MY MARKETS

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 certainly not for the faint-of-heart. It is our opinion that this pattern will remain until the FED allows interest rates to rise to levels which are much more appropriate for the type of economy that exists today.

INTEREST RATES

Interest rates remain at the mercy of the FED; the FED is intent on keeping the shorter end of the Yield Curve at or near zero. In the real-world, short-term rates should be in the neighborhood of 3 1⁄2 % to 5.00%. Unfortunately, due to the incompetency of our Congress and their lack of discipline concerning budgets, we truly cannot afford higher rates. Most foreign governments have stopped buying our U.S. Treasury debt, and some are even selling what they have. The FED is buying upward of 60% of all new Treasury debt by creating money out of thin air..........talk about zombie! Former “Bond King” Bill Gross of PIMCO has stated that bonds are “pure trash” and he wouldn’t touch bonds, of any type, at these levels. During the 80’s, 90’s and early 2000’s Gross managed more bond money than anyone in the world; so, I would offer that his statement about bonds being trash is quite an significant statement.

MSA CAPITAL MANAGEMENT continues to maintain all bond money very short, three years or less and in U.S. Treasuries. Our Bond clients utilize very short-term U.S. Treasuries for safety and liquidity. Additionally, we will use U.S. Treasury Bills as a substitute for cash. U.S. Treasuries are Full Faith and Credit of the U.S. Government and can be liquidated and payable in FED FUNDS the next day.

Economically, the economy continues to rebalance the supply and demand of products and services, albeit very slowly. There is a faction of the workforce that may never go back to work and the work from home idea is becoming more of a permanent concept than originally thought. It is our opinion that once things “get back to normal” the economy will continue to slowly move forward, but certainly not at the pace that many economists are projecting. The Federal Debt at approximately $28 Trillion will become even more of a burden than it already is. It will continue to have to be expanded just to pay the interest on the existing debt. All of this will also weigh heavily on inflation as the money created out of thin air by the FED is funneled through the banking system.

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

www.msacapitalmanagement.com

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MY MARKETS

JULY 2021

The month of July was rather slow and boring, except for two trading days in the middle part of the month. All three indices traded within a very narrow range for the first eighteen days of the month; then on the nineteenth all three indices had the bottom fall out, with the Dow Jones Industrials falling 725 points from the close on the eighteenth.

All was not totally lost as the twentieth, the next day, brought a gain of 549 points, leaving only 176 points to get back even. And get back even, the DJI did; setting a new high at 35,144 on the 26th of the month.

A one-day loss of 725 points is not the end of the world, but it is a 2.00% (+/-) loss which is nothing to sneeze at. Why all the volatility one may ask? As I have stated many times before the FED is the basic cause, in my most humble opinion; and the FED will be the cause of a huge correction sometime in the not-too-distant future. I do not know how to define “not too distant future”. The FED continues to pump liquidity into the economy by creating money with the “click of the mouse” and at some point, which may be beginning now, that money will flood into the economy creating huge inflation.

Interest rates at today’s extreme low levels, do nothing but force investors to scramble to find a positive return; today that is the equity market. A tremendous amount of money that would normally be invested in C.D.’s, Bonds, Muni Bonds, and other Fixed Income investments is now flowing to stocks. Why would any sane person buy a ten- year bond, much less a longer maturity, yielding 1.00%, 2.00%, or even 4.00% with inflation knocking at the door.

Unfortunately, the FED is watching employment more than inflation and waiting until employment gets back to normal (whatever that is). The thing that the FED refuses to admit or understand is employment may not get back to normal anytime soon. In today’s world of “everything is free”, many former employees are more content collecting unemployment and other Government handouts than working. And who can blame them; many had low paying jobs and these freebies are about the same without having to work.

The economy is racing to get back to normal, but much of this hyper growth is pent-up demand which I believe will fade as the built-up demand diminishes and inventories begin to rebuild. Another factor facing many workers is that many jobs have been replaced with technology and automation. Big business will definitely use these lockdowns as a means of cutting back on employees as well as consolidating many duplicate operations which can save on the bottom line.

So, where do we go from here? As I stated above the equity markets are the best alternative for a positive return; just be aware of what is around the corner. I am a chartist as well as following the fundamentals of individual companies and the economy. I was taught many years ago by one of my mentors that everything starts with individual prices, and finishes with individual prices. The trend line of the three major Indices remains very positive in an almost perfect 45-degree upward slope. There are a number of proprietary algorithms that I follow on a daily basis (and a couple on a tick- by-tick basis); I will watch for these trends to begin to decline. Always remember, the equity markets are not risk averse.

As far as individual stocks, I remain very conservative, investing in basic industries that are familiar and one can actually see the products produced by those companies. We continue to avoid most, if not all, of the Tech World; the valuations are far too rich, as well as having high volatility.

I do believe that when the FED begins to raise interest rates the markets will be adversely affected. But one never knows what the Government will do; for the most part they are a huge bureaucracy where the right hand has no clue what the left is doing. Just be aware.

Most of the afore-mentioned points are a full discussion in themselves, but with limited space here. If you have any questions or wish more specifics, please do not hesitate to contact me. Additionally, if you have friends or relative who may be in need of assistance with their retirement or investment funds, I would be more than happy to discuss their situation, without obligation.

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

MSACAPITALMANAGEMENT@icloud.com

www.msacapitalmanagement.com

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MY MARKETS

JUNE 2021

EQUITIES

Financially speaking, we live in a very strange world today. Today, “SPACS” (Special Purpose Acquisition Company) are virtually an everyday event. A special entity is set up, with no commercial operations to raise capital through an Initial Public Offering for the purpose of acquiring an existing company. That all sounds good; problem is a great number of these companies being acquired have only been in existence for a short while, and many have never made a profit, zero, nada, none. Many of these companies sell at huge multiples of revenues, yes, revenues, not earnings......because they have none. And many of these new offerings take off like a rocket.

Does that make sense to you? Not to me. I will stick to the old-fashioned method of investing in companies that make money. That said, even many of the investments I have made over the years, at reasonable prices and multiples of earnings are now out of sight. The average P.E. Ratio of the S&P 500 is now in excess of 40 Times Earnings, up from a “long time” average of 18-22X.

Another new “investment” (investment is used very lightly and cautious here) is Crypto. Crypto is, weather it is Bitcoin, Dogecoin, or Bunny Coin, nothing more than a computerized Algorithm.
Nassim Taleb, the author of Black Swan, recently stated that Bitcoin is worth ZERO, and there is no evidence that blockchain is a useful technology. I am not sure that I totally agree with Dr. Taleb, but I will certainly not debate him. I have read his book, Black Swan, and it is far beyond my level of intellect. Even though I may disagree, to a very minor extent, I do not believe that the Crypto Craze is all that it is made out to be. When you own a Bitcoin, what do you own? You have an interest in a computerized algorithm which is controlled by someone else. There is nothing physical about it. What if the servers go down? How do I get my ownership? Oh well enough about crypto.

So, what are our options today? With the FED forcing interest rates to a range of 1⁄4 of 1.00% on the short end of the curve to barely over 2.00% for 30-year Treasuries, there are literally few options; equities are the easiest and most common replacements for money that must have a positive return. Retirees, entities that require an actuarial rate of return cannot exist on today’s bond returns. Thus, a tremendous amount of Fixed Income money continues to flow to the Equity markets. Until I see Interest Rates begin to make a move to the upside, equities remain the place to be. Additionally, the charts, which I follow closely, remain extremely positive. All of the major indices remain in virtually a 45-degree upward trend. There has been a bit of rotation out of certain industries for modest corrections of 5.00% to 10.00% or so. For the most part this rotation has been moderate and orderly.

For the Year-to-Date period ending June 30. 2021, The Dow Jones Industrials advanced 3,875 points or 12.65% and for the Quarter ending June 30, 2021, the Dow improved by 1,386 points or 4.18%. For the same time frames the S&P 500 improved 533 points or 14.16% Year-to-Date and 330 points or 8.31% for the Quarter ending June 30, 2021. The NASDAQ made similar improvements of 1545 point or 11.92% Year-to-Date, and 1,381 points or 10.52% for the Quarter ending June 30, 2021.

INTEREST RATES

The FED continues to buy Treasuries and Mortgage-Backed Bonds at a clip of 80 billion or more per month simply with the click of a mouse and the money comes out of thin air. Recently there has been a great deal of concern over inflation. As those of you who know me well, you know I hardly ever agree with the FED. So, hold your seat, I actually agree with the FED, that most, if not all, of the recent inflation, as well as going forward, is transitory (for the most part).
Consider the fact that the economy was shut down for an entire year to fifteen months. Manufacturers as well as most end user businesses shut down or slowed the production and purchase of products that had begun to accumulate in inventory. Now that the economy has begun to reopen, there is pent up demand in many areas.
Inflation will continue to modestly increase as these deficiencies continue. My best guess, (and that is what it is, a guess) is that as these deficiencies are worked off and supplies become more available, and inventories return to a somewhat normal level prices will flatten and to some extent decline in certain areas. Most of this should subside toward the end of this year or the first quarter of next year. Even Commodity prices, which were reaching all-time highs have now begun to roll over and subside to some point.

But don’t get me wrong, we are having Inflation, just look at your grocery bill, your gasoline purchases and housing, but those are not the type of inflation that the FED and the Government measure. Inflation and how it is measured is another story all to itself and is due a full investigation; maybe at a later date.

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

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

APRIL/MAY 2021

EQUITIES

The equity markets basically moved sideways in April with several sectors taking a breather after a significant move forward the fist three months of the year. A short correction of approximately five per cent was actually a healthy move. May brought on even more sideways and lower prices with profit taking in the tech sector.
The April/May market basically treaded water before moving forward toward the end of May. This two-month consolidation is actually very healthy for the market as it allows the fundamentals of most companies to catch up to the advancing price movements of the last twelve months.

Reality is, the FED controls the equity market with Interest Rates. The FED cannot afford to allow Interest Rates to move significantly higher due to the cost of financing the Federal Deficit. As long as interest rates are at levels that basically have no real yield, the equity markets are the only game in town. Real Estate is out of sight and possibly in a bubble and most commodities are at or near all-time highs; there simply is no place to invest except the equity markets. As long as the trend is literally straight up and interest rates at or near zero, MSA CAPITAL will remain invested in equities (subject to change at any time).

U.S. TREASURY YIELD CURVE

Over the last two months interest rates have trended slightly down. From the end of March until the end of April the short end of the Curve remained flat, but the longer end maturities beginning with the five year began to decline. Now keep in mind while this was happening talks of higher inflation began to make it’s way into the news, almost daily. But have no fear, the FED has assured us that this is only a transitory problem and will go away after the economy returns to “normal”, whatever that is.

To some extent, I can almost go along with the FED on this one (shocking). Many businesses were either shut down or cut back during the last twelve months of the “pandemic” thus getting back on-line will take time. Combine that with pent up demand from consumers who have basically been shut in for the last twelve months and causing huge demand and little supply. The big question is, how long will this last. Additionally, labor and workers, in general, are not back in full force, adding to the problem. In many cases companies are having to increase wages to attract workers, many of which are doing just fine while on unemployment and stimulus checks. Once again, the government adding to the problem, thus prices begin to increase.

While all this is happening, the FED continues to have a “choke-hold” on short-term interest rates, as well as beginning to buy more Treasury Securities on the longer end of the Yield Curve. The Federal Government continues to spend Trillions of dollars that they do not have, while “real” investors walk away due to extreme low yields. So, who buys all these deficit induced Treasury Bonds to finance the deficits? The FED, that is who; just with the click of a mouse they create money out of thin air that funds their purchases of Treasury Securities, running the total Federal Deficit in excess of Twenty-eight Trillion Dollars ($28,000,000,000,000.00 +/-). Interest Rates are on hold until the FED can figure out a way to finance the Federal Deficit.

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

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.
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

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.

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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