is there very little in the way of factual economic data to support any of their positions.

Understand that investing is not an activity that benefits from either uninformed opinion or emotions. In fact, the opposite is true – uniformed opinions and emotional decision making often cause grief to investors.

Success in the investment game is primarily about WHAT IS, not WHAT IF. What IF is the progenitor of fear and greed, arguably the cause of more financial grief than Alan Greenspan (that was a market nerd joke). What IS, by definition, restricts consideration and decision to the facts at hand.

I’m sure you’ve gone to a doctor at some point in your life because you had a cold – runny nose, sore throat, a bit of fever, maybe some aches and pains. Has the doctor ever said, “What if this isn’t a cold? What if this is pneumonia? What if one of your lungs is collapsing? Could it be that you have cancer? Maybe you are sniffling because you are about to fall victim to a hemorrhagic fever and the bleeding has started in your sinuses? Maybe you are achy because you are going to come down with Dengue Fever? Is it possible this is Malaria?

Do you believe the doctor could effectively manage your condition if the diagnostic conversation was about What IF rather than What IS?

Investing is no different. Any effective conversation or action has to be about What IS. What IF is basically irrelevant.

So, let’s look at What IS.

At the most recent reading, the Recession Probability Indicator is cruising along at a steady 12, meaning the overall investment environment continues to be stable. That is subject to change, but for right now there is no recession on the horizon and in fact several key areas of the economy strengthened in the most recent month. If you aren’t familiar with the RPI, CLICK HERE to see how well it works.

RPI Graphic March 2016 update

Manufacturing, responsible for about 30% of our economy, moved back into expansion mode last month for the first time since last fall and the non-manufacturing sector of the US economy also strengthened a bit, which is good news for the other 70% of our economy.

A reminder – just because there is no recession doesn’t mean the market can’t go up and down, but that history vastly favors those who stay invested despite volatility, as long as there is no recession imminent.

If you’d like some evidence, take a look at the facts– Why Recessions Kill Investment Portfolios.

Fear helps the media sell advertising and brokers increase commissions, but it doesn’t help your investment portfolio get you to retirement with the assets you need to live the way you want to.

The point? Don’t let short term noise get in the way of a solid investment plan. Only impending recessions should do that, and if you have a real investment plan, you already know what you are going to do when the next recession comes.

Don’t have a retirement income and investment plan? Newsflash – one of the key differences between the wealthiest investors and the average person is that they know what they have to invest and save and when they need to do it.

We can help. Use the contact page or email and we’ll have a no pressure, get to know chat to see my firm and I can add value to your life.

For those interested, here is a link to the most recent Business Conditions Report by the American Institute of Economic Research–CLICK HERE

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To Smarter Investing,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.

Recession Watch

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Is 2016 the Year of Recession? This question seems to be on everyone’s mind and even the media talking heads have jumped on it to grab readers & viewers.

Spoiler: As of today, there is no recession on the horizon. The Recession Probability Indicator (“RPI”) scored a 12 at the most recent reading, meaning the economic environment for investment is stable. That is subject to change but as with all things that have to do with investing, it’s better to take direction from facts and not fears. My personal opinion is that the odds of recession are higher in 2016 than they were in 2015, but the fact remains: no recession yet on the horizon.

That doesn’t mean the market can’t go up and down (sometimes a lot), but that history vastly favors those who stay invested despite volatility, as long as there is no recession imminent. Don’t take my opinion, click the title at the right to see the facts– Why Recessions Kill Investment Portfolios.

Here’s some simple and quick proof-in-the-pudding: Pretend you had $200,000 to invest in January 2000. The first block gets invested the way financial salespeople tell you to invest – it’s going to stay invested no matter what because you “have to be in it for the long term.”

The second block of $100,000 is, to be simple, going to move to 100% cash as soon as it looks like there may be a recession coming. Call that the “RPI Guided” for Recession Probability Indicator.

Where are these two investments at the end of December 2015?

As you can see below, it pays to make rational decisions about investments rather than getting caught up in short term volatility or whatever the media clones are spouting off about.

RPI Table Dec 2015

As I observed in one of last month’s articles We May Have a Bump Coming in the Markets (click title to read) it wasn’t clear a Fed rate raise was going to be the positive short term catalyst many market observers & participants thought. It may be that much of what we are seeing as we start 2016 is the holiday-delayed reaction to the Fed raise, mixed in with a liberal dose of alarming headlines arising from a wide spectrum of topics, some of which have no real bearing on investing. Some (me) might say most of which have no real bearing on investing.

Remember, fear helps the media sell advertising and stock brokers earn commissions, but it sure as heck doesn’t help investment portfolios do what they are supposed to do, which is be there for you when you retire, with the assets you need to live the way you want to.

Don’t let short term noise get in the way of a solid plan. Only impending recessions should do that, and if you have a real investment plan, you already know what you are going to do when the next recession comes.

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To Smarter Investing,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.

Jobs Up, Spending Solid. Will December Bring Santa or the Grinch? RPI & Business Conditions Update.

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The Market has circled back around to concerns about a possible Fed rate raise and weakness in overseas economies since recovering in October, losing over 2% as of today’s writing. But recent data suggest little in the way of changes in US economic data – jobs are trudging along with a slight recent improvement, consumer spending is stable and appears to be strengthening into the holidays, and the recent fall in oil prices will be help keep a damper on inflation while supporting holiday spending.

The Recession Probability Indicator (“RPI”) most recent reading is 12, denoting a stable investment environment where the economy is supportive of continued investment with little to no current risk of recession. A growing economy is supportive of future earnings, which is a positive for the stock market.

If you are new to the RPI, it’s a tool to measure the strength of the American economy and the safety of the investment climate. It’s built on data from the Federal Reserve and has demonstrated itself to be highly effective on a historical basis.

CLICK HERE to learn more about the RPI and see an illustration of it’s potential impact on investing. Scroll down to look at the updated tables. You will be impressed.

For those interested, below is my summary opinion of current conditions and whether the Fed is going to act like Santa or the Grinch in December;

Although prices in some sectors of the market are a bit high, overall they are still within historical ranges and not in bubble territory. Many sectors are at or near fair value. If the economy appears supportive of current stock prices, why the the choppiness we’ve seen since starting November? First, the media has to talk about something to create attention and sell ads. Playing on fear is one of the most effective tools for capturing consumer attention.

Second, the Fed has been sending mixed messages for months which prolongs uncertainty — the only thing that is clear is the Fed wants to raise rates but hasn’t been able to pull the trigger yet.

Third, October was a strong month for the market and it’s perfectly normal for the market to give back some gains following a big move up. Barring nasty earnings surprises or a changing probability of recession, a pullback following a run like October gives the market time to consolidate in order to move higher in the future.

So, will the Fed raise rates in December and what will happen when/if they do?

As of today, approximately 68% of analysts and traders are predicting a raise in December. There have been few if any changes of import since the Fed declined to raise in September and inflation risks continue to muted. My opinion, right or wrong, is for rate liftoff in early to mid 2016 and no raise in December. We’ll see. If I’m going to be wrong on the Fed rate raise, December is probably the month it happens.

When the Fed does raise, be it December or later, will markets react? More than likely. However, the Fed isn’t going to raise aggressively, and the increments will be small and gradual. The decision is unlikely to impact equity markets except in the very short term.

Here is a link to the November Business Conditions Summary from the American Institute for Economic Research for interested readers—> CLICK HERE

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Warm Regards,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios

Will the Economy Sink or Lift the Stock Market? RPI & Business Conditions Update

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Will the Economy Sink or Support the Stock Market? RPI & Business Conditions Update

October 2015

There has been great concern recently among talking heads whether or not the Fed will raise rates and what the impact on the economy will be if they do. The fact is the US economy is trudging along and is likely to continue to do so whether or not the Fed raises rates incrementally over the next few quarters. The market’s concern, misplaced in my opinion, is that once the Fed starts hiking it won’t stop until rates are normalized. That isn’t going to happen. Any hikes will be small, and the path to normalcy will take several years. Our economy is okay, but it isn’t in a position to support a typical rate hike cycle and the Fed, despite fumbling the message repeatedly, knows it.

So, if we can discount the Fed (at least for now) what are we really seeing? The Recession Probability Indicator improved mildly from last month with a current reading of 12, indicating a stable investment climate and a mildly growing economy with no current risk of recession. That suggests that the economy, as it continues to grow, should ultimately support higher earnings which is a positive for the stock market.

The RPI runs on a 2 month delay due to the Fed’s data release schedule.

If you are new to the RPI, it’s tool to measure the strength of the American economy and the safety of the investing climate. It’s built on data from the Federal Reserve and has demonstrated itself to be historically effective.

CLICK HERE to learn more about the RPI and see an illustration of it’s potential impact on investing. Make sure you take time to scroll down to take a look at the updated tables. Prepare to be impressed.

For those interested, I’ve also included the most recent summary from the American Institute for Economic Research below.

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Warm Regards,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.

Monthly Summary of October Business Conditions from the American Institute of Economic Research

…The Economy…

Unusual demographic shifts currently underway and slated to last for many more years may be affecting the overall economic growth rate as well as creating pockets of relative strength and weakness. One example is in housing, where multifamily construction has rebounded more robustly than single-family homebuilding following the housing boom and subsequent bust that helped usher in the Great Recession.

Our Leaders index improved slightly in the latest reading, while cyclical scores changed little. Taken together, the AIER data suggest that the risk of recession in the coming six to 12 months remains low.

…Inflation…

The Consumer Price Index slipped month-to-month for the first time since February 2015. This is consistent with last month’s report that inflationary pressure was easing. The latest AIER inflationary Pressures Scorecard points to further downward pressure on inflation for months to come. Only eight indicators out of 23 show rising inflationary pressure, compared with 12 last month. The easing resulted from a recent slowdown in consumer demand and fast growth in supply. A decline in energy prices was another important contributor.

…Policy…

The Fed kept interest rates unchanged at its September meeting, in line with market expectations. But the central bank’s projections continue to indicate that the first rate hike in more than nine years is likely to occur by the end of December. After holding rates near historic lows for so long, anticipation of the initial step toward normalization in monetary policy may actually stimulate borrowing in the short run as people try to get ahead of future increases.

Demographic change is slowing growth in the labor force and gains in educational attainment. The fastest way to reverse this—skill-based immigration—is unlikely to garner political support in Washington. Alternative but slower solutions include making it easier for American youth to continue their education beyond high school.

…Investing…

Yields on mortgage-backed securities are about in line with their historical relationship to U.S. Treasurys. An improving economy and healthier finances for borrowers would boost overall loan quality and help narrow yield spreads slightly. However, the prospect of Fed interest rate increases is likely to boost pressure on yields across the fixed-income spectrum.

Lumber futures prices have fallen more than other housing-market indicators would suggest.

A bubble in stock prices of U.S. homebuilders from 2000 through 2005 was worse than the better-known tech-stock bubble of the late 1990s. Following the bust in homebuilder shares and the Great Recession, homebuilder stocks since 2011 have slightly outperformed the broader market.

Global equity markets have struggled in recent months, reeling from a worldwide economic slowdown, the effects of potentially higher U.S. interest rates, a strong U.S. dollar, and ongoing military conflicts that have created arefugee crisis. For those with a high tolerance for risk, these times can create opportunity.

CLICK HERE
for the full summary.

Is the Fed in Danger of Starting an Accidental Recession? RPI & Business Conditions Update

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Is the Fed in Danger of Starting an Accidental Recession? RPI & Business Conditions Update

September 2015

There is a lot of debate about the lack of clarity in the Fed’s communication to market participants over the last several months, and markets generally do not like uncertainty. Some recent headlines are talking about an accidental recession. So, can premature rate raises spark recessions? A Fed rate raise in the 1930’s at about this same point in that recovery arguably provoked a 2nd stock market crash while putting the US into a recession it took a World War to lift us out of.

Institutional buyers are aware of these academic parallels even if the average investor is not.

But is that happening now? As readers of my posts know, I do not expect a rate raise tomorrow (9/17/2015). IF one does come, I expect it to be VERY dovish. But rather than wasting time trying to read the Fed’s tea leaves, let’s have a quick look at what the Recession Probability Indicator and current business conditions are telling us.

The most recent reading (June 2015) is STABLE with an RPI score of 17. (20 and below usually favorable, 20+ usually much less favorable). The RPI runs on about a 2 month delay due to the Fed’s data release schedule.

For those of you new to the RPI, it’s a tool for measuring the strength of the American economy. It’s derived from data provided by the Federal Reserve and has demonstrated itself to be historically effective.

The RPI reading suggests that the economy can tolerate higher rates without slipping into recession, counter to what many headlines seem to suggest.

To learn more about the RPI and see an illustration of it at work, CLICK HERE. Make sure you take the time to scroll down to the updated table if you haven’t seen it. You are in for an eye opener.

I’ve also included the most recent business conditions summary from the American Institute for Economic Research below. Their view largely coincides with mine on several issues including the view that the economy is doing okay with no recession on the horizon (as yet).

My opinion is that the Fed is going to raise very slowly over a multi-year period, with the end of that process around a 3% rate several years from now. We’ll see if the future bears out that opinion.

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Warm Regards,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.

Monthly Summary of September Business Conditions from the American Institute of Economic Research

…The Economy…
Headwinds from China’s slowing growth and a devalued yuan may curb the U.S. expansion, but the risk of a recession remains low. Our Leaders index remained solidly above 50 percent in the latest month, suggesting the probability of a domestic slump is still low.

…Inflation…
The CPI, compared with a year earlier, continued to advance for a second straight month in July, but future inflationary pressure has eased. In the latest AIER inflation scorecard, 12 indicators support rising inflationary pressure, compared with 17 in the last month’s report, and eight point to falling inflationary pressure, compared with just three last month. The pullback mainly came from a stronger U.S. dollar pushing down import prices and from improving business productivity. Going forward, should the Fed tighten credit by raising key interest rates, it would amplify downward pressures on prices.

…Policy…
Fed policy makers have long telegraphed their intention to raise short-term rates from near zero this year, but recent market turmoil may have raised fresh concerns about the timing of the first increase in almost a decade. The focus now turns to the mid-September meeting and whether the Fed will use the occasion to begin the normalization process and what policy makers might reveal about the central bank’s future plans.

The recent sharp fall in oil prices, driven both by China’s slowdown and rising U.S. crude output, is creating pressure to lift the long-standing U.S. crude export ban. Proponents say ending the policy would raise U.S. prices, stimulating investment, spurring domestic production, and cutting gasoline prices. In July, the U.S. Senate Energy Committee passed a bill to lift the export ban. Whether the measure will pass Congress and how the Obama administration may react if it does remains uncertain, but an end to the 40-year-old policy may be closer than ever.

…Investing…
Slowing growth in China coupled with a devalued yuan and improving U.S. consumer demand all suggest a widening trade gap with China. That, in turn, may lead China to buy more U.S. Treasury securities, helping to restrain gains in long-term yields just as Fed tightening approaches.

Commodities are still struggling with no short-term relief in sight. But over the medium term, better global growth and a stable dollar combined with the deep price declines that have already occurred suggest that there may be light for raw materials at the end of a long tunnel.

U.S. equities are still getting fundamental support from profit growth. Risks from rising labor costs and higher interest expense may threaten profit margins, but productivity may be the magic bullet that facilitates profit growth and higher wages that can, in turn, boost future spending.

Global equities have been volatile and U.S. investors gave mixed signals with their new investment dollars ahead of the worst declines in Chinese markets. New cash would help support markets, while additional withdrawals from global market mutual funds and ETFs would hurt. Fed tightening remains on the horizon as a potential new source of volatility, especially for emerging markets.

If you’d like to see the full summary just CLICK HERE.

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August RPI Update & Business Conditions Update– Is Investing Still a Good Idea?

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Quick update on what the Recession Probability Indicator is telling us moving into the Fall.

The most recent reading (for May 2015) is STABLE with an RPI score of 12 (Below 20 generally favorable, above 20 not so much). The RPI runs on about a 2 month delay due to the Fed’s data release schedule.

To see an illustration of the RPI at work, CLICK HERE and scroll down to the updated table. If you haven’t seen it, take a look at the table. You will be amazed.

For those interested, I’ve also included an excerpt from the American Institute for Economic Research below which provides their view on the Economy, Inflation, Policy Issues, and Investing. Interesting and detailed perspective on where we are, which at this point largely coincides with my view.

You can find the full paper by CLICKING HERE.

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Warm Regards,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios

Monthly summary of August Business Conditions from the American Institute of Economic Research

…THE ECONOMY….

While the latest data confirmed our reading at the start of the year that economic
weakness was temporary, and despite accelerating growth in the second quarter, the
more complete and detailed information released last month show that the recovery
since 2012 has been slower than previously reported. Today’s GDP value is almost one
percentage point lower than earlier estimates led us to believe. This means the current
business-cycle expansion, whether measured by output or employment growth, has
been the slowest in U.S. postwar history.

…INFLATION…

Strong CPI growth in June underlined AIER’s analysis last month pointing to rising
inflationary pressures. The latest scorecard shows that 17 out of 23 indicators support
rising inflationary pressure, compared with 15 in our previous report, indicating a
higher likelihood of future price increases. Anticipated policy firming on interest rates
may moderate rising inflationary pressures.

…POLICY…
Fed policy makers did not provide any new signals on the timing of an increase in
short-term interest rates following their July meeting. and despite the weaknesses
highlighted in the revised report, the Fed continues to indicate that its policy remains
on track for a liftoff this year.

…INVESTING…
With still-modest growth and inflation, bond yields remain very low. However, a slowly
improving U.S. economy and declining unemployment may support the Fed’s first rate
hike in almost a decade. That, in turn, may pressure bond yields higher, but the question
of how high yields may rise remains open.

Weak global growth and a strong dollar have sent most commodity prices tumbling to
multi-year lows. Add to that a price war in crude oil and the decline in demand for gold
as a haven and the environment for commodities remains unfavorable.

Equities around the world have done reasonably well this year—valuations are rising in
many markets. Critical to continued price gains will be better economic growth helping
drive future earnings

If you’d like to read the full summary just CLICK HERE.

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Dak Hartsock

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Dak Hartsock is a Series 65 licensed and registered Independent Advisor Representative with ACI Wealth Advisors, LLC (“ACI”). ACI is a Registered Investment Advisor (“RIA”), registered in the State of Florida and the State of California. ACI provides asset management and related services for clients in states where it is registered, or where it is exempt from registration through statute, exception, or exclusion from registration requirements. ACI is in no way responsible for the content of DakHartsock.com nor does ACI accept any responsibility for materials, articles, or links found on this site. A copy of ACI’s Form ADV Part 2 is available upon request.

Market data, articles, blogs and other content on this web site are based on generally-available information and are believed to be reliable. Dak Hartsock does not guarantee the accuracy of the information contained in this web site, nor is Mr. Hartsock under any obligation to update any information on the site. Information presented may not be current. Any information presented on this site should not be construed as investment advice or a solicitation to buy and sell securities under any circumstances.

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Model & Performance Disclosures

Disclosures Regarding Investment Performance Reporting in compliance with Rule 206(4)-1(a)(5).

Visit http://www.dakhartsock.com/process-portfolios-historical-performance/ for historical performance of ACI’s Process Portfolios.

Market Income Portfolio
1. The performance of the broad market over the same time periods is included for both model and live portfolio to help investors understand market conditions present during the period examined by the model and during live investment.
2. Listed Index models and graphs do NOT include transaction, fund or Advisor Management fees as the index model is not available for investment. Live portfolio results include all fees, including Advisor Management fees.
3. Model results do NOT reflect reinvestment of dividends or other earnings. Actual results reflect limited reinvestment of dividends and other earnings, but do not reflect the impact of any applicable taxes which vary by investor and account type (deferred account vs. taxable, etc.).
4. Investing involves risk, including risk of loss and/or principle. While the Index model has historically shown reasonable performance versus the S&P 500 on a risk adjusted basis, there is no guarantee that will continue into the future. Market Income is designed to provide reasonable returns for less risk than the broad market on a risk adjusted basis, and while the firm believes model portfolios are capable of continued outperformance on this basis, there is no guarantee they will do so. Comparisons with the S&P 500 are included to help the average investor understand how an investment in Market Income may differ from investment in an index fund such as an S&P 500 index fund.
5. The model for Market Income is the Chicago Board of Exchange S&P 500 Buy/Write Index or “BXM.” BXM has historically displayed less volatility than the S&P 500 and Market Income. BXM cannot be directly invested in. Market Income does not exactly follow the BXM index model – the mechanics of closing and opening positions differ – BXM opens, closes or rolls positions on the same day every month regardless of the profit or loss in a position – Market Income generally, but not always, waits until after expiration before transacting. Market Income will also close or roll ahead of expiration if the position has a high percentage of profit present in order to capture that gain. Options are generally sold again within a week of the closure of the prior position, but not always, and often new position may be opened the same day the prior position is closed.
Benchmark and index comparisons are made on a best available basis – meaning that both the index model and live performance are believed to be compared with market and the closest possible benchmark for simplicity of comparison. However, there is no guarantee future volatility will be either less than, equal to, or greater than the volatility experienced in the model or the S&P 500 although the firm invests with an eye on reduced volatility vs. the S&P 500.
6. The model portfolio (BXM) utilizes the S&P 500 as its basis. Market Income differs from BXM in that the underlying securities are primarily selected on the basis of “relative” value. This simply means that sectors are compared with one another and Market Income generally invests in the sector or sector(s) trading at the greatest discount or the smallest premium relative to its historical average valuation. Other factors are also considered including sector earnings growth and expected return versus other available sector instruments. Advisor believes this gives Market Income a higher margin of safety than repeatedly investing in the S&P 500 on a rolling basis without regard to value or prevailing economic conditions, while preserving liquidity.
7. The BXM model on which Market Income is based is a non-traded index. As such, results do not represent actual trading or investment and do not reflect any impact that material economic or market factors may have had on the advisors decision making if advisor had been managing live money during the period the model covers, including transaction, fund, or management fees.
8. Market Income also differs from the BXM model in that Market Income seeks to reduce investment during recessionary economic periods while BXM stays invested regardless of economic or market conditions. Advisor believes this will better protect capital vs. BXM model but is materially different than staying invested in all market conditions. This action may cause Market Income to have reduced participation in markets that continue to move up despite Advisors reduction in investment.
9. Advisor clients have experienced results that exceed the performance of the model to date. There is no guarantee Market Income will continue to outperform BXM in the future regardless of Advisor efforts to do so.

Core Equity Portfolio
1. The performance of the broad market over the same time periods is included for both model and live portfolio to help investors understand market conditions present during the period examined by the model and during live investment.
2. Model is a historical back test and includes brokerage and fund fees but does NOT include Advisor Management fees which vary by account size, but in general reduce annual performance by approximately 1.5%. Live portfolio results include all fees, including Advisor Management fees.
Historical back-test means the model portfolio has been tracked on a backwards looking basis prior to the beginning of live investments in order to establish historical risks and results for investment in this portfolio. Back testing has certain inherent limitations as detailed in item #7 below.
3. Model results reflect regular investment of dividends or other earnings. Actual results reflect limited reinvestment of dividends and other earnings.
4. Investing involves risk, including risk of loss and/or principle. While the back tested Core Equity model has historically shown desirable performance versus the S&P 500 on a risk adjusted basis, there is no guarantee that will continue into the future. Core Equity is designed to provide reasonable returns for the same or less risk than the broad market on a risk adjusted basis, and while the firm believes model portfolios are capable of continued outperformance on this basis, there is no guarantee they will do so. Comparisons with the S&P 500 are included to help the average investor understand how an investment in Core Equity may differ from investment in an index fund such as an S&P 500 index fund.
5. The model for Core Equity is built of highly diversified, highly liquid sector and index securities, most frequently low cost ETFs. Core Equity live portfolios do not exactly follow the Core Equity model – variances in investor contributions, withdrawals, and risk tolerances result in measurable drift from the model. Over time, client accounts come closer in line with the Core Equity model.
Core Equity live portfolios may differ from the Core Equity model in an additional material way; when valuations on certain sectors become overly stretched versus their historical average valuations, the Advisor may reduce exposure to those sectors in favor of a sector position which is priced in a more reasonable range in comparison to it’s typical historical valuation. Periodically, Core Equity may allocate a small but measurable percent of assets (up to 5%) in volatility linked instruments in an effort to better manage the portfolio.
These factors may result in greater or less than model performance over time.
Benchmark and index comparisons are made on a best available basis – meaning that both the index model and live performance are compared with market and other benchmarks the
Advisors believe to be suitable for simplicity of comparison. However, there is no guarantee future volatility or performance will be either less than, equal to, or greater than the volatility or performance experienced in the model or the S&P 500 although the firm invests with an eye on reduced volatility vs. the S&P 500.
6. Core Equity invests in diversified components of the financial markets and broad economy by targeting sectors or indices which demonstrate potential for a consistent range of multi-year returns, while seeking a risk adjusted investment profile equal to or lower than the broad markets. These sectors contain a range of equity stocks with an equally broad range of characteristics – some sectors are present in the Core Equity portfolio due to their historically defensive nature, some are present due to their historical growth characteristics, some are a blend of the spectrum between. The intent is to provide a balanced equity portfolio suitable for most investors as an S&P 500 index fund replacement but which seeks lower risk while experiencing, on average, a greater return than an S&P 500 index investment.
7. The Core Equity model results do not represent actual trading or investment and do not reflect any impact that material economic or market factors may have had on the advisors decision making if advisor had been managing live money during the period the model covers, including transaction, fund, or management fees as detailed above in item #2.
8. Core Equity live portfolios also differ from the Core Equity model in that Core Equity seeks to reduce investment during recessionary economic periods while the Core Equity historical model stays invested regardless of economic or market conditions. Advisor believes this will better protect capital vs. model but is materially different than staying invested in all market conditions. This action may cause Core Equity live portfolios to have reduced participation in markets that continue to move up despite Advisors reduction in investment.
9. Advisor clients have experienced results that slightly lag the performance of the model to date. This lag is due to a number of factors, primarily the fact that different clients allocate different dollar amounts to Core Equity at different times. In general, the longer a client has been fully allocated to the Core Equity portfolio, the closer it is to model performance.
The benchmark for Core Equity (The S&P 500) has historically displayed greater volatility (risk) than the Core Equity model or live Core Equity portfolios. This may or may not be the case in the future.

Market Momentum Portfolio
1. The performance of the broad market over the same time periods is included to help investors understand market conditions present during the period covered by live investment.
2. Listed comparison Index graphs and statistics do NOT include transaction, fund or Advisor Management fees. Live portfolio results include all fees, including Advisor Management fees.
3. Actual results reflect limited reinvestment of dividends and other earnings, but do not reflect the impact of any applicable taxes which vary by investor and account type (deferred account vs. taxable, etc.).
4. Investing involves risk, including risk of loss and/or principle. While the closest benchmark for Market Momentum has historically shown reasonable performance versus the S&P 500 on a risk adjusted basis, there is no guarantee that Market Momentum that will continue such performance into the future. Market Momentum is designed to provide reasonable returns for less risk than the broad market on a risk adjusted basis, and while the firm believes the portfolio is capable of outperformance on this basis, there is no guarantee it will do so. Comparisons with the S&P 500 are included to help the average investor understand how an investment in Market Momentum may differ from investment in an index fund such as an S&P 500 index fund.
5. The closest benchmark for Market Momentum is the Chicago Board of Exchange S&P 500 Buy/Write Index or “BXM.” BXM has historically displayed less volatility than the S&P 500 and Market Income. BXM cannot be directly invested in. Market Momentum differs in key ways from BXM – the mechanics of closing and opening positions differ – BXM opens, closes or rolls positions on the same day every month regardless of the profit or loss in a position – Market Momentum targets closing or rolling positions based on technical factors including trend support and resistance. Market Momemtum will also close or roll ahead of expiration if the position has a high percentage of profit present in order to capture that gain. Options are generally not sold again until the underlying investment has moved into an area of resistance but not always; new position may be opened the same day the prior position is closed.
Benchmark comparisons are made on a best available basis – meaning that live performance is believed to be compared with the closest possible benchmark for simplicity of comparison. However, there is no guarantee future volatility will be either less than, equal to, or greater than the volatility experienced in the model or the S&P 500 although the firm invests with an eye on reduced volatility vs. the S&P 500. Market Momentum , like BXM, is an options writing strategy seeking to reduce investment volatility and improve risk adjusted returns for investors.
6. The model portfolio (BXM) utilizes the S&P 500 as its basis. Market Momentum differs from BXM in that the underlying securities are primarily selected on the basis of “relative” value. This simply means that sectors are compared with one another and Market Momentum generally invests in the sector or sector(s) trading at the greatest discount or the smallest premium relative to its historical average valuation. Other factors are also considered including sector earnings growth and expected return versus other available sector instruments. Advisor believes this gives Market Momentum a higher margin of safety than repeatedly investing in the S&P 500 on a rolling basis without regard to value or prevailing economic conditions, while preserving liquidity.
7. The BXM model on which Market Momentum is compared is a non-traded index. As such, results do not represent actual trading or investment and do not reflect any impact that material economic or market factors may have had on the advisors decision making if advisor had been managing live money during the period the model covers, including transaction, fund, or management fees.
8. Market Momentum also differs from the BXM model in that Market Momentum seeks to reduce investment during corrective or recessionary economic periods while BXM stays invested regardless of economic or market conditions. Advisor believes this will better protect capital in comparison to BXM but such action is materially different than staying invested in all market conditions. This action may cause Market Momentum to have reduced participation in markets that continue to move up despite Advisors reduction in investment.
9. Advisor clients have experienced results that exceed the performance of the benchmark to date. There is no guarantee Market Momentum will continue to outperform BXM in the future regardless of Advisor efforts to do so.

Durable Opportunities Portfolio
1. The performance of the broad market in the form of the Dow Jones Industrial Index over the same time periods is included for live portfolio comparison to help investors understand market conditions present during the period covered by live investment.
2. The Index results do not include brokerage, transaction, or Advisor fees. Live portfolio results include all fees, including Advisor Management fees.
3. Actual results reflect limited reinvestment of dividends and other earnings.
4. Investing involves risk, including risk of loss and/or principle. Portfolios compromised of companies matching the profile of those selected for including in Durable Opportunities have historically displayed superior risk adjusted performance to the Index, but there is no guarantee that will continue into the future. Durable Opportunities is designed to provide investment in companies that firm believes meet a stringent set of criteria firm believes reduces the likelihood of permanent capital impairment while allowing investors to participate in investment in companies firm believes will stand the test of time and provide superior long term returns. While the firm believes the portfolio is capable of outperformance on this basis, there is no guarantee it will do so. Comparisons with the Dow Jones are included to help the average investor understand how an investment in Durable Opportunities may differ from investment in a concentrated index fund such as a Dow Jones Industrials index fund. Durable Opportunities is not restricted to investment in industrial companies or in companies with a specific level of capitalization, unlike the Dow Jones.
5. Durable Opportunities is primarily a value driven strategy; when valuations in holdings become overly stretched versus their historical average valuations, the Advisor may reduce exposure to those holdings by either liquidation or hedging, and may re-allocate funds into a holding which is priced in a more reasonable range in comparison to it’s typical historical valuation. Periodically, Durable Opportunities may allocate a small but measurable percent of assets (up to 5%) in volatility linked instruments in an effort to better manage the portfolio.
Benchmark comparisons are made on a best available basis – meaning that live performance is compared with the benchmarks the firm believe to be suitable for simplicity of comparison. However, there is no guarantee future volatility or performance will be either less than, equal to, or greater than the volatility or performance experienced in the Dow Jones Industrials although the firm invests with an eye on reduced volatility vs. the Dow Jones Industrials Index. 6. Durable Opportunties invests in companies firm believes to possess a Durable Competitive Advantage. Such companies are likely to be around for decades, easing the concern of principal return. DCA companies often suffer less in bear markets and usually lead recoveries. These companies allow ACI to build portfolios with minimum expected returns that may be in the mid-single digit range over any 3-5 year period which may provide long term stability partnered with long term growth in equity. There are no guarantees the strategy will be successful in this endeavor.
6. The Durable Opportunities portfolios also differ from the benchmark comparison in that Durable Opportunities reduce investment by hedging or raising cash during recessionary economic periods while Dow Jones Industrial Index reflects 100% investment at all times regardless of economic or market conditions. Firm believes this will better protect capital vs. model but is materially different than staying invested in all market conditions. This action may cause the Durable Opportunities portfolio to experience reduced participation in markets that continue to move up despite Advisors reduction in investment.
7. Advisor clients have experienced results that have lagged the performance of the benchmark to date. This lag is due to a number of factors, primarily the fact that the current high valuation investing environment has made it difficult to identify companies that fit the parameters of Durable Opportunities at a desirable valuation level. Different clients allocate different dollar amounts to Durable Opportunities at different times, which has also impacted the performance of the overall portfolio.

Full Cycle Portfolio
1. The performance of the broad market over the same time periods is included for both model and live portfolio to help investors understand market conditions present during the period examined by the model and during live investment.
2. Model is a historical back test and includes brokerage and fund fees but does NOT include Advisor Management fees which vary by account size, but in general reduce annual performance by approximately 1.5%. Live portfolio results include all fees, including Advisor Management fees.
Historical back-test means the model portfolio has been tracked on a backwards looking basis prior to the beginning of live investments in order to establish historical risks and results for investment in this portfolio. Back testing has certain inherent limitations as detailed in item #7 below.
3. Model results reflect regular investment of dividends or other earnings. Actual results reflect limited reinvestment of dividends and other earnings.
4. Investing involves risk, including risk of loss and/or principle. While the back tested Full Cycle Portfolio model has historically shown desirable performance versus the S&P 500 on a risk adjusted basis, there is no guarantee that will continue into the future. Full Cycle Portfolio is designed to provide reasonable returns for the same or less risk than the broad market on a risk adjusted basis in all phases of the economic cycle by holding risk weighted non-correlated assets, and while the firm believes model portfolios are capable of continued outperformance on this basis, there is no guarantee they will do so in the future. Comparisons with the S&P 500 are included to help the average investor understand how an investment in the Full Cycle Portfolio may differ from investment in an index fund such as an S&P 500 index fund.
5. The model for the Full Cycle Portfolio is built of diversified, liquid sector and index securities, most frequently low cost ETFs and low cost funds. The live Full Cycle portfolio does not follow the Full Cycle model exactly – variances in investor contributions & withdrawals result in measurable drift from the model. Over time, client accounts come closer in line with the Full Cycle model.
Full Cycle live portfolios may differ from the Full Cycle model in an additional material way; when valuations on certain sectors become overly stretched versus their historical average valuations, the Advisor may reduce exposure to those sectors in favor of a comparable position which is priced in a more reasonable range in comparison to it’s typical historical valuation.
These factors may result in greater or less than model performance over time.
Benchmark and index comparisons are made on a best available basis – meaning that both the index model and live performance are compared with market and other benchmarks the
firm believes to be suitable for simplicity of comparison. However, there is no guarantee future volatility or performance will be either less than, equal to, or greater than the volatility or performance experienced in the model or the S&P 500 although the firm invests with an eye on reduced volatility vs. the S&P 500.
6. Full Cycle invests in diversified components of the global financial markets and broad economy by balancing risks with non-correlating or reduced correlation assets in opposition to one another each of which is designed to prosper in some phase of the economic cycle and intended to offset reduced or poor performance in other portfolio holdings.
7. The Full Cycle model results do not represent actual trading or investment and do not reflect any impact that material economic or market factors may have had on the advisors decision making if advisor had been managing live money during the period the model covers, including transaction, fund, or management fees as detailed above in item #2.
8. Full Cycle live portfolios also differ from the Full Cycle model in that the live portfolio may be rebalanced more or less frequently depending on prevailing market conditions. While firm believes this difference positions portfolio for improved risk adjusted performance, it is not clear that this difference results in clear over or under performance versus the Full Cycle model.
9. Advisor clients have experienced results that slightly outperform the performance of the model to date. This outperformance may or may not persist. In general, the longer a client has been fully allocated to the Full Cycle portfolio, the closer it is to model performance.

Fixed Income Portfolio
1. The performance of the broad bond markets over the same time periods is included to help investors understand market conditions present during the period covered by live investment.
2. Listed comparison Index graphs and statistics do NOT include transaction, fund or Advisor Management fees. Live portfolio results include all fees, including Advisor Management fees.
3. Actual results reflect limited reinvestment of dividends and other earnings, but do not reflect the impact of any applicable taxes which vary by investor and account type (deferred account vs. taxable, etc.).
4. Investing involves risk, including risk of loss and/or principle. While the closest benchmark for Fixed Income has historically shown reduced volatility and reasonable performance versus many classes of fixed income investments, there is no guarantee that Fixed Income that will continue such performance into the future. Market Momentum is designed to provide reasonable returns for less risk than the broad market on a risk adjusted basis, and while the firm believes the portfolio is capable of outperformance on this basis, there is no guarantee it will do so. Comparisons with US Aggregate Bond Market and PIMCO Total Return are included to help the average investor understand how an investment in Fixed Income may differ from investment in an alternative index or fixed income fund.
5. The closest benchmark for Fixed Income is the Pimco Total Return Fund. Fixed Income differs in key ways from BOND – including selection of underlying investments and reduced diversification. Benchmark comparisons are made on a best available basis – meaning that live performance is believed to be compared with the closest possible benchmark for simplicity of comparison. However, there is no guarantee future volatility and performance will be either less than, equal to, or greater than the volatility and performance experienced by the benchmark although the firm invests with an eye on out performance.
6. The benchmark may include securities not contained in Fixed Income, and vice versa. Fixed Income currently holds significantly more cash than PIMCO Total Return Fund, a situation likely to continue in the near future. This action may cause Fixed Income to have reduced participation in markets that move up despite Advisors reduction in investment.
7. Advisor clients have experienced results that lag the performance of the benchmarks to date. There is no guarantee Fixed Income will continue to outperform benchmarks in the future regardless of Advisor efforts to do so.

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