By Mitchell Anthony
October 21 2019
US Economy continues to ebb and flow.
The recovery in the equity markets that began in January paused in the third quarter as investors became uneasy with weak economic data on global economic conditions, as well as a deteriorating industrial sector here in America. The consumer side of the economy remains quite robust and as contributed to optimism that has kept the market on a plateau and gave sellers reason to pause.Read more
Q2 2019 - Markets advanced with defensive leadershipBy Mitchell Anthony
The US Economy continues to ebb and flow producing steady but below trend growth for several quarters. This trend seems likely to continue as the economic environment stays extremely stable with low inflation, friendly fed policy, and employment at all-time highs. The Current trends in the US economy show a mixed picture but generally improving economic fundamentals are visible. Read more
Corporate American SuperstarsBy: Mitchel Anthony
Facebook, Amazon, Apple, Netflix, and Google (The FAANG) have been the pride of corporate America for many years and have been at the top of the list of most growth portfolios. Their innovation has changed the world and given America reason to be proud of what capitalism can produce. Every economic cycle has growth leaders but these great companies have set a standard that will be remembered for decades if not centuries to come. There are always doubters and those that believe the growth leaders in our economy are somehow cheating or taking advantage of consumers of their products. We have seen this talk in the past and undoubtedly will see it again.
The political mess in Washington somehow believes that Facebook, Amazon, and Google should be broken up because they have become too big and powerful and as a result are stifling competition. This has investors concerned and their stock prices have waned as a result. Apple is suffering from a different type of political problem. They are caught up in the middle of a trade war that impacts prices for their products. As a result the growth outlook for the FAANG has clouds on the horizon.Read more
The news flow over the last few weeks has centered on Trumps attempts to level the playing field with America’s adversaries and partners. This would include China, Mexico, and much of Europe. The game at play involves global trade and Trumps desire to better position America as a major exporter of goods and services to the emerging middle classes in China, India, and Asia. Investors are always worried about change and this game at play could put America back into a whole new cycle of amazing growth similar to the nifty 50s. Thus far we have seen more pessimism rather than optimism. As a result the markets have fallen 5 to 7% on this recent news flow. Synthesizing the right decisions out of these developments is our challenge as we try to stay ahead of where investors will go over the next year as they watch Trump do what he does best - negotiate and deal. Read more
Donald Trump surprised the markets and investors last week when he announced decisions to continue to aggressively battle China and seek significant gains in a trade agreement as his reelection year approaches quickly. Most investors believed that Trump was more concerned about the short-term gains for the economy than the long-term potential that would be derived from a trade agreement. As a result investors likely believed that Trump would back off the aggressive tone he had taken previously toward the Chinese and either sign a compromised agreement or allow this opportunity to pass. This obviously did not happen.
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US equity markets rebounded at an amazing pace in the first quarter of 2019. Historically it has almost been unheard of for equity market corrections of 15% or more to be retraced at the same or better pace than what occurred during the fall. This is exactly what occurred in the first quarter of this year. This obviously has us thinking deeply about what was behind the selloff that occurred in the fourth quarter and whether it was in fact a manufactured correction by hedge funds seeking to make enormous amounts of money through a big short. We hypothesized in January of this year that the selloff in the fourth quarter was likely due to a big short put on by hedge funds and institutional investors and not likely due to fears from investors worried about a substantial change in the economic environment. This seems to be what primarily occurred. Now in hindsight there are some other observations that can be made and clearly more data is available about the economic conditions that were the headline news driving markets lower in Q4. Read more
By Mitchell Anthony
There is a reason why Facebook is the first name in the FAANG!
Facebook has become one of the most widely known companies in the world for many reasons. It has led the evolution of social media and its tools for sharing ideas, personal views, political views, pictures, and just about everything else has been widely used by Generation X, the millennials, and now the baby boomers. Facebook has learned how to monetize their products as their clients are highly sought after by anyone with something to sell. Facebook’s revenue for advertising has been growing hyperbolically and the outlook remains fantastic. Facebook has also been monetizing information they gather about what their clients do on their platform, what they share with friends, and what sites they visit. All of this has been done legally and with authorization from the clients. However, what they are doing here has been widely misunderstood by regulatory bodies and the media and anyone seeking to make a story that will sell newspapers.
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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.
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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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