From Our President’s Desk

This year marks our 35th year in business, and looking back it’s hard not to think about how the world has changed and how much we’ve adapted, yet stayed the same in so many ways. When a partner and I formed what became Treece Investment Advisory Corp in 1979, we did so around a single money management strategy. While it wasn’t called by such a fancy name back in those days, what we ran then (and still use today) is now commonly known as a tactical asset allocation model.

This theory of managing money – of allocating capital strategically, focusing investments in particular sectors or asset classes based on a given economic or political outlook – is based on a simple theory that it’s not what investors own that matters; it’s when they own it. For 35 years we’ve been researching the economy and picking sectors that we believe will benefit our clients based on the economic circumstances we see developing. Once we make our selections, we focus investments for ourselves and our clients in those areas, putting ourselves in the same boat as our clients.

Since 1979 – the year we started using this model – we’ve seen a lot of other strategies come and go, but tactical asset allocation has outlived them all. Older methods include portfolio insurance, which met a disastrous end; more recent systems include “Modern Portfolio Theory,” which encourages diversified buy and hold strategies. Such a diversified system accepts that some investments will go up and others down, but posits that no one can predict the future, and so it tries to spread money around so investments include some winners and some losers. The hope is that, overall, the whole group will gain value over time.

A lot of people have made significant investments in the past decade based on the strategy of diversification. From what we see going on in the world and what we see coming in the markets, it’s doubtful they’ll like the results 10 or 20 years from now.

Now more than ever before, investors need to assess risks in their portfolio and make tactical shifts away from those sectors and asset classes that are poised for 20 or even 30 years of poor performance. After declining yields that have forced prices higher, the bond market is nearing levels not seen in any of our lifetimes. Junk bond yields today are as low as historical averages for higher grade corporate debt. Investors need to be studying these prices in the context of history, and thinking very seriously about the long-term outlook for fixed income products – the area representing perhaps the largest risk to investors today. The market knows very well these prices can’t hold, with rates being kept artificially low through bond purchase programs at the Federal Reserve.

Recent improvements in labor markets also haven’t gone unnoticed by Janet Yellen’s Fed. In recent Congressional testimony, the new Fed chair has hinted that the Fed is considering raising short term rates if the job market continues to improve. Unfortunately, this is precisely the wrong thing to do. Instead, the Fed should be selling all or part of their portfolio of long-term US Treasury bonds, further steepening the yield curve. Such steepening has preceded nearly every major US economic expansion in the last century, and could well shift the US economy into high gear. You can read more in Dock David’s recent article, Yellen Hints at Detrimental Fed Action, on our website.

There have also been rumblings that the Fed could introduce new exit fees for bond fund investors, an action meant to slow a coming mass exodus from debt products. When interest rates begin to move higher, many investors in products that would be affected by these new fees are going to begin seeing losses. These declines won’t happen slowly, but quickly, with large numbers of retirees and pension fund investors incurring significant losses right away. The Fed’s idea of introducing exit fees is only meant to avoid the inevitable cascading effect.

While domestic issues like monetary policy certainly play a big role in shaping our outlook and investment choices, there are plenty of other things going on around the world that are cause for worry. With Russia’s posturing, turmoil erupting all over the Middle East, and China engaged in economic warfare with western trading partners, it should be obvious that there is considerable volatility coming in global financial markets. The ability to take steps to avoid this volatility is only one of the benefits of a tactical asset allocation model like ours.

Tactical asset allocation has been at the core of what we do for 35 years now, and it’s served us and our clients very well during that time. A tactical strategy – be it ours or one like it – should be used for at least a part of any portfolio. If you want to hear more about what tactical asset allocation is, how it works, the benefits it offers, or how we use it, we encourage you to come in and talk to us. You can decide for yourself whether you should use such a strategy for all or a part of your own portfolio.

Thank you  for reading the Treece Investment Advisory Corp. White Pages, which you can subscribe to on our homepage. It is our job to forecast the economy and determine which sectors will be profitable using our economic-driven system, which we have been doing for over 30 years now. Please feel free to contact us for questions about client services, find us on Facebook (Treece Investment Advisory Corp.), Twitter (@TreeceInvest), YouTube (Treece Investments) and follow us in the Toledo Free Press and at 6:40am on 1370 WSPD. We can be reached toll free at 800-624-5597, locally at 419-843-7744 or on our Contact page. We appreciate your interest in our economic outlook and our firm.


                                                    Your Road is Our Road

Dock D. Treece is President & CEO of Treece Investment Advisory Corp ( and is licensed with FINRA ( through Treece Financial Services Corp.. The above information is the express opinion of Dock D. Treece and should not be construed as investment advice or used without outside verification.
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