Wicked. Signs of spring are all around as flowers are blooming, fruit trees are blooming and warmer days lie ahead. Jerome Powell became our new Federal Reserve Chairman at the end of January and already the groundwork is being laid for the recession of 2019. Money supply growth has reached a dribble with M-2 growing 1 to 2% over the past six months. The Fed has said it intends to raise rates 2 or 3 more times before year end.
Hamilton. Already, the stock market has begun its adjustment to higher rates and lower money growth. The Dow Jones has fallen 10% since its rise above 27,000 in January. We believe the market should approach the high again by May. Economic data continues to support a reasonably good economy through Labor Day. Fixed income investment finally looks somewhat appealing as short to intermediate yields have risen since the first of the year.
Les Miserables. Facebook (FB) has encountered some difficulty recently as the company is mining data from Facebook and selling to corporate and political entities to direct advertising. We suspect they are not alone as companies including Google, Microsoft, Yahoo, AOL, and others have massive data access to personal accounts online. Mining data is certainly the new buzzword and we have not heard the end to the controversy at Facebook. FB has dropped $24 a share since the story broke. Facebook is not a value stock as it trades 10 times revenues and 21 times earnings.
Phantom of the Opera. The other head of the two headed monster is crypto currencies, especially Bitcoin. The technology behind these non-currencies is called block chain technology which supposedly allows large international companies to facilitate payments between each other without incurring a taxable event. China and other Southeast Asian countries are the primary market for these fictional currencies. The regulatory agencies are behind the eight ball in deciding how to regulate. We are not investing in these. We believe it is the latest Tulip Bulb Craze and will end in a bad way.
West Side Story. In the United States, we have approximately 8700 publicly traded stocks in some form or fashion. We have approximately 7600 mutual funds and 4000 exchange traded funds. The enormous number of fund options makes investing complicated to say the least. In the last year, Value managers have underperformed the overall market significantly. We believe the table will turn soon and Value managers will once again perform better.
Rent. We believe that lower priced stocks which pay higher dividend yields remain the sweet spot in the market. We favor pharmaceutical, telecom’s, oil and gas, chemicals, materials, semiconductors, and agribusiness. We continue to avoid bank stocks. Additionally, believe the utilities will trade up and down with fixed income securities.
Sound of Music. The U.S. Treasury yields have recently risen along with the third interest rate increase in twelve months. Federal Reserve officials have expressed they intend to raise interest rates two more times this year. The Omnibus Spending bill announced in Mid March indicates that deficits will continue to be an estimated $1 trillion in 2018 which will be a flood of new debt to market. We do favor bonds in the 1 to 5 year maturities.
Maturity US UK EURO
1 YEAR 2.11% 0.50% -0.69%
3 YEARS 2.39% 0.86% -0.46%
5 YEARS 2.56% 1.11% -0.10%
10 YEARS 2.75% 1.35% 0.40%
30 YEARS 2.97% 1.71% 1.15%
Into the Woods. In the last ten years, the financial markets have been taken over by high frequency trading platforms that will increase market volatility for the foreseeable future. With the Dow Jones Industrial Average trading in the mid 20,000 level, we can anticipate trading swings which may exceed 1,000 points in any given day. Incidentally, this has happened twice this year and we believe the regulators currently cannot do anything to prevent such wild swings. Investors who remain long term should be the true winners in the stock market.
Newsies. The markets have been resilient as many geopolitical issues have recently come to fruition. Trade negotiations are leading to tariffs for imports on steel and aluminum. We do have complicated issues regarding trade with China, especially the theft of intellectual property. Trade agreements with Canada and Mexico are in the process of being renegotiated. We do not anticipate the severity of trade retaliation to occur as some are predicting.
Top Ten US Exports during 2017:
Machinery $201.7 billion Optical, Tech. Medical dev $82.5 billion
Electrical Machinery $174.2 billion Plastics $61.5 billion
Mineral Fuels (oil) $138 billion Gems, Precious Metals $60.4 billion
Aircraft, Spacecraft $131.2 billion Pharmaceuticals $45.1 billion
Vehicles $130.1 billion Organic Chemicals $36.2 billion
Lion King. We believe it to be an honor to serve as your investment manager and look forward to hearing from you in future.
Russell L. Robinson
Titles from: https://www.thetoptens.com/best-broadway-musicals/ top ten Musicals on Broadway.