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The Next Big US Crisis Will Start Here

Investors hold on to your hats, the US may be headed for another crisis with eerie echoes of the last one. Just like in the run up to the Financial Crisis, there has been a big explosion of spending in real estate. In particular, developers have built over one million apartments in the US. Now, the big banks that funded all that development with loans are getting worried the market has become overstretched. The Fed is now doing more rigorous stress tests to see how banks would respond to a 35% drop in commercial real estate prices. The big worry is over “trendy” metropolitan apartment buildings, which have seen sharp price rises. Regulations put in place after the Crisis have incentivized builders to go into commercial real estate rather than residential, as have demographic trends like Millennials’ preference to live downtown rather than in the suburbs. JP Morgan has been far and away the biggest lender for apartment building construction.


Weekly Market Commentary October 5th, 2015

Dear Investor, As the volatility continues, we are working vigilantly to protect and grow your money. For example, Anchor Hedged Fixed Income, which is one of the few investments in the market that is up 2% this year,  just introduced a new strategy to more efficiently trade in the high yield market. This could significantly increase your bottom line results every year.

Chart of the Week

Our Chart of the Week displays the Bank of America Merrill Lynch US High Yield Master II Option-Adjusted spread. As we can see in the chart below, the yield premium over US government securities has risen to levels not seen since 2012, as shown by the red line. A firm uptrend, as shown by the green lines, in the high yield premiums is now in place making the high yield asset class unattractive at this time. High yield spreads have even had a breakout, as denoted in purple, above the upper line of the uptrend channel suggesting higher spread levels are probably ahead. So things are most likely going to get worse before they get better, especially with concerns over slowing world growth being reinforced with the weak US September jobs report released on Friday. Now is a time for extreme caution.  

Articles of Interest: 

"Nothing Is Working" - The Markets Just Aren't That Into You

With less than 100 calendars days – and only 69 trading days – left in 2015 it’s not too early to consider what kind of year we’ve had in capital markets. Simply put, it stinks. That assessment isn’t just because of the -5.22% return for the S&P 500 year to date. Rather, it is because essentially nothing has been working. Consider:

U.S. stocks, regardless of market cap range, are down on the year. The S&P 400 Mid Caps are down 4.3%, and the 600 Small Cap Index is down the same amount. The Russell 2000 is 5.3% lower. Read more here.