Is the Fear Driven Selloff Over?

By Mitchell Anthony   The equity markets retreated as selling beget more selling and fear beget more fear in the fourth quarter of 2018.  This dramatic change of course for the equity markets in 2018 was reminiscent of similar market action in 2014 and 2015 when weakness in global economic conditions emerged.  However this correction was sharper with most indices falling 20% or more, compared with 10% or more corrections in 2014 and 2015. Was this just a big bump in the road to much higher levels for US equity markets? Or has the path for equity markets already reached its summit because recession lies on the horizon.  Most investors have found themselves asking these questions over and over recently.  While none of us know what lies ahead, trends in economic data point to further growth for the US economy as the impact from the trade war becomes more of a distraction to economic conditions than a game changing event. Further this is all occurring while inflation and central-bank policy mostly remains benign.  This environment of continued steady growth will ultimately lead to higher equity prices particularly those equities that are insulated from the problems in manufacturing and highly cyclical industries.  As the equity market continues on its path of recovery the leadership in the equity market will likely to take on a different twist as investors avoid the US sectors and foreign markets that are directly impacted from the trade war that is likely to persist for the short to intermediate term. This is a difficult time to own deep cyclical industrial names but contrarily a great time to own companies experiencing organic growth occurring with innovation and development of great products.   We have had tremendous alpha for the last few years based upon our ability to identify where investors were going early.  We owned the fang long before most people knew what the fang was.  The acronym for the market leaders in 2019 will be a different version of fang, but will clearly be areas insulated from global trade and benefiting from organic or secular growth. Read more

How Problematic is the Divide in America?

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? Read more

Should an Investor become a Trader?

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. Read more

Market Volatility, Trump’s Agenda, and our Fragile Economy

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. Read more

Markets Fall as Investor’s Hedge the Risks On the Horizon for the Economy.

Markets Fall as Investor’s Hedge the Risks On the Horizon for the Economy.   The equity markets in America have turned downward as result of some storm clouds that have appeared on the horizon that threaten to stall or slow the growth of our economy.  Over the last few weeks the S&P 500 has fallen 10% from its September 30 peak and is now up just 1% for the year. All of MACM's growth strategies have fallen from their September 30th peaks.  MACM's dynamic growth portfolio has declined 13% but is still up 8% year to date.  AAI has given back 10% and is now up 5% year to date.   Diversified equity has given up 12% but is still up 11% year to date. While we are unhappy that we have given back almost everything gained in the third quarter we believe that higher prices remain on the horizon for equities and the cycle is not going to end here!Read more