Market Commentary

December 2015 Commentary

By Investing, Market Commentary, News No Comments

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

By Investing, Market Commentary, News No Comments

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

By Investing, Market Commentary, News No Comments

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. 

September Commentary

By Investing, Market Commentary No Comments

“Don’t Listen to the Voice of Your Low Moment.” 

I can’t remember who gave me this wise advice, but I think it was my father. Dad has been an incredible investor his entire life, and it would be fitting that he gave me this guidance along with his thoughts about the wasted energy involving “worry.” I think this approach to life is also very applicable to investing and much of the volatility experienced by all in the past quarter. Additionally, the month of September was unpleasant by any measure. The performance of the S&P 500 for the month was (2.53%). More painful is that the S&P is negative 6.59 for the year through September with the Dow Jones and NASDAQ being equally painful. But, much of our stress can be averted by a simple strategy. The most important principle is to have enough “cash” on hand to ride thorough the storm. That is one of the most important points about investing assets in any stock market. The 3 requirements for successful investing in the capital markets are: time, accessible liquidity, and the proper risk tolerance. Without any of these 3 criteria, an individual investor is not adequately equipped for the common ups and downs of markets. Some people would add patience as a close fourth requirement, but I believe patience to be part of the time element requirement. 

The most important thing that any of us can do at this time is take the following 3 action steps: first, set up an appointment with A.G. Campbell Advisory for a year end strategy session. We want to talk with you! This session is to review goals, liquidity, and the amount of money invested in the capital markets. We will also review upcoming needs, and risk tolerance. Second, expect to use down markets like this one to be opportunistic about repositioning for the purpose of not paying capital gains taxes and upgrading quality at lower market prices. Third, and finally, be open to new ideas about how to accomplish your goals and making sure that you don‘t own assets, real estate or anything that has outlived its usefulness to you or your family. When we do find these investments, there is often tremendous nostalgia involved which makes letting go emotionally difficult. Just remember: things are just things and why let the tail wag the dog? How crazy would it be to be a prisoner of things that are supposed to make your life better? Don’t do it, and a review with us will make sure that this doesn’t happen. 

Finally, it is normal to feel awful when the markets are down by 7% in one quarter! It is also very normal to feel like your stocks will never recover, you are doomed, and the world is coming to an end. Again, this is unpleasant but normal. What history tells us is that, “so far,” this has NEVER been true. For those people who like to worry and say, “Well, this time it’s different because of a, b, and c.” I give them a big fat raspberry because the only difference is that it’s now and not 2008. By the way, had you held many of our investments since 2008, you would have regained your losses and made up more ground in many cases. The point is to take action about things that you can control and leave the rest to us. 

Warmest Regards,
Zandy Campbell, CEO


July 2015 Market Commentary

By Investing, Market Commentary, News No Comments

In July, we continued to see disparity between some of the major equity indices. The Dow Jones was positive 0.40% for the month but is negative 0.75% for the year. The S&P 500 is higher by 1.97% for July, but the year’s return is only 2.18%. The Nasdaq Composite has been overall the most positive, and this has mainly been due to APPL and other technology companies. The Composite was higher by 2.84% for the month and 8.28% for the year. Most money managers and hedge funds are flat to slightly down on the year, and the highest quality energy names and companies with significant dividends is where we take comfort. While this summer has offered a lot of volatility and anxiety, it is in these times that we believe we are able to spot value. The following article by Reuters illustrates quite well how the big winners of the market this year have been confined to a very narrow industry bandwidth: 

A few big winners keep U.S. stock market afloat in 2015
4:03 PM Eastern Daylight Time Jul 24, 2015
July 24 (Reuters) – Amazon’s stock price surge into Friday made it the latest of a series of companies to boom following results, and its performance this year, along with a few others, has basically kept the S&P 500 above water. Data from S&P Dow Jones Indices shows that the gains in Amazon <AMZN.O>, Facebook <FB.O>, Google <GOOGL.O> and Netflix <NFLX.O> account for more than 50 percent of the broad S&P 500’s rise of just over 1 percent so far in 2015. Add in Apple <AAPL.O>, and those five companies account for nearly 60 percent of the year’s gains, according to S&P index analyst Howard Silverblatt.

The month of August will most definitely present great buying opportunities and a chance to begin deploying cash. Oil will definitely be part of that investment allocation as well as other great companies that pay dividends and are oversold. We have intentionally built significant cash positions in our clients’ portfolios for exactly these types of buying opportunities. There has recently been a lot of negative price speculation as it relates to oil and natural gas that is not consistent with the world’s true demand.  Make no mistake: with all the people in China, India, and Russia, the global demand for oil and natural gas is huge and only growing larger. The current mispricing of these commodities is the result of political brinksmanship on the part of OPEC. Our firm is only too happy to steal XOM, CVX, and SLB at these prices. 

Finally, there are many market pundits going into the fall that believe the Fed’s raising of interest rates will be the great undoing of the market. In our opinion, they are wrong. There may be some short term trading, but overall, this interest rate hike is already priced into the market. We think the markets would react worse to a zero raise scenario that is attributed to the recent devaluation of the Chinese Yuan. Underlying credit worthiness of sovereign currencies seems like a much scarier prospect to the capital markets than the FOMC raising rates 25 or 50 bps. Finally, American companies have done a good job to report pretty good results in the face of rising regulatory costs and the strong dollar. Therefore, it is our opinion that America will still continue to experience painfully slow growth by growing GDP between 2-3% maximum for the rest of the year. 

A.G. Campbell Advisory, LLC

May-June 2015 Market Commentary

By Investing, Market Commentary, News No Comments

The first half of 2015 has the S&P 500 up 0.20%, the Dow Jones Industrial Average down 1.14% and the Russell 2000 up about 4.75%. We believe these indices to be illustrative of the volatility of a market in need of more of a correction. While some of the major indices are very near their highs, many individual stocks are not, which may translate to investors not experiencing returns in line with these indices. This should serve as a reminder that we generally don’t strive to match the returns of the major indices, as we employ a much different asset allocation for investors, based on individual needs. As for our clients, most have 20-25% in cash, which can be deployed when a correction or pull-back in equity prices occurs. These corrections or pull-backs are necessary and healthy. 
For the first 6 months this year, there has been greater merger activity than at any other time. Most of the action occurred in media, healthcare, and the telephone sector. There have also been a pretty significant issuance of initial public offerings.  All of these items are usually strong indicators of a “toppy” market. However, we are seeing some real value in energy related names at this point, where we’ve already experienced a correction of sorts in terms of equity prices. Some investors still feel these names could drift lower, and we would use that as an opportunity to add new or existing holdings in that area. 
Expect Greece to continue to weigh on the financial markets in July and August and the credit worthiness of Puerto Rico keeps getting more interesting by the day. The trepidation felt most in the U.S. is by Puerto Rico’s municipal bond holders. Furthermore, unlike Greece, Puerto Rico is a U.S. territory, so we will likely feel some of its’ economic collateral damage. More exciting to many investors are the Second Quarter earnings which will be released in a couple of weeks. If they disappoint, the Federal Reserve may think twice about raising rates in September. Conversely, if the economy continues to show strength, there will most definitely be a raise in September. The Fed knows that this “raise” is way overdue, and it will not be a “shock” to the market’s system in our opinion. 
Therefore, now is a good time to get out your surfboard, put on your Birdwell’s, lather up and head to the beach. The best thing that can happen is values are much more enticing in the fall, and we get some great bargains. We will continue to manage risk while balancing the need to achieve desired returns.
Above all, let’s remember to be thankful for all that we have, enjoy the rest of the summer.

Alexander G. Campbell, III & Mark D. Scott

April 2015 Market Commentary

By Investing, Market Commentary, News No Comments

Spring has sprung! Our clients’ portfolios were up 2.14% in aggregate for the month of April, with the S&P being up 0.96%. Obviously, this is after a painful 6-9 months of oil prices going from $101-$48/bbl. When commodity prices fall that far and that fast, the best thing you can do is absolutely nothing. The CBOE Volatility index, the market’s fear–gauge, climbed 7.9%, and decliners outpaced advancing stocks by a 2:1 margin. Therefore, we are kicking “tail” and taking names! So, why doesn’t it feel like it? The answer is we are “regaining” some of last year’s gains which evaporated after the second half, commensurate with the fall of oil prices and natural gas. Technically, this year, we are ahead of the market by approximately 1%.

The reason that none of this information should matter is that we don’t invest our money, your money, or anyone else’s money for 1 month, 3 months, 6 months or even a year. We invest in equities for no less than a minimum of 10 years. Imagine if you had invested in the S&P 500 beginning in 2000 and wanted to take your money to retire in 2010. Chances are you experienced almost ZERO growth. The key for most of us is equaling the money we spend over the long haul. There is not a single client for whom we are not accomplishing that task. We may have back to back quarters or even down years, but we truly achieve our fiduciary responsibility by helping our clients not outlive their money. Our target for most clients living on their portfolios is a distribution rate of 4% per annum. Even with a 50/50 stock to bond allocation, one could expect to easily pay that percentage rate for 35-50 years.

The Federal Open Market Committee’s two day policy meeting seemed to conclude with a question mark about the momentum of economic growth. The reason that this is important is that if they felt conviction about the economy, we would all know that the “raising” of interest rates would be sooner than later. My bet is that the Fed waits until September to raise rates and hopes that the summer holds more gains in household incomes and consumer sentiment. Higher rates are a necessity for many reasons economically, and politically. 

March 2015 Market Commentary

By Investing, Market Commentary, News No Comments

The major equity indices were negative for the month of March, and so far in 2015, volatility is the name of the game. The equity markets experienced negative returns in January, only to see some positive returns in February, and then negative again in March. For the quarter, this resulted in the major indices being up less than 1%.

While it’s important to understand what’s happening in the financial markets and the major stock and bond indices, the actual performance of these benchmarks is pretty unimportant for most people. We chuckle that so many people and institutions are wed to this archaic form of measure. Simply put, the indices mean little because our clients are not the indices. To be an index would mean never having any cash on hand, zero. Furthermore, these benchmarks are often heavily over weighted by one particular industry due to its’ popularity; for example, the S&P 500 performs in line with technology due to the market capitalization of Apple. Again, this is ridiculous; however, if nothing else, Wall Street will always be buoyed by the spirit of competition. Competition requires scoring, and scoring requires a benchmarking system by which to judge. All of that said, not one bit of that system makes you a better investor.

For the past 9 months, our investments in natural resources have been a short term anchor to performance. This temporary shortfall doesn’t affect our thinking about this vital industry in the least. There are four important points about this investment: first, the industry is by far one of the best values in an overly high market today. Second, we don’t buy any company without at least a 3 to 5 year time frame. History has taught us that to do otherwise causes investors to lose money. Third, many of these oil and natural gas companies are selling at a fraction of their cash values which means the market is giving them an enterprise value of zero. This is silly because Putin wants to play war games, and the United States and Saudi Arabia know that low natural resource prices keep him in line. Thus, A.G. Campbell Advisory has used this as an opportunity to own these companies at a fraction of their true worth. Finally, we believe that an oil price of $65-$70/bbl could move these equities quite significantly; whereas, with an abysmal GDP in the United States, other companies are going to find it more difficult to report remarkable revenue increases and move the needle. 

February 2015 Market Commentary

By Market Commentary No Comments

We are living in very volatile times, and this writing will illuminate why we possess such resolute conviction in how we are managing assets. History plays a major role in our decision making. We are far less worried about the 24 hour News Alert Emergency of the moment. To illustrate our thinking, we are borrowing a selected piece from The Copper Handbook by Horace Stevens in the early twentieth century:  

“There will be seasons when demand will follow so closely upon the heels of supply that prices will go skyward, and the fool will say in his heart that the market must forever advance. There will also be periods when the supply will far exceed demand, and the faint of heart will say that production is overdone, and never more can be profitable, but in the aggregate the great law of averages, immutable as the law of gravitation, will give to the world everything for its imperative requirements, at prices not prohibitory to the consumer, yet sufficiently high to provide for the well-managed companies’ profits beyond the dreams of avarice.”

… Horace Stevens, “Copper Handbook” 1903

Of course his book talked specifically about copper, but we believe this to be true of many other markets as well.

Fast forward to our current day, and think about the oil and natural gas markets. Saudi Prince Alwaleed bin Talal told USA Today on January 11, 2015 that oil will not see $100 per barrel again! While according to OPEC’s Secretary-General, Abdulla al-Badri, oil prices could surpass $200 per barrel without sufficient industry investment. Oil prices have run from over $100/bbl. down to as low as slightly less than $50 per barrel within 5 months.  Natural gas prices have moved as sharply in a lower direction over the same time frame. This type of radical movement in a commodity price “has” an effect; however, we believe it is “only” an effect not a long term trend. This same erratic move has happened over the years in technology prices, real estate, and nearly every asset class that one can imagine. We think that the recent volatility in energy prices is overdone. You cannot dismiss the need for oil in a world of 7 billion people who need these resources. There is not enough alternative energy infrastructure ready to handle the world’s demand. For those who argue that GDP around the world is dropping, I would only modestly agree. It may be dropping from an imbalance in global trade in terms of manufacturing that may be evolving with America as the winner via Natural Gas and Oil.

A.G. Campbell Advisory’s investment philosophy is now and ever shall be a strategy of staying the course and buying the dips. Our clients have been rewarded by sticking to this discipline. Our advice to our clients is “turn off CNBC, stay on plan, and add money when you feel the most fear.” Above all, let benchmarks be other people’s gage. We will have seasons of greatness and prosperity which may or may not be in tune with the market. Like our friend, Horace Stevens, we feel that these Wall Street imposed standards are part of “the fool’s game.”

-Alexander (Zandy) G. Campbell, III