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Market Commentary

July 2016 Market Commentary

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•    The post-Brexit market rally has soothed the currency migraines of June. 
•    The 10-year Treasury is off its lows of 1.37% immediately following Brexit to be at 1.59% today. 
•    Most earnings have been reported and on balance were positive. 
•    July jobs report were okay with 255,000 new jobs, and the posted unemployment rate was 4.9%. 
•    July was marked by lower volatility in the stock market than the “norm” for July. 
•    The S&P 500 gains more than 3% in July which leaves many to worry more about the month of August. August is traditionally a weak and volatile month. 
•    Derivative positioning is starting to be much more bullishly weighted. My being more of a contrarian makes me feel that this data might be indicative of effusive optimism in the stock market. Although, I am the worst market timer with whom I have ever been acquainted. 
•    Big S&P 500 ETF inflows crowned July 2016 as the third largest month since 2011. 
•    The U.S. Consumer remains resilient and keeps economy going, while oil prices have fallen off their recent highs of nearly $50/bbl. It seems clear that July is showing us that U.S. companies have generated superior returns on capital, despite the overall low growth environment. These better returns on capital are proven through the better earnings reported this month, and the commensurate prices of these stocks surge. 
•    The technology sector led all the sectors of the S&P 500 in July with blowout earnings. Multiple money managers and market technicians are now saying that we are in a secular bull market. While I don’t believe anyone is that good at calling market tops or bottoms, I do believe that stock prices are still climbing a wall of worry in August. We are nowhere near irrational exuberance or unbridled optimism. 

July Takeaway- Keep letting the positive global markets work for you. 

Best Wishes for the Remaining Summer

Zandy Campbell

Head for the Brexit…mmm…Exit!!! – June 2016 Commentary

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What do you think the chances are of our world NOT PANICKING after they have known about the Brexit vote at least since the beginning of the year? Right, none. That is how our financial world seems to operate today: shoot, ready, aim. It makes no sense whatsoever! Make no mistake, the Brexit is complicated by multiple factors, but those hurdles were available to panic over months ago. The truth is that there is no need to panic. There are logistics issues with whom is currently running the U.K. now that David Cameron has stepped down as Prime Minister. Also, there are noises being made by other countries in the EU that supposedly would like to leave as well. Finally, there are real world issues with a much lower British Pound Sterling and a higher U.S. Dollar. The only way parity is achieved is through Pound value erosion verses Dollar inflation. The net sum of possible Brexit outcomes for the good people of the U.K. is as follows: a weaker pound can lead to higher inflation. With higher inflation, either wages can rise to compensate for the price increases, or wages won’t rise and people’s standard of living will decline. Therefore, ironically, the outcome of the vote to leave the EU resulting in a lower quality of life is a real possibility. There are also additional compromises and possible votes and politics on the table all of which could inevitably be destabilizing for the global financial markets.

Nevertheless, in our opinion, this will mean very little for our clients. Many of our recent additions are even higher in the middle of this maelstrom. A.G. Campbell Advisory, LLC thinks that the “Brexit” is probably a future pain in certain ways for the short term, but we don’t think it is “the earth threatening” storm cloud on the horizon. In fact, we think that the news people and clients should be much more worried about an overall global GDP slowdown that may throw us eventually into a recession. The only panacea for all of these financial ills are tax reform and a more business friendly environment.

Our advice on top of all of this information is simple: don’t listen to the “noise” of the financial markets, this “noise” will not help you in the long-term. Our clients are incredibly well diversified and positioned with cash and bonds. We can weather all kinds of storms. So, we think the best thing you can do with your time right now is something else. If there are opportunities created by the volatility, we will find them. Finally, as it relates to the Brexit, ISIS, or any other concerns we may have, the words of former president Franklin D. Roosevelt addressed in 1933 at his Inauguration, “…the only thing we have to fear is fear itself.“ This philosophy is not bravado, and today it is just as valid as it was at that time. I wish all of you a relaxing and carefree summer.

Zandy Campbell

April and May “B’s” To Come

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In the very popular 1950’s television series, Dragnet, Sgt. Joe Friday would always say, “just the facts, ma’am.” Well, here is our April monthly and overall download for you: the statistics of the market and its metrics say that everyone is treading water. Specifically, from right now going back one year, the S&P 500 is down a couple of percentage points. The PE multiple of the S&P 500 then was approximately 17.2X earnings, and it is approximately 16.5x earnings now. In general, earnings have moved sideways and interest rates have stayed pretty much the same. The dividend of the S&P 500 is approximately 2.2% now and the ten year treasury yields are now approximately 1.71%. Investment grade corporates are about 3% or slightly less for the same 10 year maturity. Therefore, no one is moving anywhere quickly.

Other notable facts are that the transports are declining. Over my 30 year career, when you see transports declining, often times, economists say that this is an indicator of weak demand. As a firm, A.G.Campbell Advisory believes that market values of U.S. stocks are relatively high. There are small pockets of value, but lately, they have been traps. Last, oil prices are inching up towards $50 per barrel which has mainly been caused by disruption in flow due to terrorism; therefore, it is not a “real” indicator of growing economic demand. April was up a quarter of a percent, and the market seems to be stuck in a fairly tight and fairly valued trading range.

At this time, we feel that cash positions of 10-25% are reasonable and that we may soon be seeing the “sell in May and go away” summer strategy taking shape. Given all of these facts, it is time to “B” a profit taker, “B” adividend collector , and “B” okay with some extra cash in money market. Have a good May!

Zandy Campbell

March 2016 Market Commentary

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The first quarter of 2016 began with worrisome declines. January and February racked up major market losses for most of the major indices. At one point, the S&P 500 was down over 9%, oil was falling more precipitously than anyone imagined and the credit markets were flashing red alert in the junk bond area. The institutions were beginning to worry as the spreads in the junk bond markets began to widen and the next step would be illiquidity. The woes of China’s slow down were also weighing heavy on the market indices.

Then, it happened: the magic moment. Federal Reserve Chair Janet Yellen said, “Financial conditions have recently become less supportive of growth.” She further indicated that her much feared interest rate increases were foreseeably not happening in March. Of course, almost on cue, the stock market loved it, and why not? After all, now, it’s the only chance of anyone getting much of a return!! CEO’s across America are cheering because now their anemic earnings that will be announced at the end of the first quarter will be balanced by a month of upward movement in the market! As Kevin Bacon said in Animal House, “remain calm, all is well.”

The single best way to talk about the stock market, stocks, race horses, or the Super Bowl is in the rear view mirror. In fact, we are going to rename our quarterly and monthly commentaries and maybe our future blog as “The Rear View Mirror.” Only the truly sagacious people like Janet Yellen, Barney Frank, and Donald Trump have what it takes to interrupt the natural cycles of economics to bring you a better, yet somewhat artificially manufactured version of their economy. Man, it must be great to be King! Nevertheless, the dice have been cast, and we are now safely in April! Whew! How do you think Chairwoman Yellen will deal with the upcoming earnings misses? Hmmm. Well, these concerns aren’t for the likes of mere mortals like me to postulate. We will continue to have our clients’ assets “in the market,” and still focused on great quality. Furthermore, we will continue to pay homage to market volatility by maintaining an appropriate balance in bonds, cash, and other asset classes. Finally, we will joyfully prune some gains from portfolios prior to the people who, “sell in May and go away.” This adherence to process and discipline has always held our clients in good stead in the past, and we feel confident of that in the future.

Last thing, I wouldn’t be a good Kentuckian if I didn’t tell you who I liked in the Kentucky Derby. I would bet Brody’s Cause on the nose. Good Luck!

Warmest Regards,

Zandy Campbell

February 2016 Market Commentary

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February was dominated by assets moving towards the “risk-off” trade. Most categories of equities around the globe lost ground this past month. Generally, from the traders to the longer term investors, there is an insatiable worry about the global lack of growth. Companies can only get so lean to continue showing year over year profitable comparisons and then demand must return. A lot of the same headwinds are still constant from last year: China’s slowing growth, very little if any wage growth, and a bunch of CEO’s who are still trying to beat the dead horse of the global economy with the riding crop of stock repurchases and corporate buybacks.

As we venture into the middle of March and rounding the ¾ pole of the first quarter of 2016, we are reminded of something an old lacrosse coach once told me: “if you don’t know how to vanquish the enemy, train harder each day.”  That was good advice then as it is now. It means keep doing what has always been smart in the past. The following “remember list” is a checklist of items that will allow you to sleep better despite everything going on in the world, but more importantly, it permits you to control what you can control:

1.       Remember to always maintain enough “cash” on hand so that you can have liquidity when the other fellow doesn’t. We try to do follow this logic with our investors, and we think everyone should do it at home as well.

2.       Remember long term means long term. Therefore, as it relates to money in the U.S. or foreign stock markets, you shouldn’t have your money in that asset class if you cannot leave it alone for at least 5 years at a minimum.

3.       Remember to have some money in very safe short term tax free bonds or the equivalent. The more aggressive investors always hate this advice, especially when it’s too late.

4.       Remember to reach out and call us anytime that you feel uneasy. A.G. Campbell Advisory is founded on the principle of “the buck stopping here.” Our purpose is to provide fiduciary advice and stewardship as often as our clients need. We don’t believe in asking you to stick your head in the sand and suck it up.

5.       Be thankful each and every day because if you are receiving this advisory commentary, there is a high probability that your personal wealth puts you in the top percentile of the world population, and I imagine that most of us have familial relationship riches that far exceed anything that is measured in monetary form.

On the horizon, we are looking for better days ahead and little to no change in view from the Federal Reserve this March. Also, as you know, there is usually a last minute panic for tax information; therefore, please call us at your soonest convenience to ensure you have everything you need. Finally, tax time is also a good time of year to review your financial plan/roadmaps with us and make sure that your charted course is exactly as you expect. If it provides peace of mind during a very normal sideways to down market move, then we feel like this is well worth the meeting. Enjoy March Madness!

Warmest Regards,

Zandy Campbell

January 2016 Commentary

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Happy New Year! Welcome to the worst historical start of Wall Street in 120 years. January, 2016 is characterized by precipitous drops and panic. Many investors still remember the sting of 2008, but this year seems most highly correlated with the oversupply in the oil markets and pressure on current prices. The correlation doesn’t really make any sense to Wall Street historical statisticians; however, I think I get it. Simply, the lower pricing in oil reflects how the world feels about global demand. If China, India, and the United States can’t suck up all the available oil with all the people in the world, a dropping oil price might indicate a “recession.” The “r” word is one of the most hated words by global investors because it portends rainy weather in the stock market with no end in sight.

The metrics of January were an S&P 500 index that closed negative (5.07%). Crude oil was down nearly 10% in the month of January, and China’s manufacturing numbers were abysmal. When you throw in the year of an election in the United States and ISIS threats of a global caliphate as an afterthought, the market declines hard. This is what happened.

Our clients are maintaining extremely healthy cash positions so that we can take advantage of some of these monstrous pullbacks. When investors look back over history, they find that periods of sustained volatility such as we are experiencing now are excellent entry points in the market. Because of our strategic approach to equities, we are highly confident that our clients will be the supreme winners in the end. Establishing low basis in securities is primarily executed in times like these. Therefore, as we enter 2016, be strong and of good cheer because these are the times that propel you way beyond the average clientele of Wall Street. 

A.G. Campbell Advisory’s Market Commandments

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·          You cannot time the market. Calmer heads are created by years of experience as an investor and knowing important facts.

Since 1929, there have been 25 Bear Markets. The average Bear Market lasted 10 months. The average bear market loss was (35%). The smallest loss was (21%), and the largest was (62%) in 1932. The average frequency of Bear Markets is every 3.4 years. The last Bear Market ended in March 2009. Therefore, we are way overdue.

Since 1929, there have been 25 Bull Markets. The average Bull Market lasted 31 months. The average Bull Market gain was 104%. The smallest gain was in 2001 and was +21%. The largest gain was 582% from 1987-2000. The average frequency is every 3.4 years. The present Bull Market is over 72 months old and a pullback is necessary.

·         Things are never different. People incorrectly say that “this time things are different.” Their intent is to explain that the fundamental rules and principles of investing have somehow changed this time around.

For example, had investors not believed that “value investing” had become obsolete from 1995-2000 and bought dot coms with stretched valuations, much money could have been saved. They justified their actions by saying that the old principles of investing didn’t apply and that the technology revolution justified the crazy prices. They were wrong.

·         Turn off CNBC and leave the worrying to us. Part of hiring an investment advisory firm is to allow us to act in your best interest and for you to do other things.

 

·         Have enough cash and fixed income investments to make the moves in the market of little concern. This allows you to be a long term investor in stocks and reap the rewards.

 

·         Own investments that have been through the ups and downs of the markets and have been fine.

For example, American Express Company (AXP) traded at $9.71 during the financial crisis on March 06, 2009.  It has been as high as $93.17 in early January of 2015 and closed today, 1/13/16, at $62.85. As an intelligent investor, you must ask yourself: was AXP really worth 6-700% less than today, just 6.75 years ago? No, of course not. These are the results of the extreme movements of the market in irrational market panics!

·         “Buy right and hold tight.” This quote is from John Bogle’s 10 Rules of Investing.  A simple investment strategy with proper attention paid to liquidity needs, risk tolerance preferences and proper asset allocation can be much better than more complex expensive strategies.

 

Simply refer to these commandments every time you feel emotional or nervous about the market, you will save yourself a lot of time, worry, and money. 

December 2015 Commentary

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How the Grinch stole Santa’s Rally into the New Year: December 2015 Outlook

Santa never came. We childlike investors represent all the little Who Ville citizens, including yours truly little Zandy Who. The Grinch left us lumps of coal in our stockings and took our zonkers for zonk bopping and our honkers for honk hocking.  Luckily, we as intelligent investors don’t have to put up with this Dr. Seuss metaphor for much longer. Simply put, the fear in the market is due to two things: falling oil prices and the actions of the Federal Reserve.

For the month of December, we finished the month and year very flat. Unfortunately, the Grinch wasn’t satisfied with the Christmas spoils. He decided to begin 2016 by scaring the investing public to death. It is on this point that we wish to opine. China has been a problem forever. The issue isn’t the economy or a depression; more simply, it’s the lack of transparency that the world has with such a huge country. The fact that we can have something so large and economically consequential to the United States and the rest of the world and simultaneously be opaque is the real reason for all the volatility. What happens in China stays in China. The unknown economic effect on the world is exactly what Wall Street hates and punishes with down markets!

On the other hand, I’m not buying all the fear mongering.  Why is what’s happening in China any different from the Asian contagion? We survived that time. In fact, I think the glass is more than half full: unemployment is lower (I know it all depends on who, what, and how you measure, I got it). Interest rates are still very low and will be increased carefully over the first ½ of the year. This adjustment will put bullets back in the Fed’s gun; therefore, our world in the United States is more stable. Finally, while the precipitous falling price of oil has been painful, the consumers win at the pump, and investors win with some bargains. I promise you that I am not being Pollyanna about the investment landscape; there are plenty of landmines. Our goal in 2016 is to use our newly established partners within the firm and our investment tools to make sure that we bounce on to higher account values in the near future which is why we cannot take panicky irreversible action today.

In the spirit with which we began this December outlook, we will quote one or our favorite authors, Dr. Seuss as we think about the beginning of this New Year:

“I’ve heard there are troubles of more than one kind; some come from behind. But I’ve brought a big bat. I’m all ready, you see; now my troubles are going to have troubles with me! “

Happy New Year!

 

November 2015 Commentary

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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. 

 

October 2015 Commentary

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October, Halloween, and a guess at what trumpets year end. 

Boo!!!! You almost didn’t recognize me did you? I’m called a positive month after the worst quarter on Wall Street in 5 years. You might have thought I was the ghost of markets past. 

Despite all the growing political dispersions, corruption abound, and the specter of rising interest rates, we are more bullish than ever. Let me elaborate on our 5 main reasons: first, we think the 3rd quarter was what the market needed to move higher. Prior to that time, value was off the table. The stock market has enjoyed a 6 year recovery without much interruption. Therefore, we were due for a correction, and we got a small one. At the moment, we see October as the transitional month that sets up next year. Many clients have already booked their losses earlier this year which allowed them to be more liquid now and in search of good quality at great prices. It is this early tax loss selling that we think will help propel the market into next year. Second, interest rates are low and will remain low, even if the Fed raises them by 1/4 of 1% in December. In fact, we think this moves the Santa Claus rally into December!! This may be one of the few times in history that higher rates are welcomed by Wall Street to a degree. The reason is now the artificially low rates are hurting our seniors and our economy. Banks and lending institutions need to make more money in their spreads. Therefore, any posture by Janet Yellen to move rates higher is a positive signal. It also signals that the FOMC sees the American and global economy as recovering. Are they right? Maybe a little, but they are simply following a political agenda. It will work fine for the moment until Paul Ryan begins to hit his political stride of reformation. And assuming, maybe incorrectly, a Republican victory in 2016, we can look for lower tax rates, entitlement cuts, and an increase in defense spending. The result might return us to the World Leader status. The next President will also have to deal with the consequences of our “kick the can” politics, and the need to keep raising interest rates. The key is not to hit the tipping point too quickly, proper balance is imperative. Third, with the glut of oil supplies and natural gas, we will likely have stagnant pricing until sometime late next year. This is good for the consumer. Fourth, rates will historically remain low enough for real estate transactions to continue, albeit at a slower pace. Fifth and finally, we will have retaken the world’s stage as the large and in charge world police. This position allows markets to settle down and focus on policy as opposed to politics.