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A Statement for a Sane US and Global Economy

Great societies makes it possible for everyone to lead a meaningful and fulfilling life. Yet, our society is currently focused almost solely on profit, and people are forced to chase money at almost every turn - rather than toward life fulfillment and happiness.

The US economy needs to function like a highway network - built to take people to prosperous places. The laws and policies that we make must lay down “pavement” that determine where the economy takes people.

Right now, our economy is increasingly built solely around profit, rather than being designed to get people to their true financial needs.

By allowing businesses to use zero-hour contracts, provide low wages, and require people to work more and more hours for the same pay, we have built an economic highway that moves profit forward but leave people without the things they need to achieve wellbeing and realise their potential.

When people don’t have decent wages or stable jobs, this undermines citizen well being in all sorts of ways. And for those of us who do have stable jobs, the need to work more hours means less time with our families and to pursue our goals in life outside of work.

As a society, we need to prioritize social prosperity and fulfillment over Wall Street profits. We need to repave the economic highway to make it possible for people to arrive productively at a meaningful life.

We must build an economy that gets people to success and fulfillment by guaranteeing decent wages for the least well-off, banning zero-hour contracts, and reducing inhumane working hours.

Creating a healthy society means building an economic highway system that enables us to acheive our real financial needs rather than keeping us all on a path whose only destination is unfettered profits.

MEGA: Make Elites Great Again

Definition: An oligarchy is an organization controlled by just a few businesses or individuals. They have enough power to turn the organization to benefit them to the exclusion of other members. They maintain their power through their relationships with each other. Oligarchy is from the Greek word oligarkhes. It means "few governing." 

A plutocracy is a subset of an oligarchy. A plutocracy is when the leaders are almost all rich.

What is  of an Oligarchy

Oligarchies increase income inequality. That's because the oligarchs siphon a nation's wealth into their pockets. That leaves less for everyone else.

As the insider elite group gains power, it seeks to keep it. As their knowledge and expertise gains more control, it becomes more difficult for anyone else to influence. 

Oligarchies can become stale. They pick people like them who share the same values and worldview, but often incompetent and ignorant about diplomacy.

This can sow the seeds of decline since they can miss the profitable synergies of a diverse team.

If an oligarchy takes too much power, it restricts a free market. They can agree informally to fix prices which violate the laws of supply and demand. 

If people lose hope that they can one day join the oligarchy, they may become frustrated and violent. Consequently, they may overthrow the ruling class. This can disrupt the economy and cause pain and suffering for everyone in the society.

Three Causes of Oligarchies

An oligarchy forms when leaders agree to increase their power regardless of whether it benefits the larger society. The people in charge are very good at lying to their supporters, otherwise they wouldn't have risen to that level. That's how they can continue to take more wealth and power from those who are desperate and gullible and don't have those skills or interests.

Like the current US Republican Party under Donald Trump, a tyrant system can create an oligarchy if the leader is weak. The oligarchy increases its power around him or her. When the leader leaves, the oligarchs remain in power. They continue to select a puppet or one of their own to replace the leader. 

Oligarchies can also arise in a democracy if the people don't stay informed. This happens more when a society becomes extremely complex and difficult to understand or manage. gullible and overwhelmed citizens are willing to make the trade-off between a democracy and a authoritarian state. They allow those with the passion and knowledge to rule to take over.

What About the United States?

Is the United States an oligarchy? Many economists, such as Thomas Piketty and Simon Johnson, say that either it is now or it's headed that way. And this was before the election of Donald Trump.

One sign is that income inequality is worsening. The incomes of the top 1 percent of earners rose 500 percent between 1980 and 2015.

Two-thirds of that increase went to the top 0.1 percent. These are corporate executives, hedge fund and other financial managers, lawyers, and real estate investors. They go to the same schools, travel in the same social circles, and sit on each others' corporoate boards.

For example, the Koch brothers, David and Charles, made their wealth by investing in oil derivatives. They support conservative politics through the Koch Foundations. Another is Harold Hamm, owner of Continental Resources, who opened up the Bakken shale oil fields and supports Republicans (Source: "Five Oligarchs Whose Names You Need to Know," Jen Alic,, September 5, 2012).

Today, most Americans feel angry and disenfranchised. If not, they feel helpless in influencing their society. Gallup reports that 76 percent feel dissatisfied with the way things are going right now. Also, 67 percent are dissatisfied with income distribution. As a result, 43 percent feel that there is not much opportunity to get ahead. 

Such disenfranchisement led to populist protest groups such as the Tea Party and the Occupy Wall Street movement. However, the Tea Party directed people's anger toward the federal government, not the private sector corporate oligarchy. The Occupy Wall Street movement didn't carry out real change.

Ominously, this dissatisfaction became a critical force in the 2016 presidential campaign. It created momentum for candidates on both ends of the political spectrum. Bernie Sanders railed against oligarchy policies that perpetuate income inequality. Donald Trump lumped the Tea Party, traditional Republicans, and Democrats into the same "swamp." Trump used the anger at the status quo to win the election. Trump also used racist "dog whistle" hate to rile up some white voters.

In the last year, Donald Trump then filled his Cabinet positions with many of the same elite he had campaigned against. He also granted waivers to former lobbyists to direct policy in areas they had once lobbied for (Source: "President Trump's False Commitment to Drain the Swamp," The Washington Post, June 1, 2017).

Fortunately, in the last two years, the corrupt Clinton mini-oligarchy has been rejected, but now with white supremacy but now with the Trump oligarchy enabled and legitimized In its place.

Rocky Boschert

Our 2018 Retirement Plan / Brokerage Investment Strategy

Our best guess about what may happen in 2018 concerning our potential investment strategy could very well be “more of the same.” To be sure, we would love to have a "performance" repeat of 2017 in the new year. 

That said, 2018 looks good for our retirement and brokerage accounts, but as usual there are caveats.

Investment Outlook for the U.S.

First, the U.S. stock "bull" market is still strong. In some ways it is almost euphoric, which can be construed as a warning sign.

Plus, we have not seen a rising interest rate environment for over ten years. So we do not know how the stock markets will react if inflation picks up and the US central bank decides to aggressively raise rates to offset inflation. The bond pundits say that if the 10-year Treasury yield starts to head up to 3%, stock market investors will not like it.

For the past few years, the US stock market has been blessed with a mix of low interest rates and strong earnings growth, which in return has relied on minimal wage increases and expanding corporate margins. Inflation experts say that wage inflation is moderate, but those figures do not incorporate other "inflationary wage and benefits" factors such as health care premiums, executive stock options, etc.  

But now, the era of low interest rates might be coming to an end. As signaled by the US Fed, an interest rate tightening cycle is already underway. The key indicator as to how the markets will react is still the potential reaction to the sharpness of the rise of the 10-year Treasury yield.  

In addition, policy proposals by the Trump administration - such as replacing parts of Obamacare and middle-class tax increases to fund big corporate tax cuts, are probably a last-ditch attempt to squeeze even more money out of American workers, keep corporate margins high, and the stock market moving higher.

And the change at the helm of the Fed is a worry on Wall Street and the bond market, especially if we see the 2-year T-bill yield rise above the 10-year yield (an inverted yield curve).

Regardless, In the short-term, stock buybacks and foreign tax shelter repatriation facilitated by the Republican tax changes, should propel US stocks higher, at least through the late Spring.

How the US stock market party ends, with a bang or a whimper, is unknown. Absent any monetary mistakes by the Federal Reserve Board (Fed), the U.S. stock market is more likely to flatten out than to fall precipitously.


Europe has a good chance to see reasonable corporate earnings growth and correspondingly rising stock prices, especially in the small company asset class.

For one thing, the European central bank (ECB) is notably more patient in raising interest rates than the US Fed. In 2017 European economies operated below their potential, compared to the US and Asia; the EU economic “catch up” trade ought to restart a new stock market uptrend into 2018 and beyond.

Underperforming European economies, though, have led to political strife and talk of regional secessionism: the question of Scottish independence, England's Brexit, the Spanish Catalans, and even the EU hostile white nationalist movements in Poland and Hungary are disruptive problems.

These intra-EU issues have not been solved and probably stem from inefficient bureaucratic mechanisms by which transfers of money can be made from prosperous parts of the European economy to those parts of the EU that are going through harder times.

An upturn in Europe’s economic growth would ameliorate these problem, but for now, they still exist. The ECB must be careful to not squelch the recovery before it takes hold - by raising interest rate prematurely.

Outlook for Asia

Japan and China will continue to stimulate their economies. Japan could be more aggressive on this front. China, however, can also be comfortable with inflation in the 2% to 3% range.

A significant aspect of Asia’s economies over the past five or six years has been the extent to which Asia’s policymakers, in stark contrast to the U.S. and Europe, have been determined to restore labor’s share of economic growth by raising wages ahead of the rate of economic growth.

China began the trend and many other Asian countries followed suit. In 2016 and 2017 this trend might have squeezed corporate profit margins and left stock markets lagging the U.S. from a relative perspective. But it has laid the groundwork for a sustained Asian stock market rally going forward.

Wage increases allow corporations to raise prices and for workers to enjoy nominal economic benefits, even if their real (after inflation) wages are rising by a smaller amount than corporate profits.

China, which has been raising worker wages since the end of 2016, and Japan, which has been doing it since early 2013, have seen corporate profits rebound and their stock markets surge as of late. 

Unlike the U.S., there is no reason to think this trend cannot continue. If it does, and if earnings growth broadens across sectors and companies, then these Asian regional environments typically favor small and mid-cap companies trading at more reasonable valuations.

Meanwhile, the premium (overvaluated asset) paid by investors for mega-cap and large cap, high-growth companies may well shrink.

Southern Asia

In many respects the countries of ASEAN (the Asian trade pact) are even better positioned for wage inflation policies:

Thailand has a large current account surplus and low core inflation. India and Indonesia have brought down their structurally high inflation rates to moderate levels.

Policymakers have room to stimulate through both fiscal and monetary policy without severely affecting their currencies. Indonesia was able to implement a surprise rate cut without affecting the rupiah.

Elsewhere across Asia, currencies have been strong relative to the US dollar and do not believe that the dollar will be a fundamentally strong currency in 2018.

All this means that ASEAN countries can stimulate their economies and in doing so can limit any depreciation of their currencies versus the dollar.

There is a good possibility, then, that the rally in Asia will broaden out beyond China and Japan and the big tech companies.

Emerging Markets Should Favor Asia over emerging Europe and Latin America

Unless the commodities markets of Russia and Latin America take off, it may come to fruition that Asia will once again be viewed as a separate growth region from other emerging markets. Asian economies are far better-placed to see higher rates of earnings growth and more functional macroeconomic policies than either Russia or Latin America.

Consumer spending in Asia should continue to be strong. In fact, Asia’s great strength relative to other so-called emerging markets is its high savings rates. Those savings, which in the past have been used to invest in new capital stock and drive the capacity of Asia’s manufacturing sectors to produce goods, will increasingly be used as a source for Asian consumers to raise their spending and buy goods and services. This is clearly a long-term economic trend for investment.

Sizing Up Longer-Term Positives for Asia

There are also many longer-term positives for the region. The greatest of these is the continuing structural reform in Asia’s economies. We see this across the region. China is increasingly focusing on the quality of growth rather than its pace, including taking seriously issues of social welfare and environmental costs (as opposed to the the fossil fuel obsessed Trump agenda.).

Investors are also seeing increased access to China’s equity and bond markets from foreigh investors, access which already seems to be improving corporate governance. In South Korea and Japan, too, corporate governance reforms are gradually influencing management.

Also, Southeast Asia, for a long time the region’s productivity laggard, is building out its manufacturing base, with China’s help. In Asia’s most emerging frontier markets, early capitalist reforms are taking root, such as the embrace of a private economy in places like Vietnam.


Perhaps the greatest emerging markets investment opportunity is India, where a series of legal and institutional reforms over the past few years has tried to make the country’s bureaucracy more efficient: (1) to recapitalize the banks; (2) to reduce the cash economy and increase the formal economy; (3) to increase the efficacy with which state governments can use land for public infrastructure; (4) to improve the inflationary tensions and provide non-domestic investors with a more appealing set of macroeconomic conditions.

These reforms have been partially successful—and the country remains a work in progress. But India has a chance of setting in motion improvements in standards of living on a scale we have only previously witnessed in China. These reforms give us reason to be optimistic for India's future.


In the coming year, we can be optimistic, but we must also remain realistic. Many domestic and global economic variables were NOT reflected in our successful 2017 investment performance. New economic caveats arise regularly and need to be watched.

Hopefully we won't see many negative surprises in 2018 as well.

Edited for brevity and specificity from an article by the Matthews Investment Group (San Francisco, CA)December 30, 2017

Strategic Investing in 2018: using Global & US ETFs and Mutual Funds

Within the global stock market universe, going foward we will be investing mostly in ETFs and traditional mutual funds of assets classes, sectors, and industries within sectors, depending on whether the investments are in a market uptrend (or not):

  1. Stock ETFs and funds of diversified US and global large / midsize / small companies;
  2. Stock ETFs and funds of US and global "sector and industry-specific" investments;

  3. ETFs and funds of US and global real estate investment trusts (REITs) - for income;

  4. ETFs of “Price-only” global commodities (gold, oil, natural gas, commodities, etc.) 

Regarding income, within the global bond market universe, we may invest similarly in US and global ETFs and funds of bond asset classes and global regions, assuming these income-focused investments are in a bond market uptrend.

Related to the above investment plan, in our Fidelity higher education ORP/403b portfolios, we will be using the same strategy. Of course our ORP/403b portfolios are limited to the investment choices allowed by your educational employer. Fortunately, performance wise, employer-specific investment limitations have not curtailed the long-term growth or risk profile of your Fidelity ORP/403b portfolios under our management.

Finally, in a few of our IRA and brokerage portfolios, we will only be investing in individual stocks that are operating to address or solve an important global issue (to be defined by our research). With the stock markets possibly maturing into the latter stage of this current bull market, individual stocks are becoming more risky and more volatile. 

At this time, we want to limit risk rather than exacerbate risk. Hence, individual stocks are more vulnerable to losses, especially every three months when they report their quarterly earnings.

Understanding How the Stock Markets "Discount Future Growth"

Let me clarify what "how the stock markets discount future growth" means.

Essentially, the phrase means that current price valuations we now see in the global stock markets have already incorporated most of the "good future growth" news they can either imagine or fabricate into future stock prices - something like six months into the future.

Of course there will be some short-term economic or corporate news items that will continue to create "noise" stock price adjustments in the future.

Nevertheless, given that today's stock market prices are probably "fully valued" for the next six months, we need to consider making the following market adjustments as this Update is being written:

1) Systematically reduce the overall portfolio percentages of our current growth investments (that have already done well for us);

2) Prudently rotate some of our 'growth" money into investments that are starting to attract new institutional money.

As needed, we will immediately make investment portfolio adjustments as conditions change.

Please contact me if you have any questions about this Strategy brief - or your current Fidelity portfolios. 

Rocky Boschert

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Understanding Investment Technical Analysis

What is Technical Analysis?

Technical Analysis is the forecasting of future investment price movements based on an examination of past price movements. Like weather forecasting, investment technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is “likely” to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time.

Technical analysis is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of theoretical market supply and demand.

Current price movement (aka “market action”) refers to any combination of what happens between the market open or close, intraday highs and lows, and total trading volume for a given security over a specific time frame.

The quantified time frame can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly or monthly price data and last a few hours or many years.

At Arrowhead Asset Management, we only watch daily, weekly, and monthly price data for our investment decisions.

Key Assumptions of Technical Analysis

Technical analysis is applicable to an investment where the price is only influenced by the forces of supply (sellers) and demand (buyers). In order to be successful, technical analysis makes three key assumptions about the securities that are being analyzed:

  • High Liquidity - Liquidity essentially means the combined buy and sell volume (# of shares). Heavily-traded stocks allow investors to trade quickly and easily, without dramatically changing the price of the stock.
  • Below Average Fees and Charges - We also only invest in ETFs or other investments that are easily bought or sold and do not have any hidden fees or charges. 

  • No Extreme News - To be sure, technical analysis cannot predict extreme events, including business events such as a company's CEO dying unexpectedly, and political events such as a terrorist act. When the forces of “extreme news” are influencing the price, technicians have to wait patiently until the chart settles down and starts to reflect the “new normal” that results from such news.

The Basis of Technical Analysis

Modern technical analysis works on three quatifiable assumptions:

  • The Price of a Security Accounts for Everything Good and Bad About the Investment
  • Investment Price Movements Are Not Totally Random - They Generally Represent "Factual" Supply and Demand
  • The “What Is Happening" Is More Important than the “Why It's Happening”

Price of a Security Reflects Everything

Technical analysts believe that the current price fully reflects all known information. Because all information is already reflected in the price, it represents the fair value, and should form the basis for analysis.

The market price of an investment reflects the sum knowledge of all participants, including traders, investors, portfolio managers, analysts, market strategist, technical analysts, fundamental analysts and many others.

It would be folly to disagree with the price set by such an impressive array of people with such professional expertise.

Technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view on the future.

Prices Movements are not Totally Random

Most technicians agree that prices are always in a trend. However, most technicians also acknowledge that there are periods when prices do not trend. If prices were always random, it would be extremely difficult to make money using technical analysis.

An investment technician believe that it is possible to identify an investment's trend, invest or trade based on the trend and make money as the trend unfolds.

Because technical analysis can be applied to many different time frames, it is possible to spot both short-term and long-term trends.

"What" is More Important than "Why"

The price of an investment is the end result of the battle between the forces of supply and demand for the company's stock (or the Fund's daily price). The objective of technical analysis is to forecast the direction of the future price. By focusing on price and only price, technical analysis represents a direct approach.

Fundamental analysis is concerned with why the price of an investment is what it is. For technical analysts, the why portion of the equation is too broad and many times the fundamental reasons given are highly suspect.

Technicians believe it is best to concentrate on what the price is and rarely on why the price is where it is. Why did the price go up? It is simple, more buyers (demand) than sellers (supply). After all, the value of any asset is only what someone is willing to pay for it. Who needs to know why?

General Steps to Technical Evaluation

Many market technicians employ a top-down approach that begins with broad-based macro analysis. The larger parts are then broken down to base the final step on a more focused/micro perspective. Such an analysis might involve one, two, or all three steps below:

  1. Broad market analysis through the major indices such as the S&P 500, Dow Industrials, NASDAQ and NYSE Composite.
  2. Sector analysis to identify the strongest and weakest groups within the broader market.
  3. Individual stock analysis to identify the strongest and weakest stocks within select groups.

The beauty of technical analysis lies in its versatility.

Because the principles of technical analysis are universally applicable. It does not matter if the time frame is 2 days or 2 years. It does not matter if it is a stock, and ETF, a market index or commodity. The technical principles of price support, price resistance, price trend, price trading range over time (and other aspects) can be applied to any chart analysis.

Technical analysis is by no means a panacea. But investment success requires serious study, dedication, and an open mind. Technical analysis expertise inceases the success rate substantially.

At Arrowhead Asset Management, we use technical analysis to take major risk out of our investment decisions. And it works 80% to 90% of the time!

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