Friday, May 24, 2019

Summer Hours



Memorial Day begins the summer season on Wall Street.  For the most part that can be characterized by slow starts on Monday and lazy Fridays in terms of trading.  We have our own schedule for summers in terms of posting and here it is.  The rest of the summer we'll be on a schedule that will basically be either Monday or Tuesday, then Wednesday or Thursday.  We won't be publishing on Fridays unless events warrant.

Rest assured we'll break in as needed.  In the meantime, chew on this quote I saw last year about this time over at the  Abnormal Returns blog site:

Quote of the Day

"Portfolio construction is a lot like cooking. There are two equally important elements: the ingredients and the recipe. The ingredients are the signals that are used to select investments. The recipe is the set of rules used to transform those signals into portfolio allocations."

I may have more to say on this quote at a later date.

Hopefully the beginning of the summer season will bring warmer weather to the midwest and less rain!

Memorial Day Weekend



Traditionally when we lived in River Forest we would fly two American flags between this day and the 4th of July.  We haven't figured out the logistics of how to do this at our new place so we'll put up an older picture of the old place one last time to honor Memorial Day.  

The flag you see off to the side of the old "Global HQ" was carried by my brother-in-law who flew Harrier jets for the Marines in Afghanistan. We honor his service as well as the services of all prior family members and all others who have served in our armed forces.   

As always we want to honor these folks, both past and present on both sides of our families, for their service to the United States of America.  I have tried to include both immediate and extended family members, but will apologize in advance for any inaccuracies or exclusions.  Please note that any mistakes were inadvertent:

The Honor Roll  includes:
Cornelius Murray {Revolutionary War-Pennsylvania}
James Gignilliat {Revolutionary War-South Carolina}
Capt. {Brevet} William H. Murray {Civil War-Co. K. 19th Indiana Volunteer Regiment}
Col. William Orr {Civil War-19th Indiana Volunteer Regiment}
Donn P. Murray, MD {WWI}
Brig. Gen. Leigh R. Gignilliat {WWI, Supt. Culver Military Academy, 1910-1939}
Fredrick R. Hazard Jr. {WWI & WWII}
Paul C. Gignilliat {U.S. Navy}
C.M. Hazard {U.S Army}
Richard J. English {U.S. Army-Reserve}
Lt. Col.  Michael Franzak {USMC (Ret.)-Afghanistan-Distinguished Flying Cross}

God Speed and God Bless to you all!

Happy Memorial Day everybody!

Monday, May 20, 2019

Post & Comments {05.20.19}

This is a new feature I'm starting where I see something I've read or seen on line and throw out a quick thought or comment.  My response is highlighted.

This market correction we're seeing right now is only the beginning of something more ominous.  Of course it could turn out that way but so far all we've seen is a pretty run of the mill pullback.  International tensions aren't helping much with that right now, but those could be put again on the back burner soon for all we know and trade tensions with China may still be resolved.    Higher probability bet right now is still a sideways churning market within the range we showed on Friday.  {See  my post below this one.}

The US birthrate keeps falling.  That could be a permanent decline.  Maybe.  But the Millennial Generation is just entering it's prime parenting years and "Get. Z will be right behind them.  My guess is we'll be talking about a baby boomlet in five years or so.

Tariffs imposed by the Trump Administration on Chinese imports are a tax and a drag on US economic growth.  Unquestionably much of the burden will likely fall on the US economy.  That being said let's see how it plays out.  In six months if there's a deal maybe these all go away or maybe we see a suspense of tariffs if talks get back on a positive track.  Also, it remains to be seen how much of these actually comes out of our pockets in the end or how much of a dent it is on the economy.  I wonder for example if somebody's going to be deterred from buying a garden hose made in China and currently priced at say $16.00 because it will now maybe cost $20.00.  Or will that garden hose now come from Vietnam or Mexico and instead now cost $17.50.  Will Chinese companies lower the price on the hose to make up the difference?  Will American retailers eat some of the new costs?  Hard to say.  I say let's wait and see.

Lori Lightfoot become mayor of Chicago today.  She is going to spark an era of change in how the Chicago is run and managed.  I hope that's true but she's going to face stiff opposition when going up against Chicago's Aldermen.  Also the pension debt issue is one that's going to be impossible for her to duck.  Still wish her well because change in Chicago is necessary.

Back later this week.

Friday, May 17, 2019

Chart Talk {05.16.19}


I know the market has been through a patch of volatility this month. We're set to give back some of this week's gains here at the open.  However,  if you take a longer term view you can see that so far all we've done is step back from another attempt to make a run at breaking out of this trading range we've been in for the last 16 months or so.  We were very overbought at the beginning of May. Viewed against that lens then there is nothing abnormal about stocks taking a breather in order to catch their bearings.  China was just the excuse for this bout of selling.  It more than likely would have been something else if the trade talks hadn't been put on ice.  

As to what happens next, watch for clues as to how the market reacts if this rally continues in the next several weeks.  Many would view it as bullish if we continue to head higher after this decline and decisively breach our old market highs.  However, another failure at those levels would be seen by some as a more negative signal.  A triple top at old highs is viewed by many as the moniker of a failed rally.  In that instance the probability of more volatility in the weeks or months ahead couldn't be discounted.

Chart is from Tradingview.com although the annotations are mine.  You can double-click on the chart above to make it larger.  I will post here Monday and then will be traveling for the next few days.  Expect something then at the end of next week depending on when I return.

*Long ETFs related to the S&P 500 in client accounts, although positions can change at any time   We reserve the right to change any of these investments without notice on this blog or via any other form of verbal, written or electronic communication.

Wednesday, May 15, 2019

Current Market Returns

Markets are anywhere from 3-5% off their highs. With that in mind note these returns year to date via ETFs. This comes to us from the twitter feed of Charlie Bilello.
Bittcoin : +116%
Oil : +33%
MLPs : +18%
REITs : +18%
Nasdaq 100 : +17%
Small Caps : +14%
S&P 500 : +14%
EAFE : +9%
Commodities : +9%
High Yield : +7%
Investment Grade : +7%
EM : +5%
Bonds : +3%

Gold : +1%

If 2019 ended today we'd generally have a fantastic year for market returns. If prices are at these same levels by December 31st you'd have to take on about 1% for dividends and you'd still have to be happy with your performance in 2019. If you give back another 5-7% in price before heading higher then you'd still be close to double-digit returns this year. A diversified portfolio of the above investments but leaving out oil and Bittcoin would have returned you slightly under 11% for the year.

Shows you how far we've come. Shows you that a period of consolidation is probably necessary. The pundits say it's all about China and I largely agree with that right now. However, if the Chinese issues went away we'd probably be worrying about something else right now and perhaps consolidating in the same way. We've come pretty far in a short period of time and that sort of advance usually breeds a countertrend of some sort.

Back Friday.

*Long representative ETFs of the following indices in both client and personal accounts:  VNQ ,QQQ, IWM, SPY EFA, EEM, GLD  We reserve the right to change any of these investments without notice on this blog or via any other form of verbal, written or electronic communication.  Please note that not all accounts necessarily own all the investments listed above.

Tuesday, May 14, 2019

Go Read!

If you live in Chicago or Illinois go read, "What Does a Chicago Bankruptcy or an Illinois Bankruptcy Endgame Look Like?"  I'll leave the nuts and bolts for you to read in the article but below I'll set out the debt numbers listed in the article that, if correct, are staggering.  My highlights in green.

"For Illinois, the state has $31.5 billion in general obligation (GO) bonds, $15 billion of unpaid bills that are due, and, most importantly, an unfunded pension liability which grew to $251 billion on June 30, 2016. The Illinois House and Senate passed tax increase over the Governor’s veto in July 2017, but it wasn’t enough to keep Moody’s from putting the state on negative outlook with a threat to downgrade Illinois bonds to a junk rating.
junk rating means that an issuer’s bonds are too risky and not credit-worthy enough to be considered investment grade; for now, there are no states with a junk credit rating.
Unlike Illinois, Chicago’s bonds are already junk rated (Ba1) by Moody’s and are also under review for another possible downgrade. Relatedly, the deep junk bonds of the Chicago Board of Education, already rated B3, are under review for a further downgrade due to state budgetary pressures.  The pension systems of Chicago and the Chicago Public School system are also deeply underfunded, by $35 billion and $9.5 billion, respectively."
Go read the article.   Many people are unfortunately going to come to the conclusion that they will be forced to leave the state at some point.  At a minimum if you live here you need to think of ways to protect yourself if possible from the almost certain tax increases and service cuts that are likely to happen in the coming years.  

Monday, May 13, 2019

It Seems It Was About China After All

Markets are about 4% off their most recent highs set back at the beginning of the month.  That was when all hell broke loose on the China trade deal.  From what background we can find it seems that there were missed signs and missed calculations on both sides that got us to this point.  It remains to be seen where we'll go from here.  Both sides are now in the reset phase of negotiations.  All we see is public feigned  anger and the posturing that often comes at times like these.  I can remember critical negotiations with the Soviet Union as a kid over strategic arms treaties that followed the same pattern.  Many times one or both sides walked those deals to the point of breakdown only to be brought back to the table.  The reason for that is simple.  Both sides want the best deal possible for themselves and to do that requires you to bring the other side to the point where they're willing to walk away.  That way you find out where each side's real line in the sand lies.  That's where I believe we are today.  At some point we're likely to get a deal but it's probably further down the road than markets have originally believed.  Now we're grappling with the consequences of that.

Markets ran up from the Christmas lows last year posting nearly 20% returns from that point, largely on the belief we'd see a global deal that would be beneficial to both sides.  As those hopes have waned and as a probable deal gets pushed further down the road markets have struggled.  To me that's proof that a large part of this year's rally was in the end all about the Chinese deal.  Probability likely suggests a more volatile market now going forward till we get some glimmer of progress on the  China front.  

Of course there's the possibility that there will never be a deal, that the Chinese won't be able for strategic reasons be able to get to where we want them to be.  I think that's a very slight possibility but one that cannot be completely dismissed at this point.  In that case probability would suggest a longer period of time where markets need to adjust to whatever the new world order looks like when the dust settles from that.

Back Wednesday.


Thursday, May 09, 2019

And One More Thing.

Markets are experiencing their first sustained pullback of 2019 but let's all remember that we're only back to where we traded at the beginning of April in most markets.

Stay tuned.....

Two Interesting Facts

I saw an interesting piece of information the other day which stated that the top six stocks in the S&P 500 are now worth the same as the bottom 290.  The S&P 500 is market cap weighted so it stands to reason that the most profitable and successful companies over time come to dominate the index.  Those top six companies are Apple, Facebook, Microsoft, Amazon, Alphabet {Google} and Berkshire Hathaway.  Five of these are technology companies.  Berkshire is Warren Buffet.  I don't know if I have listed them in order of market cap.

Visually this makes sense when looking at different parts of the market.  The lions share of gains by sectors this year has come from technology.  Most everything else is just sort of flopping around, range bound, in patterns that now go back almost 16 months.  Only tech really has been able to break out in 2019.

I have no idea what this portends going forward.  Generally though, healthy markets show the tide lifting most boats.  Market watchers generally prefer to see broad market participation than a market being powered higher by only a select few names.

On a different note with this mornings opening sell-off the S&P 500 is down a little over 3% from its most recent high.  If this holds all day then this would mark the largest market drawdown so far of 2019.  

As I stated yesterday the next post here will be sometime early next week.

*Long ETFs related to the S&P 500 in client accounts, although positions can change at any time    Also all the stocks we named above are components of ETFs we personally invest in or own for clients.  Finally I have clients who own Apple and Microsoft as part of legacy positions.  We reserve the right to change any of these investments without notice on this blog or via any other form of verbal, written or electronic communication.

Wednesday, May 08, 2019

Thoughts {05.08.19}

I had to be out of the office unexpectedly early this week so I'll post a few things I've noticed since last week.  I'll be back here tomorrow but then no posting till early next week, most likely Wednesday.

You know I've thought we'd see a return of volatility at some point this spring.  The current impasse with China on trade and tensions with Iran are the perfect basis for markets to take a bit of a breather. We've been very over bought by my work and if nothing else this could take some of the speculative edge out of stocks.  

That being said, it does look on the surface like the Chinese are the ones who may have backtracked on whatever deal has been in the works.  My guess is a deal gets done no matter what we're hearing right now.  To me this seems more like the haggling one might find in a Moroccan bizarre than a genuine breakdown in negotiations.  This seems even more the case with the Chinese Vice-Premier still coming to the US tomorrow.  

Regarding China, go read in yesterday's New York Times,  "Xi Jinping Wanted Global Dominance.  He Overshot."

Finally in the "Things are Getting Better" department I saw this report out of Reuters yesterday that U.S.  job openings surged in March.  According to the report there are now over 7.5 million job openings in America.  Again, not a sign that a recession is imminent.

Back tomorrow. 

Thursday, May 02, 2019

A Couple of Quick Things.

I'm going to be out in the morning but I wanted to post a few comments on the weak market action of the past couple of days.  First the market supposedly went down because Federal Reserve Chairman, Jay Powell set a more hawkish tone for interest rates going forward.  He wasn't that hawkish.  He didn't say anything he hasn't been saying for months.  Investors weren't given any more candy in the form of expected rate cutes and they threw a fit.   Couple that with markets being very overbought and you had a recipe for a couple of down days.

Hard to say if this carries over into something longer lasting or deeper.  If you've been reading this blog for more than a few days then you know that I wouldn't be surprised if we see a return of some volatility and more of a sideways market for at least some period of time.  Markets aren't a one way ticket higher and sometimes stocks need some time to catch their breath.  

One other thing I noticed while reviewing the ETFs in my universe that quite a few spent most of April going nowhere.  That might be a surprise to investors given that some of our broader and more popular averages posted gains for the month.  Hard to say what that means as it could be indicative of a market under distribution or a consolidating pattern.  Markets to me though feel a bit tired.

We have now rolled over into the historically weakest season of the year.  If the past is any guide this would be an area for stocks to pause.  On the other side of that coin is that the May-September period of weakness is sometimes negated when years have such a positive start as what we've seen in 2019.

I'm not trying to predict anything when I point these things out.  For all I know we're going to rocket higher the rest of the year.  Still it is wise to pay attention to these sort of clues.  Markets often remind me of canoeing on a river.  If you've paddled that river long enough you become familiar with its terrain and features.  For instance you might know that around a certain bend there's often a sandbar that builds up depending on depth and currents.  Most times you go down the river you can count on it being there, but on some trips it's gone.  The fickleness of tides may have washed it away.  If rounding the bend on this trip you're lucky enough to not have to deal with that barrier then you can thank the water gods.  But just because it's not there on this occasion doesn't mean it won't be back the next time so you pay attention to the signs regardless.

Back early next week.

Wednesday, May 01, 2019

Illinois & It's Pension Debts


There are several ways to discuss and visualize the staggering debt issues facing residents of Illinois. On one level are the debts of the state.  This chart from late April by the Pew Trust shows Illinois debt and uncovered retirement costs as a share of state resources at over 30% of personal income.  Note that this data set is from 2013 so the numbers shown for Illinois are likely worse.  For comparison if you look down this chart you'll see that the average for the US is around 18%.  

However, Illinois has many layers of government.  Besides the state there are counties, townships municipalities, forest preserves, teacher's pensions, pensions for public employees, water reclamation districts, mosquito abatement etc.  Many of these also have pensions or obligations that are also woefully underfunded.  I don't have time to go into all of that but here are a few statistics that I'll share that show some of the depth of the problem.  No commentary and not making a political statement.  I'm just trying to show some of the facts.

"203 Billion and Counting:  Total Debt For State & Local Retirement Benefits in Illinois."  Note this number, if correct and using most recent population statistics would mean each person in the state would owe $16,111 to satisfy the debt.