November 2015 Commentary

Believe me, there is more than one turkey this month to be consumed by investors. Let’s be very pragmatic and start with the Fed. The Fed has finally decided that there is enough evidence, and they have given enough warning to raise interest rates. While rising rates are never great news for the stock market, I think the move away from 0% will be welcome. The Fed’s inability to raise rates before this point will have future long term consequences for many generations. The truth is that while the Fed may indicate it is raising rates because of pick up in employment and the implication is to head off future inflation that is not why they are doing it. Inflation is nowhere near American shores, but deflation might be. So, I believe the Fed is quietly trying to reflate the economy, which won’t work. The answer to the economy is jobs and higher wages. Both of the aforementioned will come once the corporate tax burden is eased and an administration with different economic policies is in place. 


November was a harsh month for commodities. Since 1970, the S&P GSCI has never ushered in a month with as many negative returns for commodities: twenty-one. Only 3 commodities in the total index are holding what looks like a positive pace for the year: sugar, cotton, and cocoa. So, poor performance of commodities, specifically oil, is usually an omen of deflationary fears becoming recessionary nightmares; however, in this case, the Saudis are gaming the system by increasing production in a global oil glut. There are economic and political incentives for them to take this action, but we’d be just as happy if the price of oil stabilized a bit. Finally, many agricultural commodities and precious metals are down for the month and the year. This data reaffirms our suspicions that a U.S. slowdown is on the way. This will be felt in Europe and Japan. 


So, now what? For the past number of years, you feel cheated by the indices in that you feel you haven’t equaled their performance and now we are telling you that another period of very slow growth is upon us as confirmed by some of November’s indicators, including the manufacturing numbers. Here’s the answer: you do absolutely nothing based on emotion. In 2009, the financial giant, American Express, hit $8/share. Subsequent to that time, it has traded back to $91/share. These boom and bust economies seem to control the American stock markets. In 2000, we had the Dot-Bombs and in 2008-9, we had the financial crisis. Now, we are in the oil and natural gas glut. Prices of every known energy stock are falling, and the stock market seems to be taking its cues from that. I would simply say that, “this too will pass,” and it is happening as a result of pricing manipulation by OPEC. Therefore, with November returns being very flat to down slightly, I would advocate selling tax losses against gains, maintaining an adequate amount of liquidity, and consider short and intermediate term, high quality municipal bonds to be a friend and good place to ride out the storm. Most importantly, don‘t panic and race for the exits. It may get worse in the short term, but that doesn’t matter to us because we aren’t short term speculators. Most people are fine as long as they have the necessary liquidity to allow them to maintain their equity positions and equity managers. 

 

Mark Scott

A.G. Campbell Advisory, LLC, 1340 Smith Avenue, Suite 200, Baltimore, MD 21209