April 2019
By Darren Nyce, CFA
Senior Research Analyst, Castle Investment Advisors®, LLC

tipper x

“Hi Tom, thanks for coming over for a visit. I’ve got a swimsuit for you. Let’s hang out in the pool.” This greeting seems innocuous enough, but it caused Tom a great deal of anxiety because as an informant for the FBI, he was wearing a wire designed to catch his host admitting to insider trading violations. Tom Hardin, who became known as “Tipper X,” was a junior partner in a hedge fund who made a few unethical decisions leading him down a slippery slope resulting in a felony conviction for securities fraud, ruining his promising career and eventually leading to a double life as an informant.

Tom (@iamtipperx) was one of the speakers at the annual CFA Society of Indianapolis Investment Forum where he used his life story to illustrate truths that apply not only to those of us in the finance profession, but to society as a whole:

  • Seemingly small unethical decisions have major life-changing consequences.
    • Though he started out with just a step over the line by passing on some information that he had heard, the ramifications now include not being able to do fun dad things such as coach his kid’s soccer team (convicted felons do not pass background checks).
  • You are influenced by the people who surround you.
    • Choose your friends wisely.
  • We can easily deceive ourselves by our power to rationalize.
    • This kind of thing is done all the time.
    • I can still think of myself as a good person.
  • Crossing the line one time makes it easier the next time.
  • Accountability makes for better decisions.

Though a little less dramatic, there were also takeaways from the other speakers at the forum. Here are a few:

Tomas Lee, Head of Research for Fundstrat Global Advisors (@fundstrat), presented their view of what would drive investment returns over the next 5 years:

  • The current bull market is probably mid-cycle.
    • Biggest risk to this thesis is the Fed.
  • Demographics explain business cycles better than people realize.
    • Generation X is the only generation in history that is smaller than their parents’.
    • The only growth in the economy will come from millennials.


Jim Cunnane, Portfolio Manager of the Advisory Research MLP & Energy Infrastructure, gave an update on the energy industry:

  • Energy Infrastructure – Fundamentals are great, sentiment is poor, but improving.
  • Renewable energy will become more important, but traditional energy infrastructure remains essential.

EnergySource: Advisory Research Investment Management

Gary Cloud & Peter Greig, FCI Advisors, described their philosophy on making better decisions:

  • Do not blindly follow any one source for market information.
  • Old models have forecasting difficulty in today’s economy. 
  • An interest rate cut is more likely than a hike this year.

Dr. David Kelly, Chief Global Strategist for J.P. Morgan Asset Management, gave a wide-ranging economic update:

  • In 2018, economic numbers got better while the market got worse; in 2019, economic numbers have gotten worse while market numbers have gotten better. 
  • Growth in 2019 will be slow, but solid.

Slow Growth

  • Better than 50% chance of no recession in 2019 or 2020.
  • U.S. is dealing with a labor shortage.
  • Populism - when you do what feels good rather than what is good.
  • Core inflation hasn't changed much for 25 years.


Our team at Castle uses conferences like this as well as a plethora of other resources to help us continually monitor economic and investment conditions. It is important to us not only to glean data, but also to interpret the impact of the information on the financial plans and investment portfolios of our clients. We try to include sources whose views are different from ours so that we can challenge our thinking and keep our minds open to new ideas. We hold ourselves to a high ethical standard, take our role as fiduciaries very seriously, and are always trying to make ourselves better.

This past quarter saw a reversal of Q4’s down trend and has gotten 2019 off to a strong start for the markets. A portfolio comprised of 60% stocks and 40% bonds saw a return of more than 9% - the largest for a first quarter since 1991 and the 8th highest since 1926. All stock sectors posted gains with Technology and Energy providing the biggest gains.

Index      1st Qtr 2019      
1 Year
3 Year
5 Year
S&P 500 13.6% 9.5% 13.5% 10.9%
Nasdaq Composite 16.8% 10.6% 18% 14.3%
Russell 2000 – Smaller Companies 14.6% 2% 12.9% 7.1%
MSCI EAFE – International 10% -3.7% 7.3% 2.3%
Barclays US Aggregate Bond 2.9% 4.5% 2% 2.7%

The biggest catalyst for these gains seems to have been a combination of earnings reports that were better than the market was anticipating and a change in tone from the Federal Reserve indicating that interest rate hikes were on pause, at least for a while.

Other items of note for the first quarter of 2019:

  • Much of the country dealt with a long, cold winter, made even worse for employees who dealt with the government shutdown.
  • Tragic crashes push Boeing to look for ways to make their planes safer.
  • Candidates for the presidency have begun to emerge.
  • New Zealand deals with a terrorist attack on 2 mosques.
  • Floods covered much of the U.S. Midwest.
  • Robert Mueller released the results of his investigation finding no collusion between the Trump campaign and the Russian government regarding the 2016 election.
  • Mortgage rates have been dropping and home sales have been rising.

Looking forward, while another quarter of double-digit gains for the stock market is unlikely, neither do we see signs that a recession is imminent. Though earnings have been solid so far, the consensus estimates for the coming year continue to ride a downward trend, which is something that bears watching.

Other items on our watch list include:

  • The inversion of the yield curve.
    • The 3-month yield on T-Bills became higher than the yield on 10-year Treasury Bonds, though not a perfect predictor, this situation has preceded recessions in the past.
  • The Federal Reserve’s stance on interest rates.
    • It was not that long ago that several rate hikes were expected in 2019, now expectations are that a rate cut is more likely than an increase.

Schwab Rate hike expectations Page 1Source: Charles Schwab Investment Management; Bloomberg

  • Immigration policies and the U.S. Mexico border tensions.
  • Trade talks with China.
    • Will an agreement be reached that results in better trade conditions?
  • Will the U.K. complete it’s exit from the European Union?

Regardless of how any and all of these circumstances play out, we will continue to help our clients navigate their way toward achievement of their financial goals. Thanks for letting us be a part of the journey. Have a great spring.


Tax, legal, and estate planning advice contained in this article is general in nature. Always consult an attorney or tax professional regarding your specific legal or tax situation. This article was prepared for informational purposes only and does not constitute an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Information presented does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information regarding products and services. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Any strategy discussed herein may not be suitable for all investors. Before implementing any strategy, investors should confer with their financial advisor. No current or prospective client should assume that the future performance of any specific investment, investment strategy or product made reference to directly or indirectly, will be profitable or equal to past performance levels.