MY MARKETS
MY MARKETS
APRIL 2022
“April showers did not bring spring flowers”. The equity markets experienced one of the most severe sell offs in quite some time. As the table above clearly shows the Dow Jones was off 1,414 points or 4.016%; the S&P 500 sold off 346 points or 7.523%; and the NASDAQ sold off 1,734 points equal to 12.04%. One of the key driving forces behind this miserable month was the realization that there is no more free money coming from the FED. In fact, the FED is expected to begin reducing their Balance Sheet (approximately $9 Trillion) in May. The reduction of the Balance Sheet will reduce the money supply; in other words, the process of tightening the monetary system will begin.
Additionally, the FED has already begun to raise interest rates with a 25 Basis Point increase in the FED FUNDS RATE. It is highly anticipated that in May the FED will raise the FED FUNDS RATE an additional 50 Basis Point. As I have stated many times before, the FED should leave interest rates alone and allow the marketplace and supply/demand dictate rates. In the early stages of interest rate increases, the increase will only add to inflation as interest rates are a cost of doing business and the increase is simply passed on to the end buyers. Of course, when rates finally become prohibitive to pass on, they do tend to halt inflation as businesses begin to suffer a reduction in sales and profitability and a recession emerges.
The major economic concern today is INFLATION. The FED has argued, until very recently, that the current bout of inflation was transitory. For the past decade or so the FED has attempted to maintain an Inflation rate of 2.00%, + or – a slight amount.....they have failed miserably. For over a decade the Inflation rate has held steady around 1.00% to 1 1⁄2%. Of course, my question has always been: why does the FED want Inflation at all; by definition, Inflation is a higher cost of goods and services, which is always a burden on the lower socioeconomic population. Be that as it may, beginning late last year the FED got their wish, but in a much stronger mode than expected; the rate of Inflation jumped out of nowhere to 7.00%-8.00%. And now they can’t control it!
I contend that a great deal of this current inflation is due to the economy reopening after the Government and Dr. Fauci (the Governments health czar) shut the entire economy down for almost two years. Now that people are getting out and about, eating out, traveling, and heading back to the office (in some cases), there is a strain on the supply of goods and services as the producers are just getting started producing and building inventory. Add to that, the Russia/Ukraine conflict and a great deal of imports and exports are distorted as well. After these anomalies work themselves through the economy, Inflation should begin to abate.
Now, the 64-million-dollar question will be, will the FED have the common sense to back away from their tightening posture, or will they do what they have always done and overstay their welcome and create a major recession. My “gut” tells me they will continue to abuse their office. There are already signs of the economy softening as first quarter 2022, GDP posted a decline of 1.4%.
With Interest Rates on the rise, we continue to keep our maturities within a two-to-three-year range, and we only utilize U.S. Treasuries. At some point when we begin to see rates flatten across the curve, we may extend a year or two. Obviously, we cannot predict the future, but I do not see that scenario for several months, if not into next year.
The equity markets have been Over-Bought for quite some time. I consider this setback from the all-time high, set in early January of 2022, to be a welcome pause. As the economy continues to reopen, I believe that every-day, domestic companies that produce goods and services that are utilized in every-day life will continue to expand and show positive revenue and earnings. Currently we have small positions of cash or T-Bills in most accounts and may add to that if we see disappointments in a company’s results.
This recent sell-off has also set the SPAC (special purpose acquisition company) world back a notch or two. Many of these companies were brought public at multiples of revenues rather than earnings as most had no earnings. It is estimated that close to 70.00% of SPACs that went public in 2021 are now trading well below their offer prices.
I am not particularly a fan of Warren Buffett, but his “Buy & Hold” strategy of buying basic companies has certainly worked well for him and his 98 year old partner Charlie Munger. I truly like Buffetts comments on Crypto: "If you said... for a 1% interest in all the farmland in the United States, pay our group $25B, I'll write you a check this afternoon. For $25B, I now own 1% of the farmland. If you tell me you own 1% of all the apartment houses in the United States and you want another $25B, I'll write you a check, it's very simple. Now if you told me you own all of the Bitcoin (BTC-USD) in the world and you offered it to me for $25, I wouldn't take it because what would I do with it? I'd have to sell it back to you one way or another. It isn't going to do anything. The apartments are going to produce rental and the farms are going to produce food. That explains the difference between productive assets and something that depends on the next guy paying you more than the last guy got."
Sam Altimore
Principal/Owner
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MY MARKETS
MARCH 31, 2022
The equity markets set new highs on the first few days of 2022 only to retreat and end the first quarter of 2022 with a loss of 4.50%-5.00%, with the NASDAQ down approximately 9.00%. So, what has caused this fairly dramatic shift? As many companies continue to battle with “getting back to normal”, inflation has continued to raise its ugly head and the FED has finally taken notice. Most businesses continue to be under-staffed and in many cases are having to up wages to attract qualified workers. Issues about the hybrid work format of working from home/working from office is also beginning to create difficulties with many.
With most industries struggling to get back to normal there are numerous shortages of goods and services that are forcing prices higher. Combine this with the FED’s, late to the game, interest rate increases forcing many equity players to lighten their equity presence.
Of course, the Russia/Ukraine conflict has had a very visible presence and has created considerable concern. The Biden administration, after penalizing the oil, gas and coal industries with numerous lease and pipeline shutdowns, is now faced with a 1MM barrel a day shortage from Russia. These actions have run gasoline prices from the mid to high $3.00 range to the $4.00 to $5.00 range; this has and will affect the middle and lower economic classes deeply. Transportation is essential for the working person and public transportation is basically, a non-event.
I continue to believe that a great deal of the inflation in the U.S. economy exist due to the imbalance of supply and demand. After the economy being shut down for almost two years, the reopening is causing the demand for certain goods and services to outpace the supply of said goods and services. Once this imbalance works its way through the system and becomes more in line, the price of many of these items should begin to slow and, in some cases, decline. Will we go back to the FEDs 1.75%’ish to 2.00% level of inflation, not hardly, but it should become more tolerable.
An unintended consequence of the Russia/Ukraine conflict that will more than likely have a long-term affect is the declining globalization of the economy. Many countries, including the U.S., have determined that local production is more dependable than depending on the ability of a foreign entity. This same theme could also be attributed to the pandemic period which the U.S. continues to attempt to move beyond.
Historically, April is a positive month for the equity markets (15 of the last 16 years). From a technical view, the Dow Jones and S&P500 both are currently in a positive trend; the NASDAQ is lagging behind and needs to catch up. I believe that as the economy continues to open, equities will do better. Will we have a 20+% gain by year end like 2021, probably not, but I do expect to see a positive return…barring no other unforeseen events like the Russia/Ukraine event.
ECONOMY AND INTEREST RATES
Interest rates have finally begun to rise, after 10+ years of the FED pressing rates closer and closer to -0%. The FED has basically forced rates down to these absurd low levels in three different ways:
1) The FED has set the Fed Funds Rate at or near zero percent (0%)).
2) The FED has increased their Balance Sheet by almost $9 Trillion by buying U.S. Treasury securities and U.S. Agency Mortgage-Backed Securities.
3.) The FED increase money supply out of thin air to purchase the above-mentioned securities bring the money supply to all-time highs
You may ask, where does the FED obtain the money to purchase $9 Trillion worth of securities? The basic answer is the FED created the money out of thin air, or as you may have heard it referred to, they simply printed the money. By printing $9 Trillion, the Fed has increased the money supply to levels never known before in our economy. This “free money” has allowed the government to sell very low interest rate notes and bonds that would otherwise be shunned by typical investors; the FED has been the end buyer of a great percentage of these government issues which have provided the funds for the U.S. Government to create social programs and give away checks that have benefited very few. These give-away programs flood the economy with money which is far in excess to the supply of goods and services, thus prices get pushed higher and higher until the demand slows.
The FED has been a miserable failure as far as managing interest rates are concerned. Even the stated FED objective of attempting to have inflation at or near +2.00% is a contradiction to basic economics. At a +2.00% inflation rate, prices would be increasing at an ongoing basis, therefore decreasing purchasing power. Why wouldn’t the FED attempt to keep inflation flat or as near +0.00%, thus keeping prices stable. Of course, my objective would be to allow the market set interest rates; when demand begins to pressure supply, interest rates would increase according to the market and when demand slows and supplies begin to increase, interest rates would decline allowing supplies to be held at a cheaper price. Interest rates do not deter inflation until rates become onerously high. By Increasing interest rates from current levels, there is no impact on inflation initially, contrary to “fed-speak”. By increasing interest rates moderately, businesses simply mark up their prices as interest is a cost of doing business. It is only when rates are severely increased, and businesses cannot raise prices to off-set those increases does an interest rate increase begin to slow inflation; at that point many are simply pushed out of business. As an example, my first mortgage loan was in 1971 at 7.875% on a $30,000 loan; and of course, salaries were much, much lower than they are today. Consider a $300,000 mortgage at 3.50% today: the principal and interest payments are approximately $1,077.00. By increasing the interest rate on that same $300,000 loan to 4.50%, the payments increase to $1,216 per month: an increase of $139.00. I dare say that an increase of $139.00 on that $300,000 loan would “kill the deal”. Now if that interest rate is increased to 6.00% the payment becomes $1,798.00 per month or an increase of $721.00 per month; now that would more than likely “KILL THE LOAN”! That said, it appears to me that the FED is toying with what needs to be done; either fix the problem or leave it alone; better yet, let the market set the rates.
Debt is a major problem in our economy, Government Debt, Corporate Debt, and Personal Debt. All types of debt are at historical highs, and that is in peacetime. As the FED increases interest rates, the total interest on the U.S. Government debt will increase and approximately 1/3 of that $30+ Trillion of debt will mature over the next 12 to 24 months and will need to be refinanced….at higher rates. A very large number of corporations have taken on debt, simply because rates were so low, and as the economy gets back to normal and slows, many will need to refinance that debt, and at higher rates. Individuals are up to their eyeballs in credit card debt, and those rates never get cheaper. Higher rates will bring more economic consequences across the board. It is time to pay down debt, at all levels.
There is a lot of banter about an inverted yield curve and an imminent recession. To truly have an inverted yield curve, the two-year Treasury should be at a higher yield than the ten-year Treasury; and not just on an intraday basis, but over a significant period of time …like a week or two. For now, I do not see an inverted yield curve, but that can surely change, and change quickly.
At MSA CAPITAL MANAGEMENT we continue to avoid longer term debt. All debt instruments that we hold are Government Guaranteed and do not extend beyond two years in maturity.
Sam Altimore
Principal/Owner
MSA CAPITAL MANAGEMENT, PLLC
REGISTERED INVESTMENT ADVISOR
Sam Altimore
Principal/Owner
7215 Chartwell Circle
Fair Oaks Ranch, Texas 78015-4745
PH.) 713-628-7550
830-357-8280
MSACAPITALMANAGEMENT@icloud.com
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
FEBRUARY 2022
The equity markets have experienced a great deal of volatility during the month of February. With all the banter about inflation, rising interest rates and now Russia declaring war and attempting to overtake Ukraine, the equity markets are down two days, then up one day. During times like right now, historically, it is best to take a deep breath and see how things play out. As of the close of business on February 28th. The equity markets were down approximately -3.25% to -3.50%. For the year 2022, the Dow is down approximately -8.28% while the S&P is off -9.25% and the NASDAQ is down approximately -13.25%. Obviously, 2022 has not had a good start.
There has to be some good in there somewhere and I guess if one’s portfolio has a cash reserve that would be the good. It is my most humble opinion that this sell-off is a correction (which was needed) that has been brought on by the circumstances mentioned above; inflation, higher interest rates, and the Russian/Ukraine war.
There are numerous companies that are now at levels that represent fair value. The big problem now is that there needs to be stability in the overall market, and that will take some time. Preferably, I like to see the price action go sideways for a bit after a decline like the current one. Most of these stocks that have sold off still need to have some of the weaker holders sell which may cause additional weakness. Ideally, it would be desirable to have 60 to 90 days of sideways price activity.
MSA CAPITAL continues to hold modest cash positions in most accounts looking for that sideways price action.
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ECONOMY and INTEREST RATES
The interest rate markets have had interest rates in an upward pattern for a few months. Although the movement has not been severe in absolute yield, it has been enough to scare off many bond investors. The FED has continued debating how much and how often to move rates up; only to be overshadowed by the Russia/Ukraine event. For a while a 50 Basis Point move in March seemed to be very likely only to be placed on hold in the last week or so. Combine a 50 Basis Point move in rates with an eventual roll off of the FED Balance Sheet and one quickly finds a recession at the door.
Raising interest rates alone by 100 to 125 Basis points over several months is not that big a deal alone. But, once you begin to squeeze the money supply along with that action or shortly after, that is when damage can be done, not only to the economy but to the markets as well. Knowing the history of the FED, it would not be out of the ordinary for them to push the longer end of the yield curve up (possibly in extreme) which would create a big deal for interest rates. A FED FUNDS RATE of 0 to 25 Basis Points is certainly not a significant deal; even raising that rate to 1.00% or even 1.50% is still not that important, in my opinion. But, doing that in concert with a declining supply of money could well be a big deal and the FED does not have a history of doing things the right way.
Additionally, the FED must keep in mind that approximately 30% of the Federal Debt matures over the next couple of years, and that must be refinanced....higher rates will not make that task any easier and certainly not cheaper. Inflation, to a great degree, is the result of supply issues and the fact that most businesses are scrambling to get back to “normal” after being shut down for two years. Once supply issues get back to normal and businesses get fully employed, prices may well moderate to some degree.
Again, patience is the key.
Sam Altimore
Owner/Principal
MSA CAPITAL MANAGEMENT, PLLC
REGISTERED INVESTMENT ADVISOR
Sam Altimore Principal/Owner
7215 Chartwell Circle
Fair Oaks Ranch, Texas 78015-4745 PH.) 713-628-7550
830-357-8280
MSACAPITALMANAGEMENT@icloud.com www.msacapitalmanagement.com
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
JANUARY 2022
All three major indices started the month near the all-time highs set in late December 2021. As one can see from the graphs above, the Dow Jones closed -1207 points, (-3.32%) from the previous month close. The S&P closed -251 points (-5.26%) and the NASDAQ closed -1405 points (-8.98%). The correction move by equities has been way overdue. For the most part, the markets have been on a straight path up for all of 2021 and a very good part of 2020. Of course, in March of 2020 there was the 30% correction which lasted all of 29 days before rebounding for the majority of the next year and a half.
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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The tech sector has been on an unprecedented run for over two years; it was time for a correction. Several tech companies have retreated by as much as 20% to 30% before beginning to consolidate. Earnings of many of these companies have been impacted by supply issues, while others appear to be moving right along. Be aware that volatility will be present for a while until supply issues and back to work issues work themselves out. Another factor which has become a front-page issue is trade and potential conflict with China and other foreign entities. Potential conflicts with Russia and possibly China will also have an influence on trade as sanctions become more of a possibility. Of course, our 8,500 soldiers sent by the Biden Administration doesn’t seem too much of a threat to the 100,000 Russian troops on the Ukrainian border. Wow, Joe Biden is really showing our strength.
More importantly, all three major indices closed below the 200-day moving average for 3-5 days before trading back above the average. Fortunately, all three of the major indices did not violate the Golden Cross (where the 50-day moving average trades below the 200-day moving average) which is a very major technical signal. Basic fundamentals will be more important going forward; companies will need to show positive earnings and growth to keep their stock price at or above current levels. Far too much of price movement has been dependent upon excessive money in the system and the rampant pace of algorithmic trading by hedge funds.
The next six to twelve months will be volatile, but I do believe that sell-offs should be considered as buying opportunities for well positioned companies with strong earnings and solid balance sheets. Caution and study should be the primary requisites.
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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FIXED INCOME AND ECONOMICS
The FED has stated that they will begin to tighten the monetary system to slow the pace of inflation. Of course, I do take issue with the FED policy. Raising interest rates will not slow inflation unless rates are raised to very excessive levels. Yes, if the FED raises the Fed Funds rate 3, 4, or even 5 times in .25 Basis Point increments that is a 75% to 125% move...WOW. But, in reality, that only moves the FF Rate to somewhere around 1.00% to 1.25%, which remains historically low. The only negative is that the longer end of the curve will move in concert; the 10 Year Treasury, currently at 1.50% may move to 4.00% to even 5.00%. Yes, that will impact the cost to borrow, but it is not the end of the world. Mortgage rates which are now a bit over 3.00% may move to 4.50%, 5.00% or even 6.00%; my first mortgage in 1971 was at 7.875%, and I survived. I even had a small mortgage on another house at 16.00% in 1980; fortunately, I was able to pay it off rather quickly.
My point is, with interest rates almost non-existent levels today, small incremental increase will not damage the economy, they will only be passed on as a cost to do business, and add to inflation....unless they are raised to extremes like in the early 80’s; and that is another story.
Additionally, the FED has stated that they will begin allowing their $8 Trillion Balance Sheet to run off as it matures. This action will take money out of the system as these securities mature; the Fed will have to be paid with money from the Treasury. Here is where the problem becomes detrimental to the economy. The Treasury doesn’t have the money to pay the FED, so they will have to refinance, and guess what? The FED has been the major buyer of the Treasury debt for the last several years, so now that burden goes to the general public and other financial institutions which do not wish to tie up their funds for 5, 10, or 20 years at current rates, less that 2.00%. Solution: the longer end of interest rates will have to be pushed up to get the issues sold....which equals more inflation.
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
Add to all of the above, a Federal Government with $30 Trillion in debt and things begin to get really muddy. Approximately 1/3 of that deficit matures within the next 18-24 months and will need to be re-financed (added to the FED maturities that are not being replaced) ......all at HIGHER RATES, which equals more deficit. The government and the FED have backed themselves int to the proverbial corner with virtually no way out. Inflation should subside over the coming months, but it will not go away, predominately because of the FED and the U.S. Governments incompetence. All that said, I do believe the U.S. economy will go into a mild recession within the next 6 to 12 months. Hopefully the FED will not compliment the recession by their academically stupid moves. The best thing to combat inflation as well as the deficit would be a balanced budget....but, don’t hold your breath.
Sam Altimore
MSA CAPITAL MANAGEMENT, PLLC
REGISTERED INVESTMENT ADVISOR Sam Altimore
Principal/Owner
7215 Chartwell Circle
Fair Oaks Ranch, Texas 78015-4745
PH.) 713-628-7550 830-357-8280
MSACAPITALMANAGEMENT@icloud.com
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
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MY MARKETS
DECEMBER 2021
EQUITIES
As crazy as it was, 2021 was a good year for stocks. The overall markets were up significantly for the 2021 year. Overall, the markets are overpriced with the S&P trading at a Price Earnings Ratio (P.E.) slightly in excess of 30 Times and the DJII in excess of 22 Times. In normal times these indices would be in the mid-teens. For the markets to sustain these level earnings will have to be on the very positive side. Many companies remain with partial staffs or staffs working remotely. Add to this, interrupted supply lines and employee shortages.
Earnings are showing positive in many instances versus the excessive lock downs in 2020 and very low revenue bases. 2022 will be a very tell-tale year as businesses attempt to make full recoveries from 2020 and 29021; only time will tell.
A great deal of these generous, positive moves in stocks is due to stocks being the only place for investable money to go. With short-term interest rates remaining at or near zero and the anticipation of rates moving higher, stocks remain the cheapest place for investable money to have a chance at a positive return. The FED has indicated that they will begin to raise short-term rates (Fed-Funds) in early 2022; time will tell; I’m not sure. Stock selection will be more important in coming months than in the past year. Many companies will have to re-organize the way they do business in order to work around all the new mandates and regulations that are already here and will be implemented with the new administration.
MSA Capital Management remains steadfast in owning basic domestic industries which are more-or-less necessities of life.
INTEREST RATES & THE ECONOMY
Interest rates have basically been unchanged for the year. The short end of the curve (under 1 year) was actually down a couple of Basis Points. The longer (10 years and longer) end of the curve did move by 40 to 50 Basis Points. In “normal times” a 50 Basis Point move would be significant. In this instance that 50 Basis Points represents almost a 50% move; but, reality is the move did not move longer rates beyond 2.00% which remains historically low. Longer term rates below 2.00% continues to be a “Buyers Paradise and a Saver/Investors Hell”.
The inordinately low rate environment continues to be an open invitation for excessive debt and speculation at the expense of savers and investors. Rates of this nature encourage most anyone to borrow for whatever reason, be it reasonable or be it nonsense, and there has been a tremendous amount of nonsense in the form of companies with little to no revenue (yes, no revenue , not profit)in sight. These “zombie” companies are going public and raising tons of money, which, in the end, will fail in many cases.
The FED has said that they will begin to raise rates in 2022, but that is to be determined, even in the eye of excessive inflation. It is my belief that the FED does not have a free hand to raise rates very much, if at all. The U.S. Government with approximately $30 Trillion in debt cannot afford any significant rise in rates, even if Inflation sits at near 8.00%. Approximately 30-40% of the U.S. Treasury debt will mature within the next 24-36 months; a significant rise in rates (particularly the short term) would be devastating for a U.S. Budget that has no chance in being anywhere close to balanced or even met with current tax rates at their current levels.
The sum total of this situation is that rates will probably move slightly to the up-side and taxes may well be raised. Even with these things happening the chance for a recession are, in my estimation 50-50 or better. Therefore, caution is and must be the theme for now.
Sam Altimore
Owner/Principal
MSA CAPITAL MANAGEMENT, PLLC
REGISTERED INVESTMENT ADVISOR Sam Altimore
Principal/Owner
7215 Chartwell Circle
Fair Oaks Ranch, Texas 78015-4745
PH.) 713-628-7550 830-357-8280
MSACAPITALMANAGEMENT@icloud.com
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.________________________________________________________________________
MY MARKETS
NOVEMBER 2021
EQUITIES
The equity markets made a positive move to the upside for the first ten to twelve days of November to the tune of 1.80% to 2.00%. But from that point on (around the 10th of the month) it was all downhill. The S&P fell approximately 1.00% while the Dow Jones Industrials fell approximately 4.00%. The bright spot in equities was the NASDAQ which moved up for the first nineteen days of the month by approximately 3.00% and ended the month down only - 4/10 of 1.00%.
The last week to week-and-a-half has basically all been to the downside. According to Charles Schwab 17.00% of the NASDAQ made a 52 week-low while 1/3 of the Index closed below their 200 Day Moving Average. To say that the equity markets have been volatile would be an understatement.
Does this classify as a Bear Market? I think not. Only the Dow Jones even approached the 200 Day Moving Average. Are equities over-priced? ABSOLUTELY! But there are other considerations. The extreme low level of Interest Rates can tolerate higher valuations, which exist across the board. The enormous amount of stimulus money (free money) has placed an excessive amount of discretionary money in the hands of business, individuals, and financial institutions. This money has to be spent or invested, and there is no positive returns in Interest Rates and Fixed Income; stocks are literally your only option.
MSA CAPITAL believes this most recent decline is a correction which is well overdue. As long as the FED keeps a lid on short term Interest Rates, we believe stocks will continue to be positive over the long term. (SEE Comments on the Economy below)
INTEREST RATES & THE ECONOMY
Interest rates have begun to move to the upside, but only marginally. As far as we are concerned this movement is inconsequential. Yes, the percentage is relatively large, but the actual increase in rates is only nominal and certainly will not, or should not, influence anyone one’s appetite for taking out a loan or investing in short-term debt. Longer term debt should be totally avoided at current spreads and absolute levels.
So, why is inflation flaring up, and is it truly transitory or long term? If one studies the price action of Gold and Silver, they may ask what Inflation; both precious metals are trading down and are trending down. If inflation was truly embedded, precious metals should be trading up with a great deal of demand.....that is not the case.
MSA CAPITAL sees inflation as “transitory” in that we believe it is the product of two years of pent-up demand due to the government-imposed pandemic and closures. Apply that with over ten years of FED created, inordinate low Interest Rates, several rounds of “stimulus payments” to individuals, corporations, and financial institutions, along with a year and a half shutdown of most of the economy and you have an economy that is pent up with demand.
After several months of re-opening of business, travel, and the overall economy, the demand should relinquish. This will take time providing there is little-to-no-more government interference. The markets, interest rates, and economy have a way of balancing, as long as the FED and the Government leave them alone.
MSA CAPITAL MANAGEMENT, PLLC
REGISTERED INVESTMENT ADVISOR Sam Altimore
Principal/Owner
7215 Chartwell Circle
Fair Oaks Ranch, Texas 78015-4745
PH.) 713-628-7550
PH.) 830-357-8280
MSACAPITALMANAGEMENT@icloud.com
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MY MARKETS
OCTOBER 2021
EQUITIES
After a lackluster September, the equity markets resumed their move forward. The Dow Jones move up 1,970 points or approximately 5.80%, while the S&P 500 moved up 298 points or 6.90%. The NASDAQ and small cap stocks outpaced the two senior averages with a 1,050 point advance which was a 7.20% move. These moves are in the face of 5.00%+ inflation which is debated as the beginning of “Hyper-Inflation” or “Transitory”.
The one very positive is earnings which are coming in above estimates in most cases. The one cautious element of the current earnings are the “forward projections”, many of which have been disappointing. Whether this is simply caution on the part of corporations due to the supply bottlenecks or fear of an oncoming recession, is yet to be answered. Many of these forward projections have overshadowed very positive earnings reports as far as stock prices are concerned.
We continue to look for more sideways movement in the broader indices which would hopefully provide a buying opportunity in select securities. Most of the individual stocks that are followed by MSA CAPITAL are priced at or near the top of their price range for the last several months, if not years. Our criteria are quite simple, we look for several quarters of increase revenue and earnings as well as very positive chart patterns utilizing several proprietary indices.
INTEREST RATES & THE ECONOMY
The treasury market took a rest in the month of October as participants waited for the FED meeting in early November. As can be seen in the above chart the yields out to ten years were either slightly unchanged to a couple of basis points higher, while the longer end, 20 and 30 years out, were off a few basis points.
With inflation at 5.00+%, one would think that interest rates would be climbing rather steadily, but they are not. Is there a bit of merit in the “Transitory” theory or is a there a recession in the cards. Will the FED tell us anything meaningful at their next meeting or will it be the usual “double-talk”.
Personally I do think the majority of inflation is Transitory, and by transitory, I mean that after supply and demand issues begin to work themselves out and become better balanced, inflation will moderate. Will this mean that inflation will begin to decline, NO. What this means is that the rate of inflation will moderate, even though reality will be more positive than the FED will report...nothing new there. Interest rate are way too low; but, the FED cannot allow them to be at what “market levels” would have them. With a 28-29 Trillion Dollar Deficit the Treasury and FED cannot afford terribly higher interest rates. Will rates rise, YES; but only modestly. If the FED were to allow rates to go to levels that the market demanded we would surely be facing a very near default on Treasuries, which the FED and Treasury will not risk.
Along that same line, a bit over 30% of all U.S. Treasury issues will mature within the next two or so years; just another factor forcing the FED to hold rates at or near current levels. We are in for some truly historic events in Government financing in the coming years.
If you have any questions, please do not hesitate to give me a call.
SAM ALTIMORE
OWNER/PRINCIPAL
MSA CAPITAL MANAGEMENT, PLLC
REGISTERED INVESTMENT ADVISOR
Sam Altimore
Principal/Owner
7215 Chartwell Circle
Fair Oaks Ranch, Texas 78015-4745
PH.) 713-628-7550
MSACAPITALMANAGEMENT@icloud.com
_______________________________________________________________________
MY MARKETS
SEPTEMBER 2021
EQUITIES
The equity markets spent the entire month of September attempting to hold gains from the previous months. The S&P 500 started the month at 4,528 and ended the month at 4,307; a loss of 221 points. After a close of 4,514 on September 8th, it was basically all downhill for the remainder of the month. After an 18 month move to the upside, the markets have grown a bit tired. During the 18-month period between March 20, 2020, and September 3, 2021, the S&P 500 moved from a major correction low of 2,174 to a high of 4,549. During this period the S&P only had one short period of correction and that was between September 20, 2020, and November 20, 2020, when the Index corrected approximately 400 points or 11.00%.
When reviewing the data above, the month of September 2021 deserved a rest. From a Hi of 4,549, the S&P sold off to a low of 4,262 for a loss of 287 points or -6.30%. The markets need a period of consolidation to allow the fundamentals to catch up with the price action. Personally, I would like to see the markets go sideways for another three to four weeks.
It will be interesting to see how quickly, and to what extent, companies continue to reopen and bring employees back to work. There will be many who will not return due to the vaccine mandates. First, the government, with the aid of the CDC, shut down the economy for 18 odd months forcing many small businesses out of business, and now the government with their vaccine mandates are forcing many workers to be laid off, without pay, for exercising their right to health care of their own choosing.
Additionally, it is quite interesting to note that mergers and acquisitions are at all-time highs as many companies (mostly smaller) are being forced to combine with larger institutions due to lack of employees, new mandates, and slow customer demand.
The next 12 to 18 months will be very telling as the markets attempt to interpret the “new economy”. It is our view at MSA CAPITAL that we are entering the final stages of this extended Bull Market. As we have stated many times before, we focus a great deal on PRICE, and the current price level of stocks leads us to believe that there currently remains more upside movement......FOR NOW! BUT, beware and watch prices.
NTEREST RATES & ECONNOMY
Interest rates continue to suffer from the heavy-handed practices of the FED. The FED continues to hold short-term rates at or near zero. Lately, inflation has been the focus of most, as the FED’s position is the current level of inflation is Transitory. As rare as it may be, I tend to agree with the FED, but probably not for the same reasons.
Granted, there are many backlogs of supplies with huge demand due to shutdowns and mandates. Now that people are getting out and about, they are demanding goods and services which have been shut down.....thank you CDC and U.S. Government. As these situations work themselves out and business returns to normal (whatever that may be in the future) the balance of supply and demand should begin to equalize.
Over the short-term, interest rates have gradually moved up in response to the inflation factors, as they should. Those moves are a normal reaction to inflation but will not be long lived until the FED removes its size 14D shoe from the throat of short-term rates.
The FED continues to print money like there is no tomorrow which also is contributing to inflation as cheap money is available to almost all.
The deficit has hit the ceiling and Congress has no clue how to correct the situation. To Congress and Biden, all they need to do is raise the Debt Ceiling and continue to spend away. Unfortunately, these people have nothing in mind other that “how do I get re-elected, and what special interest can help me with that task”; so, let’s increase the deficit and spend more than we take in (taxes), after all interest rates are a non-event.
I’m sorry, but these people we elect are totally out of touch.
Sam Altimore
Owner/Principal
MSA CAPITAL MANAGEMENT, PLLC
REGISTERED INVESTMENT ADVISOR
Sam Altimore
Principal/Owner
7215 Chartwell Circle
Fair Oaks Ranch, Texas 78015-4745
PH.) 713-628-7550
MSACAPITALMANAGEMENT@icloud.com
______________________________________________________________________________
MY MARKETS
AUGUST 2021
EQUITIES
All three major equity indices closed up from the July close; the Dow Jones Industrials +1.21%, the S&P 500 +2.88%. and the NASDAQ +4.00%. As can be seen, the DJIA and S&P had very narrow positive results with the S&P outpacing the DJIA due to the Tech component remaining ahead of the overall market. The NASDAQ was significantly ahead of the other two indices due to their Tech component and several “meme” stocks.
Overall, the month was quite boring. If it doesn’t involve tech, meme, zombie, or something woke it almost doesn’t exist in today’s financial news. Small “spac” companies (special purpose acquisition company) are making public market debuts like there is no tomorrow. Many (most) of these companies have no earnings to speak of and most are being sold to the public at a multiple of revenue: what ever happened to multiples of reported or estimated earnings? It is likely that many of these speculations will never make it; they will either fade away or be acquired by some other company that can utilize a product or service they have as a small spoke in the wheel of the larger company. Either way, it is probable that those that were so eager to invest in these zombie companies will lose money; oh well, in today’s world of free money, I guess it doesn’t matter to some people.
There was one event which caught our attention and forced us to make a small change: gold and silver both traded down to levels that created a “golden cross” on the downside. A golden cross is where the 50-day moving average and the 200-day moving average cross over, either up or down. Both metal’s commodity spot 50 day moving average crossed over the 200 day moving average to the downside; therefore, we sold our positions in the gold and silver trusts. We will continue to monitor this and act accordingly if the situation changes.
The markets continue to move in a very positive fashion; all three indices’ charts remain in an upward sloping 45-degree formation. It would be very difficult to attempt to trade against such a bullish pattern, and