Several years ago, I started a new challenge of gator hunting in Florida. I have always enjoyed conservation, the outdoors, and hunting. When I moved to the Sunshine State and learned about harvesting these reptiles, I was very curious and was excited about giving it a try! I remember going with several experienced friends to learn the ropes and see what it was like. Unlike some popular reality TV shows in other states, Florida has some strict guidelines on what is acceptable for hunting alligators. My method of choice for an extra challenge was to hunt out of my Gheenoe with a compound bow. With the help of some friends, was able to be successful on a smaller gator for my first attempt. As mentioned, I have hunted most of my life, but few things were as exciting as fighting one of these things in a lake, at night, from a small vessel! Although he was not as big as I had hoped, I am not sure I had the experience at the time to catch anything much larger.
The past few months in the markets have reminded me of another alligator hunting experience I had that was much less successful. I remember the warm September evening back in 2012 where a friend and I had launched the Gheenoe in a new lake we wanted to try for a different experience. Everything was going really well as we cruise the shoreline spotting for gators. At night, with a good flashlight, their eyes glow a yellow/orange and you can begin to judge size and distance. Of course, you are also seeing frogs and other night creatures that can distract you as well. That evening we came across several potential alligators but due to some choppy water and my bad archery skills, we finished up without any success. However, it was still a fun night on the water.
The real adventure began when we decided to call it an evening and turned around to head back to the boat ramp. What we had not realized during out trek out was the wind had picked up quite a bit and was helping us stroll along the shoreline during the hunt. However, when we changed directions to head home, that same tailwind quickly became a headwind. The water was choppy, the wind was consistent, and we were in a tiny boat with a small motor. Our determination was strong and we had that little boat full throttle to gain some ground in the midst of the headwind. Or at least, that is what we thought. After 30 minutes of traveling and me assisting with a hand paddle I was not seeing the boat ramp. It was then, I pulled out my GPS and realized we were exercising a crazy amount of effort and actually just slowly going backwards! The current and wind was just too much for my paddling and our small motor. In addition, we were taking on water from the chop hitting the side and slashing in the Gheenoe. It was in that moment I realized how unprepared we were for this and how thankful I was for the lifejacket requirement on all vessels in Florida! I can remember bailing water with my coffee cup while at the same time slowing making our way as close to the shoreline as possible. Our strategy was finally to use the few calm times to go as much as could and then wait out the stronger gusts. I am thankful that eventually we made it back to the ramp after a few hours of work.
The reason this experience reminds me so much of these current markets is the headwinds we are facing across the board. We went into these last two months with really strong momentum (just like sailing out with wind for our hunt) but the down pressure of global equites, interest rates, energy costs, and negative political environments created the choppiness in the overall markets as well as our portfolios. In fact, after closing at a 16-month high at the end of July, the S&P 500 is down -6.6% over the last two months, with September being its worst month since December 2022. Virtually all major indices are below their now trading below their 50-day moving average. What is even a greater headwind that has portfolios taking on more water is the fact that stocks and bonds are falling with a rising correlation. What his means is that normal relief we can get from bonds during negative stock events is not happening. Unless investors had good exposure to the largest 7 US stocks from January 2023 – July of 2023 portfolios are mostly slightly positive or sideways.
For the month of October, our models are now showing negative momentum in 7 of the 12 asset classes we follow. What this sharp move means is we will be taking a lot of risk off of the table for this month. When the waters get choppy and the winds turn against us, continuing to try to paddle forward historically does not work out well. This is especially true when we can get paid really well through good yields on cash and treasuries. We were not able to harvest any gains on this hunt (the past two months) and instead of staying in the storm and hoping for things to improve, we are headed for the investment boat ramp…at least for a few weeks.
The Capital Defender Models remain positive for the year and continue to create some income from treasury yields for the month. There is always the chance we miss the next short term market rally, but as always, our focus has been on full cycle results to meet client goals in the long term, not just this month.
ABOUT THE AUTHOR: Elio Chiarelli is Chief Executive Officer of Capital Defender Advisors. He has over 12 years of experience with client servicing, investment fiduciary guidance for plan sponsors, investment management, and portfolio construction. He has a significant background in agricultural education and economics, and he has earned the Accredited Investment Fiduciary (AIF®) designation through the Center for Fiduciary Studies. He has also received the Certified Plan Fiduciary Advisor (CPFA) credential from the National Association of Plan Advisors (NAPA), demonstrating expertise required to act as a plan fiduciary and help plan fiduciaries manage their roles and responsibilities. Capital Defender products are part of the suite of investment solutions offered By the Pacific Financial Group.
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