MY MARKETS

MY MARKETS

MARCH, 2021

The month of March, with all the madness of SPACs, Bitcoin, and NFT’s was overall, a relatively decent month from a performance perspective. The S&P 500 was up approximately 4.22% for the month and 5.97% since the beginning of 2021. Today’s world of investing continues to be more difficult (and confusing) than ever before. Quality companies with decent revenue and positive earnings are selling at historically high multiples of earnings. Prices are at, or near all-time highs. High frequency traders continue to distort the markets with their enormous in and out trades which are misleading in many instances. And of course, how could we dismiss or forget Redditt/wallstreetbets, the latest bulletin board of “wisdom” and “how to get rich”.

What ever happened to the good old days of companies providing a product, customer service and earning old-fashioned real money without the assistance of extreme leverage and the government? That basically doesn’t exist in today’s world.

With the FED providing ultra-cheap money for all, companies are extending their leverage by borrowing at all-time low interest rates, and typically buying back their own stock rather than investing in their business for the long term. Of course, by buying back their own stock their revenue is divided by fewer shares, making their earnings higher…….and the top officer’s bonus larger.

The Federal Government continues to create deficits of Biblical proportions with more and more Federal programs. Of course, theory is that the centralized government can do it better; no wonder all these corporations are borrowing to the hilt with no plan in sight as to how to pay it back. If it is good for the Government, it must be good for the company. The Biden administration has already accomplished a $1.9 Trillion program with free money to almost all. Now there is another $4 Trillion program on the table; and on and on it goes with no end in sight. At some point the “Piper” has to be paid.

Will any of this ever end? And will it ever end without destroying the entire economy that has provided the most affluent society known to mankind? For the time being, nothing will change; the government cannot afford to allow short interest rates to increase significantly with a $7+ Trillion Deficit this year alone with sights on a $30 Trillion total by year end 2021. Every increment of interest rate increase will cost the government even more in interest payments which translates to even higher deficits. The public has already backed away from buying Treasury bonds as have numerous foreign governments and foreign central banks. This leaves the ultimate buyer the FED; and they pay for these bonds with fabricated money that they create out of thin air.

With FED induced lower rates, the public as well as those institutions that have actuarial requirements, have no other alternative than the equity markets. One and two percent interest will not help pension funds, endowments, insurance companies and others with adequate income to meet their future obligations.

MSA CAPITAL continues to remain relatively fully invested in the equity markets with 5.00% to 10.00% cash as we look for bargains as rotation and sector corrections continue to work their way through the markets.

Additional information available upon request.

DISCLAIMER: This message (including any attachments) is confidential and/or privileged. It is to be used by the intended recipients only. Any unauthorized use or dissemination of this message, in whole or part is strictly prohibited. I may at any time be Long, Short, or Arbitraged in any of the securities mentioned above. In addition, I may close out any position, at any time, that is mentioned above. This information is private and intended for use only by those who receive it directly from the author. These are not recommendations and the information should be used at the risk of the reader.

Interest Rates from the two year out have moved higher over the past month as well as the beginning of the year. Keep in mind that the FED controls the shorter end of the yield curve. The longer end of the curve is basically governed by the market, even though the FED does influence that part of the Curve. With the ever-increasing deficit, the FED will be forced to attempt to control the longer end of the curve as the short end becomes saturated.

Over the next eighteen months a considerable portion of the Treasury market will mature and will have to be re-financed, along side the newer $4 to $7 Trillion of new deficits; this could possibly place an enormous strain on the level of interest rates and force them higher; time will tell.

MSA CAPITAL continues to maintain shorter maturities at the expense of additional income. Preservation of capital as well as liquidity continue to be our mainstays. MSA CAPITAL continues to add new clients; anyone that you can refer (at no obligation) will certainly be appreciated.

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MY MARKETS

FEBRUARY, 2021

With the exception of two trading days the equity markets were on very positive ground in February. The Dow Jones moved from 29,982 to 30,932 with only two of the last three days declining to any major extent. On paper this really looks good, but underneath the upward movement by the Dow there was quite a bit of turmoil with many portfolios adjusting the sectors they were invested in. The S&P had a very similar look over the month as well, while the NASDAQ was another picture in total. The NASDAQ began rolling over around mid-month, but finally began to stabilize in the last four to five days of the month.

As we have stated on numerous occasions, the markets are not cheap, but there are few, if any, alternatives today. The primary reason for the decline in the NASDAQ was that many of the companies in that index are less mature, less capitalized, and in many instances simply less known. The NASDAQ tends to be the home of many of the new-commers to the public markets and many of these names trade much more expensive than the well-established names.

Additionally, many financial entities are driven by actuarial mandates and the Fixed Income sector is not providing the returns that are needed to meet those objectives. Therefore, many of these institutions such as retirement funds, insurance companies, and annuities have allocated larger portions of their portfolios to equities while decreasing Fixed Income holdings. As long as the FED continues to strangle the short end of the yield curve, more and more Fixed Income money will be transferred to equities.

During February there has also been a few notable disruptions which have appeared in the form of Robinhood, Reddit, wallstreetbets, and Gamestop. Gamestop, a ten-dollar stock moved from that level of $10’ish to a high of $483 in slightly over a week. Reddit a social media bulletin board has been the rage with many younger, less sophisticated investors (I use the term investors very guardedly) who gather in sub-reddits (wallstreeetbets) and post their views. This past month these new “investors” decided to gang up and squeeze the short positions in Gamestop and they ran the price to $483, and then back down to the 40’s and now over 100; and now back over $100. All this is a subject matter in itself and can’t be explained in this brief letter. But let it be known that many of these newer “investors” will end up on the losing side. And yes, some will make money, a lot of money, but the majority will lose. All of this activity and public notice has brought Congressional hearings (and that by the way, was a circus unto itself) and a lot of name calling; by the way one of the primary reddit players goes by the screen name “Roaring Kitty”, who supposedly made $20,000,000 on Gamestop.

MSA CAPITAL looks for the market to consolidate and continue the positive move up, albeit in a slower and hopefully, more calm manner. We continue to evaluate a few of the more quality names that have adjusted in price as the markets begin to adjust to a more normal economy.

Do not be surprised to see adjustments continue as the economy begins to reopen. Business as usual will not be “as usual”; adjustments will be made as more folks will continue to work from home. There will be fewer small businesses until the economy readjusts and entrepreneurs find newer niches in the economy; many of the “old line” businesses will simple not have the resources to re-open.

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MY MARKETS

JANUARY 2021

EQUITIES:

2020 was very different for the markets to say the least; a reasonably positive start, then the bottom fell out with the advent of the pandemic, then a race for the stars. As if that was enough, now we have the “Reddit/WallStreetBets” creating all sorts of ~~cars~~ chaos forthe markets in early 2021.

Don’t get me wrong, I see their (wallstreetbets) point; they are angry at the system, the government, the independent regulators, Wall Street and Big Banks in general….and they have a point. Wall Street, the big banks and the “elites” change the rules for their benefit and when everything gets unraveled the government taps them on the hand with a ruler (actually a fine) and away they go as if nothing ever happened. The individual is left holding the bag, an empty bag.

Now it is really not all that simple, but let’s face it, the rules are made to favor the “Big Boys”. And give some credit to these young upstarts, they have found a way to gang up on a few of the Big Boys and beat them at their own game. But do not be disillusioned, there will be people hurt in the end, and it will not be the majority of the Wall Street gang or Big Banks. Yes, a few of them may be fined a few million dollars, but in the scheme of things that is nothing for these guys who make Billions, yes that is Billions with a capital B.

I have sympathy for what these WSB people are trying to accomplish, but in the end, they do not have the muscle to move the Big Boys aside. The banks and wall street are so flush with cash and have all the lobbies on their payroll. The rules are made to accommodate the Street, but that is not all bad. If most of these rules are followed with conservative, sound research, the individual can make money over the “long haul”. It is when one attempts to be a trader and outsmart the Street where most get into trouble. Think about it, an individual with a few thousand dollars, or even a million, really, for the most part, can’t get ahead of the street with Billions at their disposal.

The other point that should be made is that the street is also investing your money and mine, through retirement plans, 401k’s, IRA’s, insurance companies and many more institutions. So, we, the individual, do get a lot of benefits from the street. All that said, there are a few loopholes that need to be changed, for the good of the system. Hedge funds can leverage way beyond the capitalization that they have. Remember Lehman Brothers, they were leveraged around 40 to 1. You and I are limited by Regulation T of the Federal Reserve Act to 50% leverage. If our account has $100,000 in, we can borrow another $50,000 on margin to invest; a hedge fund with the same $100,000 can borrow 10 times the value of his account, or 15X, or 20X or whatever, as long as his lender is comfortable with the amount.

In this most recent Reddit/WallStreetBets episode on the street, some of the hedge fund short sellers have been shorting a few stocks that have a short interest of more shares that the company has issued. You may ask how this can be; it is done through the manner in which short sellers must deliver borrowed stock to whoever buys their sale. The way the system is set up that stock can be loaned out again and sometimes again; it is the fractional lending system, just like your bank does with the money you have on deposit.

Eventually, someone will buy the last stock in this scheme and the bottom will fall out and someone will be left holding an empty stock with a horrible loss. When I was growing up this type of pyramid was very common with quarter horses;

eventually someone ended up with a very expensive quarter horse with no buyers to be found. Be careful; invest and don’t trade unless you intend to spend every waking hour with your eye on the ball.

Overall, the equity markets remain in a very positive uptrend. Prices are lofty, but there is no place to go money with yields on bonds and saving at or near ZERO. Talk about manipulation, look at what the FED has,and is doing to Interest Rates. Yes, I know they are supposed to be helping the economy stay afloat; what I see is they are keeping the Hedge funds and banks afloat, not much else. Just ask the local restaurant owner how much help he is getting. There will be a correction at some point; it is needed, but the trend remains positive and MSA CAPITAL remains fully invested, but very, very cautious.

INTEREST RATES:

There is really not much to say about Interest Rates, the FED continues to strangle rates almost to death by manipulating the short end of the Yield Curve to or near zero. There is really no end in sight for this unless inflation simply leaps out beyond the government’s ability to hide it. Our U.S. Treasury bonds are a point where they are truly a risk to buy, at least on the longer end of the curve. Think about buying a long treasury bond (30 years) for a 1.65% yield: not with my money.

At MSA CAPITAL MANAGEMENT we continue hold and invest “safe money” in short term Treasury Bills. This type of money is invested for safety not for income. Treasuries (short term) do provide liquidity by being able to liquidate for FED FUNDS the next day; that can’t be done in other places, particularly with the Full Faith and Credit of the U.S. Government.

If you have any questions or money to invest, do not hesitate to give me a call.

Sam Altimore

Principal/Owner

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MY MARKETS,

DECEMBER 2020

To say that 2020 was an unusual and challenging year is an understatement. The Dow Jones Industrial Average closed 2019 at approximately 28,538 (using closing prices) which was near all-time highs. February set a new high of approximately 29,551 on February 12, 2020.

Then the bottom fell out…..….The DJII fell to 18,951 or a loss of 9,587 points (-33.59%) from the 2019 year- end price.

The S&P 500 closed 2019 at 3,230. A high of 3,386 was established on February 19, 2020. The S&P fell to 2,237 on March 23, 2020 or a loss of 993 points or -30.74%.

The NASDAQ was the overall winner for the year with a handful of Tech Stocks carrying the load. The NASDAQ closed 2019 at 8,972; then it set a new high of 9817 on February 19th. The pandemic sell-off to the NASDAQ to a low of 6,860 on March 23rd. With the help of TESLA, APPLE, GOOGLE and a few other tech names the NASDAQ closed on December 31 at 12,885 for a 43.16% gain. Mingled amongst those few Tech Stars are many zombie companies who are selling at multiples of revenue with a profit nowhere in sight.

This dramatic sell off is one of the sharpest and shortest sell offs in the history of the markets in modern times.

March brought on draconian lock-down measures on businesses and society. Over 30,000,000 people became unemployed. Work, as we knew it then, has changed and may never return to what was once “normal”. Small businesses, particularly those in the service arena, restaurants, barber shops/salons, gyms, entertainment venues, just to mention a few have been decimated, and many may never re-open.

Eventually, as the table below shows, the Dow and S&P both recovered to all-time highs of 30,497 and 3,748 respectively. And the NASDAQ won the Blue Ribbon by closing at 12,885.

Where are we now?

The overall economy continues to recover, but quite slowly. Real estate in major cities is very mixed with a number of cities on the East and West Coast losing residents and businesses daily. Occupancy rates are at very low levels and rents are coming down in those “Coast Cities”. The financial condition of those cities is deteriorating faster than they can raise fees and taxes (and they are or will be raising taxes). These cities also tend to be the ones with the most severe lock downs….and they wonder why people are leaving??

If Joe Biden does become President, and the Georgia Senatorial Elections go Blue, look for taxes to go up; I know they say it will only affect the rich, but when has a tax only effected the rich. Under that same scenario, regulations will more than likely become more numerous, cumbersome and invasive. The best scenario is for the two Georgia Senators to be Red and we have a Locked Government and gridlock prevents anything of substance being done. It would be very difficult to see any substantive change under the current political environment; what ever happened to working for the good of people and politicians seeking bi-partisan goals and objectives?

It is my personal opinion that one way or the other, there will be a market correction in 2021. I, nor anyone else for that matter, is smart enough to know when or by how much. The fact is, we are in a recession now, with high un-employment and massive deficit spending created by easy money by the FED with a click of the mouse and there it appears, out of thin air. Eventually taxes must go up to trim the deficit. When (not if) interest rates begin to climb, the Government will have a difficult time just paying the interest on the debt; and that doesn’t even include the debt of the states, counties, cities, corporations and individual sectors.

DISCLAIMER: This message (including any attachments) is confidential and/or privileged. It is to be used by the intended recipients only. Any unauthorized use or dissemination of this message, in whole or part is strictly prohibited. I may at any time be Long, Short, or Arbitraged in any of the securities mentioned above. In addition, I may close out any position, at any time, that is mentioned above. This information is private and intended for use only by those who receive it directly from the author. These are not recommendations and the information should be used at the risk of the reader.

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MY MARKETS

NOVEMBER 2020

EQUITIES

The equity markets enjoyed one of the best individual months on record. The Dow Jones set a new high of over 30,000 and the S&P and Nasdaq quickly followed to new highs as well. Much of this enthusiasm has been promoted by the announcements of various Covid-19 vaccines, none of which have yet to be distributed. Quite a few stocks were unchanged or down as the propensity to view the future remains a bit uncertain, at best.

Many small businesses remain closed, even though there appears to be a whole host of new businesses coming on- line. None- the-less, some 20,000,000 to 30,000,000 people remain unemployed, under-employed, or on indefinite furlough. Forbearance of mortgage payments will come to an end in December and many of those homes will go into foreclosure. Most people who bore the brunt of these shutdowns and businesses being closed are truly dependent on the stimulus checks, which are only a drop in the bucket but everything helps, while congress argues like a group of school kids.

With all of this negativity surrounding us, why does the stock market continue to rally? There is simply no other place to go with investable money. Large institutions such as Insurance companies, Endowment funds, State Retirement funds, IRA’s, and 401K’s are stuck with no other option. The FED continues to punish bond holders and savers, forcing them into the equity markets for some sort of return, as they maintain a lid on interest rates at or near zero. The FED believes these actions help the economy, but they actually only help support the financial markets; do you know anyone who has been directly renumerated by the FED? Neither do I!

MSA CAPITAL MANAGEMENT continues to be close to fully invested, but with a very cautious eye open. Will there be a “Black Swan” that will trigger a selloff? Who knows, that is why it is called a Black Swan. There are numerous reasons to be very alert and conservative; here are just a few to be aware of:

1) The stock market is in a Bubble. We are at all-time highs and yes, earnings are ok for the most part, but most reports are coming off of an extremely low base, mostly caused by the pandemic. P.E. ratios are definitely on the high side.

2) The world is drowning in debt and there seems to be no end to it. As long as interest rates are forced to the zero range, Governments, Corporations, and Individuals will keep going to the well until it is dry. Eventually many borrowers will not be able to pay their loans back; then what?

3) The economy is in a state of total chaos. Businesses have shut down, workers have been sent home, real estate (office buildings) is half empty or totally empty in some cases. Many corporations will not hire back many of the workers furloughed or let go; many will continue to work remotely (at a lower salary).

4) Inflation is on the horizon; actually, it is already here. Have you gone to the grocery store lately? Crude oil is up to the mid $40.00 range from the low to mid $30.00’s; gasoline will be going higher. The FED continues to print money from thin air to bulk up their balance sheet, which now sits somewhere near $7 Trillion; eventually this money will hit the economy when it leaves the bank reserves forcing prices higher.

5) How long can the Federal Government continue to borrow and spend recklessly? Eventually the repayments will far exceed what the government can borrow to continue this charade. A number of foreign governments have already backed away from buying our debt. Are you willing to buy U.S. Treasuries at less than 1.00% for 10, 20 years? The U.S. will be good for the debt as a “last man standing” resource when all else fails, but fiscal responsibility has to come into play sooner or later.

INTEREST RATES

Interest rates continue to be held back by the FED. We do not see anything that will drastically change the FED policy in the foreseeable future. MSA CAPITAL MANAGEMENT continues to advocate very short maturities as a means of protecting one’s capital, even though you are not being paid a “market interest rate”.
In this environment safety is much more important than a fair return for those who have substantial capital. We remain all Treasuries, with a maturity of no more than three years, depending on the steepness of the yield curve.

If you have any questions or comments, please do not hesitate to call me or send me an e-mail. If you have a friend or relative who might be interested in my comments, please let me know.
Sam Altimore
Principal/Own

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MY MARKETS

OCTOBER 2020

EQUITY MARKET

The equity markets have begun to show quite a bit of volatility as we approach the elections. The broader markets declined approximately 2 ½ percent from the months start to finish. The exception was the Dow Jones Industrials which declined slightly over 4.00%. A great deal of the volatility has been either directly or indirectly influence by the “Big Tech” names. APPLE had a high of 124 on 10/12 and closed the month at 108 or down 13% from the months high. Likewise, AMAZON had a high of 3,443 and closed at 3,031, down 412 points or 12%; NVIDEA had a high of 569 and a low of 501, down 68 points or 12%. Obviously, there were exceptions to these lower closings, but these are a few of the leading names which tend to influence other participants.

There are all sorts of market predictions and expectations as to what will happen, depending on who is the author of the papers, and who he supports or who he has projected to win or lose. I have read no less that 12 to 15 different research reports on the economy and stock markets over the last few days, based on one candidate or the other winning or losing. I attempt to examine both (or all) sides and, hopefully, while keeping an open mind, come to a reasonable conclusion. I must admit, after 53 years of being in the securities and investment business I have never witnessed the divisiveness of 2020. So much for “let the best man or woman win and let’s do what is best for the people”.

At the expense of showing my age and conservatism, I see so many younger, affluent people leaning toward socialism in one fashion or another. The history of socialism that has been tried and failed in so many other countries seems to have passed right by them. Requirements in my youth were, Civics, Texas History, U.S. History, basic Economics and a Democratic Republic Government. Today, capitalism, free enterprise, free markets and a free country do not appear to be that important. Political opinions do not leave room for compromise; it is one extreme or the other, “my way or the hI-way” and to heck with your opinion. And, believe it or not, this all matters in the marketplace.

From a technical view, the S&P and Nasdaq remain above the 200-day moving average but have broken below the 50-day moving average. The Dow Jones Industrials closed below the 200-day moving average last Wednesday and remains there as of the close on Friday. For the markets to technically turn Bearish, the S&P and Nasdaq must also cross over the 200-day moving average, followed by the 50-day moving average crossing over and below the 200-day for all three indices. And that is called The Death Cross which signifies a major negative change in the trend for the market. I do expect quite a bit of volatility surrounding election day and possibly several days after the election, so these indicators should be monitored closely.

INTERST RATES

The short end of the yield curve has had virtually no change out to 5 years. Beginning with the 5-year Treasury the curve begins to steepen from 10 Basis points in 5 years to 20 Basis points in 30 years. Is the curve trying to tell us that inflation is on the horizon? That would be my best guess along with the fact that buyers here and abroad are simply noy buying into such a low yielding bond for 10 to 30 years. Many institutional buyers that must meet actuarial needs in 5, 10, and 30 years are simply not buying the longer-term bonds; they have opted for the stock market and other alternative investments. Some of that will not end well for many of those “gambles”.

There seems to be no regard for the amount of debt, the more, the better. There is no concern for repayment and repayment there must be…at some point. Currently the interest on the public debt stands at $376 Billion dollars or 7.8% of the annual Budget, with interest rates at all time lows. Interest rates will go higher, eventually, and the percentage of the budget will grow to 10.00% or higher, and that assumes that the deficit doesn’t grow.

The FED continues to control the short-term market by keeping a very tight lid on Fed Funds. Additionally, the FED continues to print money out of “thin air” and buy a large percentage of the Treasury auctions. This creates more money supply (eventually as banks convert their reserves into loans) thus pushing more money into the economy and creating inflation. When will this inflation hit the overall marketplace? Who knows; I wish I did?

For now, the risk to one’s principal is simply to great for venturing out beyond a year or two, or even better and month or two. And yes, there is no yield there, but one’s principal is safe and is liquid. And that is what is called Extreme Preservation of Capital in very volatile times.

THE ECONOMY

The overall economy continues to recover from a very deep decline in the past two quarters. GDP increased over 30.00% from the previous quarter but remained approximately -3.00% from the previous year’s same period. Much of the recent increase is estimated to be from re-stocking inventories and replenishing goods. As long as the country remains in a state of lock-down or partial lockdown it will be quite difficult to stabilize the economy. Additionally, the new remote workforce, by definition does not consume as it did when workers were going into the office. Many ancillary businesses remain only partially open or closed. Estimates as high as 30.00% are being projected for businesses that closed not reopening. Many small businesses work on very thin margins and most if not all, of any reserves are depleted, thus a lack of funds to re-open.

Unemployment will remain high and may even grow higher as businesses re-examine their needs as the economy struggles to get back to a somewhat normal state.

2021 will be a difficult year, regardless of who is elected President. This “pandemic” is in many ways more severe to the economy that the 2007-2009 debacle. Unemployment will add a strain to the economy and consumption, which is the primary driver. Congress will need to consider actually doing their job by developing some type of infrastructure projects to advance the economy in the same fashion of the WPA projects of the 30’s. Sending “free” money to people serves no purpose in advancing the economy; it only serves as a band aid which becomes useless after a very short time. There is a need for sustainable projects to give the populace jobs that will support the workers and their families over a longer duration. Additionally, these projects will need supplies and materials from the private sector, which will also increase employment and new wages.

None of this is rocket science, but congress will have to decide to “work for the people” rather than bicker and fight over their individual politics and pet projects that do nothing to enhance the economy, which is the life blood for individuals to prosper and exist.

Sam Altimore

Principal/Owner

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MY MARKETS

SEPTEMBER 2020

September lived up to expectations as being a volatile month. The DJII had an 8.09% move from the high on 9/2 to the low point on 9/23; in that same vain and on the same days the S&P moved 9.60% and the NASDAQ moved 11.81%. That said, all three major indices closed approximately in the middle of their range by month end.

Along the way, there were numerous stocks that had greater volatility than the Indices by which it is measured.

For the year 2020, stocks, in general, are up approximately 5.00%, and that is after a severe correction in March which ended near the end of that month.

The economy remains a huge question mark. Thousands of people remain unemployed, businesses remain closed, and many small businesses will probably never re-open. Lawlessness continues to be rampant in several larger cities, creating huge financial losses. AND THERE ARE THOSE WHO WANT TO DEFUND THE POLICE?? Who pays for all this destruction? Many cities and states remain locked down due to the Chinese Virus, which in itself poses many questions. What will happen to all the ancillary businesses and services the virtually live off of the in-office aspect of the economy, which is partially, or possibly, permanently reduced or relinquished?

This is all Abnormal; but will Normality ever return? No one really knows. What we do know is that many businesses were over leveraged, over expanded, and bloated with personnel. Unfortunately, our current circumstances have allowed some of these excesses to be addressed; many furloughs and outright dismissals of personnel will be permanent. A great deal of debt is being refinanced at much lower rates, as well as being extended; now if only the business itself would return?? Commercial real estate is truly a huge question mark; what if a company that occupies 20,000 square feet of space, now only needs 10,000 square feet? That is a problem for the landlord, as well as a potential legal problem for the occupant. And whatever you do, don’t forget all the small businesses and services that once catered to all those employees that either no longer work there or are now remotely working.

This is all a wait and see situation that only time will resolve, but for now, it does not put food on the table for many, many people. Stocks remain volatile, at least until the elections, and possibly a bit longer. At MSA CAPITAL we remain positive, For Now. But, we reserve the right to alter that stance at any time, given the uncertainty of the current economic and political circumstances.

As can be seen by the closing prices in the graph above, the Interest Rate market has not been an overwhelmingly exciting place to be. The spread between the 1-year Treasury and the 30-year Treasury is only 131 Basis Points, hardly enough to afford the Interest Rate Risk of investing on the longer end of the Yield Curve. Our use of Fixed Income remains a Method of Safety. Treasuries remain the strong-hold of safety with their Full Faith and Credit Guarantee of the U.S. Government; albeit, we remain three years and in on the curve to protect from potential Interest Rate Risk, if and when rates begin to rise.

Although many corporations have improved their cash flow by refinancing existing debt at these lower rates, Balance Sheets have become over-weighted with debt. Over 3,600 companies have filed for bankruptcy in the first half of 2020. The risk in corporate debt is far beyond our tolerance at these levels. High Yield (Junk) companies are trading at extreme spreads to Treasuries and should be avoided by all except those with a very strong preference for risk.

As I have stated many times before, a great deal of the economic and interest rate dilemma which we are facing today is totally on the shoulders of the FED. The FED has taken it upon themselves to create money out of thin air to bail out the U.S. Treasury financing the debt of the U.S. Had the FED done their job and maintained order in the banking system and allowed interest rates to move to “Market” levels, Congress may have (and that is a big question mark) done their job and , at least, come close to balancing the budget, rather than creating 25 Trillion Dollars of debt.

The incompetence of the FED has also allowed many “zombie” companies to exist through cheap financing, thus taking business away from the legitimate companies who operate in a sensible fashion. Additionally, entities that have traditionally relied upon a stream of interest rates to finance their actuarial obligations have abandoned the Interest Rate Markets, due to the FED’s zero rate policy, and invested in the stock market with a much higher probability of risk. Not to be political, but it is way overdue for Congress to reign in the FED and limit their power and operations.

Again, in the Interest rate markets, STAY SHORT, and preferably in Treasuries.

Sam Altimore

Owner/Principal