By Mitchell Anthony
The equity markets have continued the correction that began in October as fear of the unknown have motivated equity holders to move to cash and give up their equity positions for minimal returns in cash. The unknown involves all of the disconnect that seems rampant throughout America and the globe. Is the Federal Reserve disconnected from the fragility of our economy and is he recklessly raising rates? Is a highly divided Congress disconnected from the impact their actions may have on consumer confidence. Is the White House disconnected from how much change America can embrace without breaking consumer confidence? Are investors disconnected from the fundamentals that drive our economy and are they recklessly selling equities despite a strong forecast of steady continued growth from our Central Bank? Last and most importantly is Mitch disconnected from the fundamentals that are driving our markets and our economy?
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By Mitchell Anthony
When markets behave with extreme volatility there is opportunity for traders. These trading opportunities can enhance returns, or damage returns, of an investor’s portfolio. Many times investors become traders during periods of high market volatility because of fear or greed. Mitchell Anthony Capital Management (MACM) has not succumbed to the urge to trade during periods of high volatility. This is evidenced by our recent decisions to stay invested rather than move to treasuries or cash to benefit from the fear that entered our marketplace over the last few months.
Some of our clients have questioned the wisdom of staying long equities, noting how better positioned we could be today if we would’ve left equities in September and came back to them now that equities are 10 to 15% lower.
These questions need a reply and the answer is simple and involves the fact that our dynamic growth and asset allocation portfolios are not trading portfolios but rather asset allocation portfolios. My objective in managing both of these portfolios is that of an investor who is positioning his portfolio to benefit from the environment that drives financial assets. This generally involves expectations for central bank policy, inflation, and earnings growth. The outlook for these leading indicators will determine the ideal asset allocation. For example if our economy starts to produce high inflation than investors will seek to ride this inflation and commodity prices will rise as a result. I attempt to forecast where inflation will be for the next few years and get ahead of most investors and buy these asset classes before the inflation is notable. Likewise if we have a low inflationary environment with modest or moderate growth than equities will be sought out by investors. Again, if I can forecast accurately the inflationary environment, and the growth environment, that I can position the portfolio today to be ahead of where investors will go next year.
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By Mitchell Anthony
The volatility in the markets continues to remain high as traders and investors digest the impact of the significant policy changes in play by the Trump administration. This administration has plans for change unlike any other administration in decades. The administration hopes to level the playing field on trade and relieve the burden on America from illegal immigration. Further the administration is not afraid to take bold steps to keep the Federal Reserve tuned in to the fragility of our economy. On the other side of the aisle we have the liberal Democrats who seem willing to sacrifice the strength of America for equality in the world and use whatever tool is at their reach to carry out their obstructive agenda. The FAANG's thus far has been insulated from most of the policy changes at play by Trump. However the Dems have taken aim at the FAANG's despite the liberal agendas of most FAANG companies, and plan to try to obstruct the business plans of these industries once the Dems take control of Congress. These are the problems that investors and traders alike are weighing into their investment posture. As a result our markets are 10% lower today than they were at their highs in September. Traders have left the markets and have taken speculative positions in bonds or safe positions in cash as they await better visibility on these issues. Investors have not yet changed their asset allocation as a result of these problems. Our objective is to create alpha for our clients and we seek to stay ahead of what investors do. We are carefully weighing whether investors next step will be to leave stocks for another asset class. Likewise we are carefully weighing whether traders will return to equities soon and push stock indexes to new highs.
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