December 2018 Market Letter

“Santa Claus is Coming to Town”… Bah Humbug.

In most years, we can see a rather clear trend for December performance. However, 2018 is an exception. The last month of the year is historically positive for stocks, and we often hear of the “Santa rally”. Given what we’ve seen the last couple months, though, all speculation is up for grabs.

November was a negative month until this past week, which marked the best five day performance for major averages in over two years. The mid-term elections, while settled, produced a “sell on the news” reaction from investors. Perhaps the Democratic takeover of the House of Representatives was larger in scope than expected, but it certainly wasn’t a surprise. Republican control of the Senate means that almost anything the House might propose will be neutered unless there is bipartisan support. The pre-Thanksgiving period was marked by angst of interest rate hikes, tariffs, and fears of worldwide economic slowdown. This past week was rescued by dovish statements from Federal Reserve Chairman Jay Powell, optimism that perhaps a truce on tariffs can be achieved at the Buenos Aires G20 meeting, and terrific consumer spending on Black Friday and Cyber Monday. All in all, November was a topsy-turvy month that required antacids most days. The sizable mood swings led to exacerbated market gyrations.

As a result, it’s hard to predict what December will bring. By the time you receive this missive, there should be more clarity on tariffs. A truce or at minimum a promise to work with China more fruitfully would be good news. Anything resembling a hardline stance will possibly eliminate last week’s nice gains. We’ll also need to see consistent language from the Federal Reserve. Yes, Powell’s words were soothing, but they can easily be contradicted by other directors’ hawkish comments.

On another front, I’m in Thailand as we speak, and will not be returning to the office until the 17th. Access to communication will be spotty, and certainly not timely due to the eleven hour time difference. If you have questions or concerns on the financial services side, my terrific team members Kelley, RC, and Christine can assist. For tax or accounting issues, please contact Angie, Mike, or Todd. It frankly gives me great confidence to leave the office in such good hands.

2018 has been a frustrating year on Wall Street, and December will either provide a nice finish or more disappointment. The past few years have been positive, so a slightly negative year isn’t out of the ordinary. Perhaps Santa will reward us with a solid year-end rally. I hope not to repeat Bah Humbug.

Most importantly during this holiday season, spend time with people you love. I look forward to sharing my Thai experiences with you upon return.

Sincerely,

Bill Schiffman

Regi stered Representative

 

 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. A ll economic and performance information is historical and not indicative of future results. Diversif ication cannot assure a profit or guarantee aga inst a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.

 

November 2018 Market Letter

Not so Happy Halloween… all tricks, no treats…

As I wrote a couple weeks ago, we’re in the midst of a long-awaited correction in the stock market. October will doubtless end up being the worst month since the tumultuous financial crisis of 2008. All major averages swooned badly, and many portfolios experienced double digit losses. Markets always go down much more quickly than they go up, and the swiftness of October’s deepening trough has been a bit alarming. Volatility has increased, but not to overly dramatic levels. We may need to see more pain before calmer waters appear.

I don’t want to sound like the proverbial broken record, but corrections are perfectly normal. Repricing simply occurs from time to time on Wall Street. Unfortunately, selling tends to beget more selling due to electronic algorithm trading programs and margin calls. As long-term investors, we have to remain patient through these thankfully infrequent cycles, scary though they may be. None of us will ever need 100% of our money at once, and we must not heed the rumbles of cognitive dissonance.

It’s difficult to pin this correction onto one specific reason. Frankly, there seem to be several:

  1. Nervousness about the Federal Reserve raising interest rates again in December
  2. Imposition of stiff tariffs, particularly between China and the United States
  3. Anxiety about the mid-term elections
  4. Poor performance in international markets
  5. Sizable run-ups in tech stocks
  6. Brexit and the potential slowing down of the Chinese economy
  7. Greater attention being paid to America’s rising deficit

We’ll know about election results next week, and that piece of uncertainty will be over. However, the others should still be on the table, and the election may spur new angst. The markets may feel a bit like 2008, but the overall divisiveness in our country resembles 1968. The concentric circles simply repeat themselves.

However, as far as stocks are concerned, I see little resemblance to the debacle of 2008. Ten years ago, banks were closing and the housing market was in a massive bubble. Corporate balance sheets were bloated with debt, and the entire world financial system was on the abyss of massive disaster. In 2018, banks, at least in the US, have never been stronger. Balance sheets are flush with cash. Earnings continue to be solid in most sectors, though very company specific. Consumers are spending money. Yes, we’ve been in a tailspin for the last three weeks, but there doesn’t seem to be significant structural damage to the economy.

Market repricing is honestly where we are right now. The price/earnings ratio, or P/E, went from a slightly elevated 16.5 at the beginning of the month to a sub-normal 14.9 this past Friday. Logically, that should begin to signal a buying opportunity at some point, and many metrics are quite oversold. We’ve had a “dead cat bounce” or two, but not the kind of capitulation that we need for this correction to be over. Patience and antacids will be necessary for a while.

I have no idea when this phase will conclude, and neither does anyone else. Pundits have theories, but I’ve lived long enough to know that markets tend to act on their own. As the famous philosopher once said, “It will be over when it’s over.” In the meantime, it’s critical that we keep our wits about us. Now is a great time to discuss your scenario with us. RC, Kelley, and I are here to do everything from speaking logically to you about this correction to holding your hand if necessary. Making sure that your long-term plan is intact is always our first order of business.

Unexpected stock downturns just happen. They’re as much a part of the process as market upside. Our job is to calmly guide you through the storm. Please feel free to call or e-mail with any questions or thoughts that you have. It certainly doesn’t feel good out there right now, but this too shall pass. If I knew exactly when, I’d be working the state fair circuit guessing weights and ages.

Thanks as always for your continued trust and support. I look forward to hearing from you soon.

Sincerely,

Bill Schiffman

Registered Representative

 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.  Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.

 

 

Mid-October Market Letter

This rare mid-month missive will be brief and hopefully to the point. We’re in the midst of a mini-correction that I’ve been predicting would happen for quite some time. The stock market had a brutal week, shedding all gains for 2018. Volume was exceptionally heavy, but orderly. The major averages are now between 6 and 8% lower than their all-time highs from late September. Markets always go down far more quickly than they rise, and this decline is no exception.

Corrections, no matter how steep or swift, are never pleasant. However, they happen occasionally and are cleansing overall for the market. I cannot tell you with any clarity how long this one will last or how much deeper it might be. I do, however, feel that there is absolutely no need to panic. The stock market may indeed be in a later portion of the nine year bull market cycle, but positive markets traditionally do not end when corporate earnings are strong. Some of the metrics are changing – higher interest rates and fuel costs, fallout from tariffs, angst over the mid-term elections. As I’ve mentioned countless times in the past, Wall Street hates uncertainty. The VIX, or Volatility Index, is embodying this nervousness as we speak. But, as the famous philosopher once said, this too shall pass.

Where should we go as investors? I’m staying put with my portfolio because I’m refusing to listen to cognitive dissonance. If the trough extends, I’ll think about putting more money to work. That being said, we’re all different, and so we as a team want to be attentive to your needs.

Market corrections are a great time for portfolio review and investment goal focus. Please let us know if you’d like to chat. As a long-time advisor, I like to think about the positives that can stem from a downturn. One important item is that we may be able to productively harvest stock losses in non-retirement portfolios. This will allow us to offset gains from earlier in 2018, and perhaps create a multi-year deferred tax asset. We had little or no opportunity to cull last year. If the markets won’t give us performance per se, we can at least enhance your tax scenario. Secondly, there are some new products that can give equities exposure with protection against negativity. We can talk about them with you if you like.

The bottom line is to breathe. It’s not comfortable out there, but it’s normal and to be expected. All of us have survived much larger corrections before by staying patient. Hang in there… try not to pay too much attention to Chicken Little. Kelley, RC, and I look forward to hearing from you.

Sincerely,

Bill Schiffman

Registered Representative

 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.  Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.

 

October 2018 Market Letter

“Believe it or not, I’m walking on air… I never thought I could feel so free… Flying away on a wing and a prayer… Who could it be? Believe it or not, it’s just me…”

This is a stanza from the theme song of the 1980’s TV series, The Greatest American Hero. Joey Scarbury became a one-hit wonder with this tune, soon to be forgotten. More on Joey and others in a bit… let’s review what happened in September:

  1. Hurricane Florence caused record flooding in the Carolinas.
  2. The Federal Reserve raised interest rates another ¼ point, causing the 10 year Treasury to inch above 3%.
  3. The price of crude oil rose to its highest levels of 2018, making fuels more expensive.
  4. Political partisanship reached a new low during the televised hearing of would-be Supreme Court Justice Brett Kavanaugh.
  5. Tariff impositions by the US and many other countries escalated.
  6. Mid-term election advertising and rhetoric began to significantly ramp up.
  7. The Cleveland Browns won a football game for the first time since December 2016.

Despite all of these unusual (and mostly negative other than the Browns) occurrences, the stock market held its own last month. The Dow and S & P 500 had small gains, while the NASDAQ fell slightly. Since September is historically a poor month, it’s gratifying to see equities holding on to 2018 modest performance. Interestingly enough, I’ve heard more folks talking about a correction in the near term than at any time in the past couple years. However, markets historically climb the proverbial walls or worry during bull cycles, and that’s simply where we appear to be at the moment. The only bubble in equities that I see is in cannabis related issues. Other than that very small sector, the market has rewarded companies with strong earnings and guidance, and punished those with weaker outlooks.

October is the month where the most severe short-term corrections have been witnessed. Yes, we’re long overdue statistically for one, but that doesn’t mean that a trough is imminent. The American economy keeps perking along in the face of negative headwinds. Where things will shake out after the mid-terms is anyone’s guess, but Wall Street has turned the other cheek so far.

Lynne and I will get a chance to hear firsthand how folks in Eastern Europe feel about what’s happening here in the States. We’re leaving Thursday for eleven days in Hungary, Austria, and Germany. These countries are quite different other than geographic proximity. They have dissimilar leadership, economies, and ways of life. At the very least, it will be a pleasure to sail the Danube and miss all of those uplifting political television ads.

Even while overseas, I’ll be closely monitoring the markets. If you have any questions or concerns that can’t wait until I return mid-month, please call Kelley King or RC Arseneau. Our trio is working extremely well together, and Kelley and RC are more than capable advisors. The transition continues to be smooth, and we’re excited about the team concept.

Now, back to Joey’s song… most of us can think of a great American hero. Recently deceased Senator John McCain was one, and so are the women who have spearheaded the MeToo movement. Given his rather egotistical performance at the United Nations last week, President Trump undoubtedly thinks that he’s THE one. But the TV series hero was actually a mild-mannered teacher who had the ability to fly. He was a common man with an uncommon talent. That’s the stuff of heroes in my book.

Stocks have been great American heroes as well, and our portfolios are the better for it. Let’s hope they continue to fly.

As always thanks for your continued trust and support. I look forward to talking with you soon.

Sincerely,

Bill Schiffman

Registered Representative

 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.  Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.

 

 

September 2018 Market Letter

“Knock, knock, knockin’ on heaven’s door” – Bob Dylan 1973

America lost two iconic figures late last month, and both were quite inspirational to me. Putting it simply, Aretha Franklin had the best voice I’ve ever heard. The daughter of a minister, Aretha was the unquestioned “Queen of Soul”. She could have been easily dubbed the “Queen of Gospel” as well. She had range, power, expression, and emotion. Rolling Stone named her the #1 Singer of all time, and she was the first woman to be inducted into the Rock and Roll Hall of Fame. Aside from her prodigious talent, what really made me R-E-S-P-E-C-T her were actions that went largely unnoticed. She was a pioneer for female artists controlling their own creative destinies. While she was a self-confessed “Diva” onstage, Aretha was actually a very private person devoted to her family. Finally, while other successful artists sought the spotlight of LA and New York, Aretha stayed in Detroit. Rock Steady.

Senator John McCain of Arizona also passed away in August. In today’s age where popularity of political officials is at a historic low, John McCain defied the trend. He was a rare breed – a man dedicated to service for our country that preferred cooperation and compromise over partisanship and tribalism. He was strident in his views and certainly never backed down from a legislative fight. That being said, he believed in discourse and had many Democratic colleagues across the proverbial aisle. It speaks volumes that former Vice President Joe Biden delivered the primary eulogy at his funeral. John McCain had a vision for America that was rooted in safety and diversity. Arizona and the United States Senate will have a most difficult time filling his shoes.

Thankfully, the stock market suffered few losses overall last month. The Dow reached the 26,000 mark, the S & P 500 eclipsed 2900 and the NASDAQ shattered the 8000 barrier. Small and mid-caps also performed nicely. Laggards on the equities side were mostly in the international realm, as US stocks continue to outperform their foreign counterparts. Fixed income and commodities were flat to slightly lower. Volume was seasonally light and volatility remained in check. All in all, another positive month. Where do we go from here?

September and October are historically the worst two months of the year for stocks. As the saying goes, though, “prior history is no guarantee of future performance”. Yes, we could easily have a garden variety correction of 5-10% at any point in time. Markets simply do this occasionally as a cleansing mechanism. Barring that, we have to look at why the rally would stop. Other than an exogenous reason like an unexpected military debacle or terrorist incident, bull markets simply don’t end because they’re tired. When corporate profitability cycles weaken, that’s a problem, but it’s one that we’re honestly not seeing now. The other is if monetary policy gets ahead of productivity and earnings. Even though the Federal Reserve will undoubtedly hike interest rates another ¼ point this month, the bond market is not signaling Treasury yield inflation. It’s my macroeconomic sense that if these two parameters stay on their present course, equities should be largely fine.

I’m certainly not intimating throwing caution to the wind. President Trump’s ongoing issues and the mid-term elections in November are wild cards of uncertainty. However, the stock market has done a fine job ignoring the vagaries of Washington during the past two months. Let’s hope that it continues to concentrate on fundamentals this fall.

On another front, the transition with W3 continues to go quite well. We’re happy here, and it stays business as usual. Thanks as always for your ongoing trust and support. We look forward to talking with you soon.

Sincerely,

Bill Schiffman

Registered Representative

 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.  Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.

 

 

August 2018 Market Letter

This letter will serve as a bit of a departure from most of my missives since I won’t be opining about politics at all. Frankly, there was so much in the way of political news flow this month that I wouldn’t know where to begin or end. Let’s simply suffice it to say that we live in very interesting times.

Besides, the markets had their own massive headlines in July. The proverbial dog days of summer are generally a bit slow on Wall Street since many traders take elongated vacations during this time. However, this month had plenty going on – some of it quite good, some not so much, and some signifying equity sea change. In no particular order, here are the high points:

  1. Equities had a positive month overall. The major averages were in the black, although the past few trading days have been difficult. Still, a decent start to the third quarter.
  2. Second quarter GDP came in at 4.1%, a mark not seen since 2014. It’s unclear how much of this is related to tax reform, deregulation, countries purchasing products before tariffs took effect, or simply business optimism. If anything close to this number is sustainable in the next few quarters to come, it should continue to be a tailwind for stocks.
  3. The ten year Treasury closed near the 3% level. This rise may be attributed to the GDP number, which may lead the Federal Reserve to enact two additional rate hikes in 2018. If so, the fixed income market would possibly continue to decline in value (interest rates go up, the value of bonds we already hold goes down).
  4. Oil prices continued their stealthy upward movement. Crude reached the $70/barrel mark. While this is good for GDP and oil producers/refiners, it’s inflationary for consumers. Some of the price action may be attributed to the summer active driving and flying season… we’ll need to see whether the trend lasts into the fall.
  5. Volatility began to pick up in the last week of trading. The VIX in and of itself was relatively placid, and nowhere near any level of short-term panic. However, individual stock volatility was quite significant. Companies that had strong earnings reports were generally treated well, with some upside revisions. However, those corporations that missed their numbers were taken to the woodshed with outsized losses.

The biggest story of July as far as the markets were concerned, though, had to do with sector and asset class rotation. While the major averages didn’t do much in the first half of 2018, a few stocks showed extremely strong performance. The “FANG” stocks – Facebook, Amazon, Netflix, and Google – led the parade. Honestly, a case can be made that without these four stocks, equities would have been in for a negative performance from January through June. Because of the large market capitalization of these companies, they are heavily weighted in index funds and exchange-traded funds. It seemed as though every fund manager had to own these names.

Unfortunately, July saw a massive reversal with regard to FANG and most other technology companies. Both Facebook and Netflix had lackluster subscriber growth, and traders punished them severely. Since gains were so prominent on NASDAQ through 20 July or so, once the selling began, the volume in these high flyers was intense. The last week of July equity trading displayed a definite shift from growth names to the value sector.

This is potentially a move of some consequence. In many prior bull cycles throughout history, a focus toward dividend paying stocks has signaled a more conservative outlook for equities. This becomes particularly more interesting since the 3% level of the ten year Treasury is getting to be more attractive for yield hungry investors.

I honestly don’t know at this juncture whether this shift is algorithm driven via machine trading or if there is substantive human direction. I’ve been waiting for a change of this type for a while, and I’m a value guy by nature. Dividends in this environment are good, and I’ve never been crazy about chasing performance in a limited number of issues.

2018 continues to be a challenging environment for asset performance. There are daily cross currents at work, and markets seem to be overloaded with decision-making information. I know that I am… had I talked about the political landscape at all, this letter would have been five pages instead of two.

We continue to monitor events closely, and will keep you apprised of major changes in the markets. In the meantime, please feel free to e-mail or call with questions or comments. Thanks as always for your trust and support.

Sincerely,

Bill Schiffman

Registered Representative

 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.  Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.

 

 

July 2018 Market Letter

“Oh the times, they are a changing”

Bob Dylan wrote this poignant and prescient song in 1964. It predated the tumultuous end of the 60’s decade and the early 70’s, at least through the impeachment of President Nixon. I’ve stated many times in these missives that conditions today in America are eerily similar to fifty plus years ago, with the exception of the military draft. History has repeatedly shown us that for every trend, there is a counter-trend. The current Trump administration lies in stark contrast to the Obama years, as did that Presidency contrast with that of Bush II. I feel that there’s a more marked difference now, however, because we’ve returned to the stark tribalism and divisiveness of the late 1960’s. President Trump has become a polarizing figure no less powerful than the Vietnam War. Let’s just look at some of the events that occurred in June:

1) Migrating families were separated at the southern border, and over two thousand children still have not been reunited with their parents.

2) President Trump had a historic meeting with North Korea’s Kim Jong Un, and also scheduled a tete-a-tete with Vladimir Putin in July.

3) Supreme Court Justice Kennedy announced his retirement, giving President Trump the opportunity to nominate his second person to the bench.

4) Trade relations with overseas partners got increasingly testy as tariff escalation continued.

5) Anti-immigration policy rallies were held Saturday in all 50 states.

6) Another mass shooting occurred, this time at an Annapolis newspaper.

Lots to discuss, to be sure. Overall, a good month for the President and the Trumpian (not overly Republican these days) agenda. The Supreme Court appointment is arguably the most critical of the above points since it will possibly shape social mores for years, if not decades, to come. Foundational issues such as women’s rights to choose and same-sex marriage would appear to be in the legislative crosshairs again. Democrats at this point are leaderless, rudderless, and feckless. The Senate successfully blocked the opportunity for President Obama to appoint a Supreme Court Justice in 2016, but Democrats seem toothless in their attempt to do the same now. Oh the times, they are a changing.

In contrast to the daily news hubbub, the stock market has had little change in the first half of the year. June began on a promising note, but fizzled at month end. The result is that portfolios are treading water with little direction in sight. Volatility has increased, and looks to remain so in the summer months as trading volume slackens. There were some anomalies in June. The financial sector ETF was down thirteen consecutive trading days as the bond market successfully resisted the 3% ten year Treasury level. Overseas markets, particularly emerging nations, suffered outsized losses as a result of tariff squawking. Even the high-flying large cap tech names were not immune to selling.

The macro story for equities hasn’t changed much. The recent quarter of corporate earnings was strong, and company balance sheets are for the most part fortresses. The effects of tax reform haven’t really kicked in yet, and they should be accretive for some time to come. Inflation remains tame, and interest rate sensitive sectors haven’t been drastically affected by increased borrowing costs. Companies are increasing dividends and buying back their own shares. This should be an optimistic backdrop, except for two major potential roadblocks.

The first of these is the flattening Treasury yield curve. The difference between the two and ten year rate is under 50 basis points. Many pundits feel that this is a harbinger for a recession. While this has been true on a number of occasions, let’s remember that economists have predicted ten out of the last three recessions. That’s not a typo.

The far greater risk in my opinion is continued tariff activity. The ripple effect of sanctions across the world involving many production categories is just beginning to be felt. I’m frankly not sure whether the powers-to-be in the Trump administration fully understand what’s happening here. Tariffs on lumber, steel, and aluminum cannot help but increase consumer costs for housing and cars. Supply chain problems are already being seen. Retaliation by other countries is hitting home. Canada and Mexico each decided to put a tariff on pork, thus lowering producer sale prices for American farmers. Soybean and corn crops may not be profitable either. On the manufacturing front, Harley-Davidson announced that they would be shipping jobs overseas. The irony here is that those who might be most profoundly affected by the tariff policies are the base of Trump’s popular support. Since the President hasn’t backed down on much during his tenure, I’m not sure that the current trade climate won’t become more toxic in the months to come.

As the mid-term elections loom in November, America will be given another chance to exercise its choice via the ballot box. Control of the House and Senate is at stake, not to mention the populist agenda of President Trump. The continued Mueller investigation could take center stage between now and then. Last Saturday’s protests might have legs… we’ll just have to wait and see. My feeling is that Bob Dylan is being America’s fortune teller again.

We’re celebrating our country’s 242nd birthday on Wednesday. Let’s not forget what created American values almost two and half centuries ago. Thanks as always for your support and trust. I look forward to hearing from you soon. Try to stay cool.

Sincerely,

Bill Schiffman

Registered Representative

 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.  Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.

 

June 2018 Market Letter

Apologies for the tardiness of this missive… we’re in the midst of doing some serious integration with W3 systems. We’ve changed our CRM software, which doesn’t mean much to you, but it’s tedious for us. We’re also in the midst of planning and creating a new website which will be a combination of the firms. Normally, summer is a slack period following the joys of tax season, but not this year.

To say the least, May was a crazy month in plenty of other areas. President Trump’s summit with Kim Jung Un was on, then off, now back on again. The Russian investigation inexorably moves ahead, and so does the pace and content of the president’s tweets. New lawyer Rudy Giuliani has been in constant attack mode attempting to continue the narrative of discrediting everyone involved in the legal process. The concept of Presidential pardoning has taken new parameters, with the possibilities of Martha Stewart and Rod Blagoevich receiving the golden nod. It’s no coincidence that they were both contestants on “The Apprentice”. Evidently, the potential abolition of guilt extends to the host of the show as well. It’s a tad incredulous that the framers of the Constitution would have foreseen someone being the judge of their own case, but that’s essentially where we might be heading.

On another front, there was a mini banking crisis in Italy in late May which caused a swoon in both equities and fixed income markets. Memories of the PIGS debacle of a few years back increased volatility overall. At that time, Portugal, Italy, Greece, and Spain were all on the brink of the abyss from a financial health perspective. The impact last month was thankfully quite muted and brief, with little contagion to other countries. That being said, the rate on the ten year Treasury rose to over 3% for a week or so. This also engendered consternation for traders, but that ship seems to have been righted now.

Equities performed decently in May, as April’s losses were mostly reversed. We’re still in a holding pattern for 2018 as far as overall performance is concerned, but I remain cautiously optimistic for stocks despite all the Washington noise. The recently concluded earnings season was quite solid. There were few downward revisions for future profits, and this should bode well for next quarter. Oil rose above the $70/barrel mark, allowing gas to hit the $3/gallon threshold. This spike has mellowed slightly, and that’s a boon for auto and airline travelers during the busy summer season. The Federal Reserve appears to be on a path for three rather than four interest rates hikes in 2018. While GDP is improving, the signs of rampant inflation are still largely below the Fed’s target. May employment numbers were also strong.

President Trump’s ever-evolving tariff policies could throw a wrench in all of this, though. We’ll just have to wait and see how the world reacts. I’m personally in disagreement with tariffs because they historically have resulted in problems for the US (witness the Hawley Smoot Act). I frankly can’t see how tariffs fail to be both inflationary for the consumer and bad for overall employment. A thought… if Boeing has to pay a 25% tariff on steel and aluminum for planes being built in the US, why wouldn’t they simply export manufacturing jobs to Canadian sources?

As we move into vacation time, Wall Street takes a breather. Traders head to the beach, and volume decreases. This paradoxically can increase volatility on the equities side. Unfortunately, I don’t have much time scheduled away from the office, so I’ll be watching things closely. We’ve got plenty of work to do on the W3 integration front, and we’re also beginning to implement our team advisory concept. It’s all exciting stuff, but not conducive to long sojourns away. Thanks as always for your continued faith and support. We look forward to talking with you soon.

Sincerely,

 

Bill Schiffman

Registered Representative

 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.  Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.

May 2018 Market Letter

“Should feel happy… should feel glad… I’m alive and it can’t be bad… But back on Planet Earth they shatter the illusion… The world’s going round in a state of confusion…. I’m in a state… state of confusion… it’s a state… state of confusion…”

The legendary Ray Davies of the Kinks wrote “State of Confusion” in 1983. Thirty-five years later, the lyrics are marvelously appropriate for where we stand. Just look at some of the news highlights from the past couple weeks:

1) Kim Jung Un of North Korea and President Moon of South Korea appear like star-crossed lovers as they proclaim potential denuclearization and the end of their multi-decade conflict.

2) Presidents Trump and Macron also cooed like enamored birds before Macron repudiated much of Trump’s agenda in a speech before Congress.

3) President Trump admitted that his lawyer/fixer Michael Cohen did represent him in the Stormy Daniels affair after claiming two weeks previously that he had no knowledge of the incident.

4) Another Presidential would-be appointee steps down before confirmation in the wake of allegations of prior misconduct on the job.

5) First Lady Melania Trump was photographed smiling. Never mind that she was sitting next to former President Obama at the time during the funeral of Barbara Bush.

It’s difficult to get one’s arms wrapped around the daily news flow, let alone be able to anticipate what might come next. If indeed the Korean peninsula is able to stabilize, it will be a major victory for both the world and President Trump. The soon-to-be scheduled meeting between the leaders of the US and North Korea could be the most important event of the year.

Amidst all the confusion and surprise, the stock market was basically flat in April. I’m honestly a bit surprised at the performance given the strength of corporate earnings thus far. Perhaps it’s the old “sell the news” concept, but most companies that have reported in this cycle have given solid results. Through the first third of the year, we’ve had plenty of roller coaster weeks, but no major progress in the averages. Fixed income is slightly down for the year, and precious metals have also been flat. About the only major movement in April has been the rise in oil prices. Crude flirted with the $70./barrel mark, and gas at the pumps looks headed for the $3 level just in time for summer driving season. Conspiracy and collusion theories are welcomed on this latter point.

One of the themes that could have held back April stock performance is the continued climb in interest rates. The ten year Treasury crossed the 3% barrier last week for the first time in several years. Perhaps this is signaling the end of easy money from the Federal Reserve. Combined with rising gas prices and the specter of a Democratic flip of Congress in November, the uncertainty of the macro climate hasn’t helped equities growth.

That being said, I’m still cautiously optimistic that the stock market will begin to reflect earnings power at some point. If equities are so expensive, why did we have two more sizable merger/acquisition stories today (Sprint/T-Mobile and Marathon Oil/Andeavor)? Even though volatility has increased substantially this year, that doesn’t mean that the multi-year upward trend can’t be continued. The macroeconomic backdrop remains the same – low interest rates, solid corporate earnings, strong balance sheets, and perhaps a whiff of world stability if the Korean peninsula initiatives pan out. Let’s continue to be patient.

I’m pleased to say that our new relationship with W3 is going quite well. As I mentioned, their culture and business models parallel ours closely. We haven’t had any staff changes and thankfully there’s been very little client movement. We’re excited about the future, and we’ll be integrating best practices between our firms as the year goes on. I appreciate your continued support and trust.

Instead of dwelling on the seemingly perpetual state of confusion in American politics, let’s enjoy the lovely spring weather. The equinox might have been late here in the Midwest, but it’s in full bloom now (or so my allergies tell me). I look forward to talking with you soon.

Sincerely,

 

Bill Schiffman

Registered Representative

 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.  Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.

 

April 2018 Market Letter

“Mourn as a nation, rule as a mob… kill for an insult so slight… the further they plummet, the blinder they are… each one believing they’re right.”

“I’m the monster, I exist… On this summit I am lost… On its slopes I’ve seen… The world as she was meant to be seen…”

You can interpret these lyrics from the 2009 song Insatiable (Two) by the Austin alternative rock band And You Will Know Us by the Trail of the Dead however you like. Yes, it’s the apex of tax season, and I’m working more hours than ever before. At the same time, I need to comment on this week’s massive market selloff. The last five days were the worst week since January 2016. All major averages are well into the red for 2018, and the VIX, or Volatility Index, has risen by over 150% in the last six weeks. The sheer weight of the numbers is crushing- the Dow Jones Industrial Average shed over 1400 points to its lowest level since last November, the S & P 500 Index lost over 5%, and NASDAQ broke through the 7000 mark. What caused all this, and where are we headed?

There are several reasons for this correction, not the least of which is that moves of this type are normal. However, this week was immensely ugly, exacerbated by a confluence of events leading to an atmosphere of utterly no certainty on Wall Street. In no particular order, here’s what happened (remember that I’m only hitting the highlights and it’s only for one week):

1) After walking back on most of the rhetoric of his steel and aluminum tariffs, President Trump announced a new multi-billion dollar set of tariffs on China. The Chinese quickly retaliated with a list of ten US industries that they would potentially impose tariffs upon, and gave detailed evidence and specifics. As is typical of the President, there were few specifics of his plan, and it appears as though the Chinese have the upper hand here. They own a significant amount of our Treasuries, and could elect to dump them for spite if nothing else. We also import far more of their goods than they do ours. I can agree with the idea of negotiating a more balanced trading relationship between the two countries, but this rash act sent world markets reeling. It’s ironic that President Trump was touting his record as the greatest creator of equities wealth ever, but isn’t addressing Wall Street’s reaction to his edict.

2) The Federal Reserve raised interest rates ¼ % on Tuesday afternoon. While this move was almost universally expected, the tone of new Fed Chairman Jay Powell was perceived by some as a bit hawkish. In another ironic twist, even though rates were increased, the yield of Treasuries actually decreased in the face of the tariff brouhaha.

3) Speaking of hawkish, President Trump fired National Security Adviser H.R. McMaster (although McMaster allegedly resigned) and replaced him with former US ambassador and Fox News analyst John Bolton. Many of us remember Bolton as the far-right fringe of the neocons in Bush Two’s administration. As of late, Bolton has written op-ed pieces in the New York Times and Wall Street Journal calling for intervention strikes in Iran and North Korea. He also stands by his decision to have promoted the wars in Iraq and Afghanistan.  A note of further irony here as few pundits have brought up Trump’s anti-Iraq war stance during the nomination process.

4)   Former CNBC personality Larry Kudlow took over as Chief Economic Adviser. Even though Kudlow has long been an ardent supporter of free trade, he took the job nonetheless. It is rumored that Kudlow had to agree with the President’s decision on Chinese tariffs in order to be offered the job.

5)   Facebook was guilty of a massive data scandal last weekend. Their top executives, Mark Zuckerberg and Cheryl Sandberg, violated every basic principle of public relations by waiting until Thursday afternoon to offer apologies. No independent investigator has been named to ferret out the reasons for the breach, and the stock lost over 12% on the week.

6)   If Robert Mueller’s investigation weren’t enough to make the President seethe, three women have recently accused him of having an affair with them and then paying hush money through a third party to keep them quiet. Let’s not forget that the road to President Clinton’s impeachment proceedings began with his lying to a grand jury about his dalliances with Monica Lewinsky and Paula Jones.

A lengthy list to be sure. As the noted 1960’s satirist Tom Lehrer said, “That was the week that was”.

Despite all of these newsworthy events, I refuse to panic. I mentioned in my last missive that traditionally a double bottom forms following an initial correction. From a charting technical perspective, that’s what we’re watching here. We’re testing the 200 day moving averages as we speak. The usual leaders in the markets, technology and financials, have been replaced by energy and utilities. That’s certainly not a good sign because the latter two sectors comprise a very small percentage of market capitalization. Sentiment seems to be getting more bearish, but that might be a decent harbinger that we’re getting a bit oversold.

Let’s be realistic. Facebook’s gaffe isn’t going to send the masses searching for another social media platform. There might be more government scrutiny ahead for the companies making money from our data, but Facebook basically prints money, and a lot of it. I am, though, worried about Trump’s White House now being almost wholly comprised of sycophants. Only Chief of Staff Kelly and Secretary of Defense Mattis remain as potential dissenters to Trump’s ever-evolving worldview.

In the end, markets have weathered political crises throughout history. A nasty trade war wouldn’t bode well for anyone, but Trump has walked back from the brink many times. He’s gone from trolling Kim Jong Un to scheduling meeting with him. On Friday, he signed a government extension spending bill even though it didn’t satisfy his DACA wishes or fully fund his border wall. The fact that November’s midterm election currently looks problematical for Republicans could influence policy. Even Trump has to realize that a Democratic takeover of the House and/or Senate would effectively neutralize him.

In the meantime, try to breathe normally. Basic fundamentals haven’t changed much even with all of the extant noise. We must all try to cut out the clutter and stick to our long-term plans. I’ll report back after the tax dust settles.

Sincerely,

 

Bill Schiffman

Registered Representative

 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.