MY MARKETS

MYMARKETS

7/31/2019


EQUITIES

INDEX CLOSE      6/28/19      CLOSE 7/31/19         +/-               +/-%

DOW JONES       26,599         26,864                          +265          +0.99%

S&P 500                  2,941            2,980                            +39          +1.32%

NASDAQ                 8,006            8,175                          +169          +2.11%

TREASURY YIELD CURVE & INTEREST RATES

DATE           1MO       6MO         2YR         3YR          5YR          10YR          30YR.

6/28/19      2.18%    2.09%    1.75%    1.71%     1.76%     2.00%       2.52% 

7/31/19      2.01%    2.10%    1.89%    1.84%     1.84%     2.02%       2.53%

The month of July was basically flat for the month. The market is basically fully priced and that is why we have maintained anywhere from 15 to 25% in cash/Treasury Bills in most equity accounts. A correction is definitely in need to force valuations to a more reasonable level. (As this is being written over the weekend after month end, a correction (sell-off) may have started). 

MSA CAPITAL MANAGEMENT remains cautious about the equity markets and we will look for opportunities to reduce profitable positions given a higher market. But, because we do have adequate cash positions we would be selective buyers with a continuation of a sell off.

Trade and Tariffs remain the center focal point among the markets. It is obvious that these negotiations are far from over. My “gut feel” is that the Chinese will draw these negotiations out until the elections next year. It is my belief that the Chinese have concluded that Joe Biden, should he win, will be a pushover and things will be “business as usual” and the Chinese will continue to take advantage of the U.S. just as they have for several decades. The one consideration that they (the Chinese) may want to consider is that if Donald Trump succeeds in his re-election bid, he may be tougher than ever and the Chinese will be even bigger losers than if they were to settle now. The trade and tariff situation could change everything depending on evidence of progress.  

As far as economics and employment are concerned, the U.S. must come to a sense of reality that we are simply not competitive as far as labor and manufacturing is concerned. China, and others, as far as that is concerned, have much cheaper labor than we have here in the U.S. China has a basic manufacturing labor cost of approximately $5.00 per hour vs approximately $25.00 per hour here in the U.S. As long as U.S. manufacturers are tied to labor unions and their demands the U.S. will have a difficult time competing in the manufacturing sector. The one promising advantage that U.S. manufacturers have is technology where tech replaces a great deal of the labor factor. A huge portion of jobs here in the U.S. tend to be in the service sector which have a lower pay scale.

There continues to be a great deal of chatter about recession. I do not see that, as of now. Business is obviously slowing, but remains positive and should continue for the time being.  All the chatter about an inverted yield curve is simply that, idle chatter from most who have yet to see more than one or two cycles. Traditionally an Inverted Yield Curve exists when the 2 YR. Treasury Yield is higher than the 10Yr. Treasury Yield…..we are not there yet. And a one day occurrence doesn’t count.  

Interest rates continue to decline as more and more foreign debt becomes negative or very near negative. This decline abroad force money to the highest paying yield, and that would be the U.S. Treasury market. Even though I have no love for the FED, they do have their back to a wall in that with our rates so much higher than others the dollar continues to strengthen causing our goods and services to be expensive. Therefore the FED is forced to try to drive our rates lower and possibly scare some of the foreign funds away. There is over 14 Trillion dollars of negative rates worldwide and the number is growing daily. This is lunacy as the Euro and others are simply creating money to finance their social and political programs. All of this money is created with the stroke of a key on a computer; I call it “Funny Money”. Sooner or later this will not have a pleasant ending. The money supply is being expanded like never before in history, and the payback will be extreme inflation at some point. These policies allow companies with no earnings, and possibly no prospect of any earnings, to borrow at a sub-par interest rate and take business away from valid companies. Additionally, many of these zombie companies will soak up a lot of capital from investors, only to go away in bankruptcy, or fraud. Rates will more than like likely head lower, but who knows when the door shuts.  

For that reason alone we remain VERY SHORT with out Fixed Income, in an attempt to avoid duration risk. Our preference remains the U.S. Treasury market for fixed income, even though we give up some yield; we would rather live to fight another day. And yes, the U.S. could go broke as well; but, everyone else will have already gone bye-bye and we will have had time to liquidate and go to GOLD, SILVER or whatever is safe.  Be aware, this next blow up in the markets will make 2007, 2008, & 2009 look like a Sunday School Picnic.

Sam Altimore

Owner/Principal

MSA CAPITAL MANAGEMENT, PLLC

REGISTERED INVESTMENT ADVISER

Sam Altimore

31711 Wild Oak Hill

Fair Oaks Ranch, Texas 78015-4106

PH.) 713-628-7550

MSACAPITALMANAGEMENT@icloud.com

www.msacapitalmanagement.com

“Invariably, investors who disregard where they stand in cycles are bound to suffer serious consequences”.....HOWARD MARKS, OAKTREE CAPITAL

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

JUNE 28, 2019

EQUITIES

INDEX                CLOSE 5/31/19    CLOSE 6/28/19    +/-              +/- %

DOW JONES   24,815                     26,599                    +1,784      +7.18%

S&P 500           2,752                        2,941                        +189         +6.86%  

NASDAQ          7,452                        8,006                         +554         +7.43%


TREASURY YIELD CURVE & INTEREST RATES

DATE          1 MO.    6 MO.     2 YR.      3 YR.      5 YR.       10 YR.      30 YR.

5/31/19     2.35%  2.35%    1.95%   1.90%   1.93%     2.14%     2.58%

6/28/19     2.18%   2.09%   1.75%   1.71%   1.76%     2.00%     2.52%


The month of June was a very positive month for equities as yields continued to drop.  The prospects for an easier FED and a prospect of the trade wars and tariffs appeared to move in a positive direction.  Additionally the economy continues to trudge ahead, albeit at a slower pace. 

I do have concerns with an economy that has continued to extend to an all time length and a market that races to all time highs. One of the wisest investors I have ever known had a saying (and a practice) of “when everyone loves the market, I tend to hate it; and when everyone hates the market, I tend to love it”. I believe that some of that saying is beginning to set in with me.  The market is basically over-extended in my opinion.  New IPO’s are ever present with no basic earnings and in many cases, no expectation of earnings…..that makes no sense.  A lot of jockeying around with things like Bitcoin and other “digital type money” which is basically speculation with no sound basis; what is there to support this.

We continue to have a FED that manipulates interest rates; what happens when we truly have another failure.  At these manipulated low rates there is no fire-power to give the economy a boost.  When an economy continues to expand, interest rates should, likewise expand….not now with the FED.  The FED says we have no inflation; I am not sure where they shop, most everything I buy is certainly not cheaper today than yesterday/last year.  If the market was setting interest rates they would be higher, and yes I know our rates are currently some of the highest in the world; that should tell you something about the economies of the rest of the world…they are basically broke.  Most of this upheaval is due to promises made by “socialist-type governments” that can’t be made without borrowing beyond the ability to pay it back.  The U.S. is headed in that same direction with our government gone awry.  

The U.S. basically has a spineless Congress that refuses to set spending limits and wishes to pacify everyone who yells loud enough (or at all).  Every voting block only has to cry loud enough and Congress will dole out the dollars. And of course the FED is more than willing to satisfy this lust for votes (I mean deficit) with money created with a snap of the fingers and a gust of hot air.  And what does this create?  A major price to pay for generations to come.  More and more of the annual budget (I use that term, budget, very lightly) continues to go to paying interest on the debt of the U.S. Heaven forbid interest rates to ever increase.

So, as we get nearer and neared to elections in 2020, I do expect the markets to continue to extend their advances, but I will begin to take some profits and raise my cash (Treasury Bills) level in most every instance.

Sam Altimore, 

Owner/Principal


MSA CAPITAL MANAGEMENT, PLCC

REGISTERED INVESTMENT ADVISER

31711 Wild Oak Hill

Fair Oaks Ranch, Texas 78015-4106

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.


______________________________________________________________________________________________


MY MARKETS

5/31/2019

EQUITIES

INDEX               CLOSE 4/30/19  CLOSE 5/31/19          +/-          +/- %

DOW JONES  26,592                     24,815                        -1,777  - 6.68%

S&P 500             2,945                        2,752                            -193  -7.01%  

NASDAQ             8,095                        7,452                            -643  -7.94%

The Equity Markets topped out on May 1st, and have been in a correction mode since that date.  After declining the first fifteen days of the month the markets rallied slightly for five or six days before continuing the correction.  What has brought on this correction?  

First,the major indices advanced between 17.00% & 20.00% from January 3rd to the high on May 1st; a breather has been in order after that type of advance. 

A 20% move in four months is definitely on the high side; a correction of 10% to 20% of that moveis not out of the ordinary; at this point this correction appears to be normal.

Second, the "Trade Battle” with China has intensified and the end is not in near sight.

China is attempting to play “hardball” as their economy continues to decline.  How long can they continue their charade, is the big question.  In a communist controlled economy, they can do whatever they please, regardless of the consequences.  However, the damage to the Chinese is much greater than any damage to the U.S. economy.  This battles should end with the U.S. the winner after years of abuse by the Chinese. Now, as of today, Mexico seems to be in the mix; the Trump administration has pledged to impose a 5.00% tariff on imports from Mexico if Mexico doesn’t alter the inflow if immigrants that pass through Mexico.     Tariffs are in essence a tax, and taxes are not good for the economy.  If these tariffs linger they may well drive the economy into recession; but, we are not at that point yet.  Be aware of what is happening in this arena.

Third, valuations have been rising with market prices advancing; the average P.E. Ratio has moved from the mid-to-high teens to the low twenties.

After the decline of the overall markets last fall, valuations were corrected, in some cases dramatically.  Equities became relatively cheap again and the markets reversed dramatically on December 26th.  P.E.’s that had been in the high 20’s corrected to the mid teens; thus cheaper valuations.  This is a give and take aspect to the markets; up for a while, correct for a while, but not all the way back.  Then another advance.  If quality companies have been selected, profits should become evident after a period of time.  This is not a short term game.

Fourth, the Treasury Yield curve  remains inverted from 6 months to 20 years; Inversion of the curves tends to precede a recession.

The yield curve continues to invert more from 6 months out to near 20 years.  Typically, this is a predecessor to a recession within the next 18 to 24 months. This inversion does have several elements which are very different to previous inversions.  First inflation (as defined by the FED & Government) does not exist.  Second, the FED has aggressively kept a lid on short term rates, forcing may individuals to the equity markets due to the lack of interest paid in savings accounts and bonds.  Third, world (The Euro, Great Britain, China, Venezuela) economies are in despair, forcing huge sums of money into our Treasury market for safety.  Many of these foreign economies have negative interest rates (While Venezuela has Interest rates of several hundred or thousand %).  Typically, the type of inversion that precedes recession occurs between the 2 year and the 10 year which is not currently inverted.

In summary;

It is my belief that this is a normal correction that will eventually be resolved with a settlement with China.  Unfortunately, the yield curve may stay flat to  inverted until the FED wakes up and allows interest rates to normalize due to the markets (don’t hold your breath).  Equities will continue to vacillate during the next 12 to 18 months, while moving higher in the long term.  We continue to hold relatively sizable cash (Treasury Bills) positions as we evaluate companies the become cheap while continuing their business in a positive mode.  We remain invested in basic industries  while avoiding the high flyers.  Meanwhile, we maintain a conservative approach as there are dangers that exist within our political environment and the world economies that are in the midst of turmoil.

  

TREASURY YIELD CURVE & INTEREST RATES

   DATE    1 MO.     6 MO.   2 YR.     3 YR.     5 YR.      10 YR.   30 YR.

4/30/19  2.43%   2.46%  2.27%  2.24%  2.28%    2.51%   2.93%

5/31/19  2.35%   2.35%  1.95%  1.90%  1.93%    2.14%   2.58%

What can be said about interest rates; they continue to slide.  A variety of reasons continue to push yields lower.  As stated on many occasions, I do not believe these moves are from natural sources.  We are in the midst of a very vibrant economy, but as the FED and the Government measure it, Inflation stands still.  This I do not believe; I do not see prices declining or even stabilizing; I see prices rising in general…but my observations are not what the FED and the U.S. Government use to measure inflation.  There is a very major concern, as stated above, about tariffs and the impact on the economy.  At some point, if these tariffs continue for a prolonged period of time, the economy will be at risk.  Now the big question is: will these tariffs cause run-away inflation, or will they drive us into a true recession?  Time will tell; and of course one should not rule out Stagflation, a recession with inflation.  

Even though my timing is certainly in question, I continue to believe that enormous deficits that the U.S. is engulfed in will eventually cause investors to revolt in their Treasury buying.  The only contradiction to this is the FED creating money out of thin air and buying up the Treasury auctions and excess inventories. You and I would be charged with counterfeiting if we did this and off to jail we would go.  But obviously, the FED is “ABOVE the LAW”…….that is my personal opinion.  It should be noted that I am a Free Market person when it comes to securities and interest rates; I believe that “Mr./Mrs. Market' should set interest rates by Supply and Demand, and let the market find it’s own level.

By observing the above table of “key rates” it can be seen that the Yield Curve has Inverted as the 1 Month and 6 Month Treasury Bills now yield more than the 2 Year, 3 Year, 5 Year, and 10 Year Treasury Notes and Bonds.  Currently only the 30 Year Treasury Bond yield more than the shorter issues.  But the 2 Year is currently yielding less than the 10 Year, and this must invert and stay inverted for a period of time to be the precursor to a recession.

As stated earlier, the economy remains relatively strong which is inconsistent with an inverted yield curve.  Unfortunately, the Trade War and Tariffs that exist can change all of this if they remain in effect for a prolonged period of time.

For now we will remain cautiously optimistic and look for resolutions to these problem events…….CAUTION is the key!

Sam Altimore

Principal

MSA CAPITAL MANAGEMENT, PLLC

 REGISTERED INVESTMENT ADVISER

Sam Altimore

31711 Wild Oak Hill

Fair Oaks Ranch, Texas 78015-4106

PH.) 713-628-7550

MSACAPITALMANAGEMENT@icloud.com

www.msacapitalmanagement.com

“Invariably, investors who disregard where they stand in cycles are bound to suffer serious consequences”.....HOWARD MARKS, OAKTREE CAPITAL

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
4/30/2019

EQUITIES
INDEX CLOSE    3/29/19    CLOSE 4/30/19     +/-           +/- %
DOW JONES     25,928       26,592                      + 664      + 2.56%
S&P 500                2,823          2,945                      + 122      + 4.32%
NASDAQ                7,729          8,095                     + 366      + 4.73%
The Equity markets had a a fairly solid performance during the month of April.  As can be seen in the table above the three primary domestic Indices turned in solid gains of  2 ½% to 4 ¾%.  Had it not been for the poor performance of Boeing (BA), Minnesota Mining & Manufacturing (MMM), and Walgreens (WBA) the Dow Jones could very well have challenged the NASDAQ’s 4.73% advance.

Financial stocks did quite well as a whole despite the very flat Yield Curve (most financials make a large portion of their earning on the spread between short and long term interest rates).  Among the “high fliers”, Amazon (AMZN) and Apple (AAPL) continued to advance and either make new highs or approach old high ground.  I do have very serious concerns about new start up companies that are going public with valuations of several Billion Dollars, many of which have very nominal revenue and most have little or no earnings.

The Equity Markets, in general continue to be the beneficiary of very, very low interest rates manipulated by the Federal Reserve (FED).  More on the FED and the economy below under Treasury Yield Curve and Interest Rates.  A few of my major concerns continue to be inordinately high PE Ratios, the amount of Debt in virtually every sector of the economy, and the number of Derivatives that are prominent in virtually every sector of the market; and that includes ETF’s.

I continue to maintain cash (Treasury Bills) positions in virtually all accounts in the amount of 10% to 20%, depending of the Risk Tolerance of the individual account.  These cash positions are to provide liquidity for individual companies that may witness a very short term problem and all of a sudden become cheap relative to its peers.  At any one time MSA CAPITAL MANAGEMENT will be monitoring approximately 100 different companies (stocks) which are in basic industries, used in everyday life, and are financially solid.  For now we remain approximately 70% to 85% invested in basic industries in our equity accounts.  The markets appear to remain on stable ground for now and the economy could well surpass all the “experts” expectations…..time will tell.

TREASURY YIELD CURVE & INTEREST RATES
DATE                  1 MO.    6 MO.     2 YR.       3 YR.     5 YR.       10 YR.     30 YR.
3/29/19.           2.43%   2.44%   2.27%    2.21%   2.23%     2.41%    2.81%
4/30/19            2.43%    2.46%   2.27%    2.24%   2.28%     2.51%    2.93%

What can be said about Interest Rates; they are very low and very boring…..for now.  Only 50 Basis Points separates the One Month Treasury Bill from the Thirty Year Treasury Bond; the curve is FLAT, with very little change in sight.  And yes, the shorter end of the Yield Curve is Inverted, but that basically means nothing.  

Could there be a recession?  Yes, but not this year in my most humble opinion.  My major concerns center around the enormous amount of debt outstanding and being created each and every day, by the Federal Government, States, Counties, Cities, Corporations, Pension Plans, Individuals, and yes, Students. I am sure I have left someone out, including Foreign Governments and Foreign entities.  Artificially created Low Interest Rates are perpetuating the problem even further as many who could not afford to “float” debt at normal interest rates rush in to get their share of the pie.  This will not have a good ending.  On top of all this debt, fewer and fewer buyers are stepping up to our Treasury Debt; China has backed away, as has Japan, and most of the European Countries.  Our FED continues to be the major buyer of our Treasury Bonds along with the Dealer Community which has been restricted to a great degree by regulations..

What will happen when we have a spike in Interest rates because of a Buyers Revolt, or possibly a major spike in Oil?  Most buyers today were not around, if they were even born, when we had Stagflation in the mid 70’s, or Inflation in the early 80’s (and Interest Rates in the mid to high teens….(YES, TEENS, like 15-16% and higher).  What will that do to portfolios that hold 10 to 20 year bonds?  It will be devastating for prices and valuations.  Now, I am not trying to scare anyone, but I do believe that caution has been cast aside by many, way too many.  You know, "IT’S DIFFERENT THIS TIME"……….sure it is.

I continue to credit the FED with much of this discard of caution.  The FED has manipulated Interest Rates to these low levels, and through Quantitative Easing they have purchased much of the Federal and Agency Debt with money created out of thin air.  Quantitative Easing has been going on for over ten years now; it is time to let the economy stand on it’s own two feet, and those that are too weak just may not make it.  Otherwise, there will be a day of reckoning and INFLATION will ROAR again.

With the portfolios that MSA CAPITAL MANAGEMENT manages, we continue to stay close to the shorter end of the Curve as it simply does not pay to go longer given the Interest Rate Risk at these low levels.  We will continue err on the side of caution just in case some of the indifference to sanity comes to haunt us one day in the not too distant future. 

Sam Altimore/Principal & Owner

4/30/2019


MSA CAPITAL MANAGEMENT, PLLC
 REGISTERED INVESTMENT  ADVISER
Sam Altimore
31711 Wild Oak Hill
Fair Oaks Ranch, Texas 78015-4106

PH.) 713-628-7550

MSACAPITALMANAGEMENT@icloud.com
www.msacapitalmanagement.com

“Invariably, investors who disregard where they stand in cycles are bound to suffer serious consequences”.....HOWARD MARKS, OAKTREE CAPITAL

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

MARCH 31, 2019


TREASURY YIELD CURVE/MARCH 29, 2019

Date       1 Mo  2 Mo  3 Mo  6 Mo  1 Yr  2 Yr  3 Yr   5 Yr   7 Yr   10 Yr   20 Yr   30 Yr

Mar 29,. 2.43   2.44    2.40    2.44   2.40  2.27  2.21  2.23  2.31   2.41    2.63     2.81

EQUITY MARKETS/MARCH 29, 2019

DOW JONES INDUSRIALS    25,928

S&P 500.                                         2,823
NASDAQ                                          7,729


The Fed Fund Interest Rates are basically frozen, for now.  The FED has done an about face with their policy of having Interest Rate Hikes on “Auto Pilot”.  This abrupt change questions if the FED knows something that we, the investing public, do not know.  Why, after two years of raising rates would the FED reverse their action in mid-stream without any warning or apparent change in economic activity?  Yes, the economy has slowed from a year or so ago, but continues to move ahead, at least as positively as it has over the last several years of this ten year recovery.  


It is said that “recessions do not cause declining stock markets, but declining stock markets may, indeed cause a recession”.  On November 8, 2018 the Dow Jones Industrial Average closed at 26,191; that was the last 26,000 number for the Dow in 2018.  On December 24, 2018 the Dow sat at 21,792, a drop of 4,399 points or 16.795%.   I do believe, as many others, the FED woke up to the fact that their policies were beginning to slow the economy and the Stock market had already taken note, well ahead of the Academic Economist of the FED.  Since the 24th. of December 2018, the Dow has recovered to 25,928 or 18.979%; with a few instances of barely over the 26,000 threshold.  (Note that the S&P 500 has performed with very similar results).  All this is simply an example of how powerful the FED is, particularly when it comes to Interest Rates.  Like it or not, Interest Rates are probably the most powerful economic function in existence (that is my opinion, possibly not everyones).  

We do not live in a world of Free Markets; our markets are controlled, to a great extent by the FED, Government Policies, and big, powerful institutional money.  But one element generally remains constant, Markets and Economies generally run in cycles.  During the third and early forth quarters of 2018, the equity markets were beginning to get expensive.  The major indices were trading at 22-23 times earnings, versus a norm of the mid to high teens.  These same Indices had been in an upward sloping trend for right at ten years, without a great deal of correction along the way.  So this pullback in November and December was actually rather timely; painful, but probably needed.  So, did the FED do us a favor with their continuous Interest rate increases?  I think YES, but I must qualify that.  I am certainly not an advocate of the FED or their Interest Rate policy.  I believe in FREE MARKETS; let the supply and demand determine the rates.  If that had been the case we may well have been in the same place, but probably not.

We live in a very over-leveraged world today.  Virtually every sector of the world is over-extended with debt, and no way of repaying it without major tax increases or severely pairing back services, or monetizing the debt, or possibly all at once.  Cities, counties, states, the Federal Government, corporations, pension plans, and on and on are creating debt that cannot be repaid without dire pain, and generally over an extended period of time.  Fortunately for the U.S., so much fiat money has been created by economies all over the world, and there is no place to go to get a decent yield.  As low as our Interest Rates are, they are among the highest in the world; so money continues to pour into our Interest Rates, assisting in keeping them abnormally low.  If the U.S. economy continues to expand, do not be surprised to see the FED take another about face and raise rates before the end of the year.

Are we at the end of the cycle yet??  I truly do not know; I believe we are in the fourth quarter of the market/economic game; but just how far into the fourth quarter, that is the real question!  My 50+ years in the Bond and Interest Rate business tells me that when everyone is “fat and happy” the party is near the end.  As a very dear friend (deceased) who was a very successful investor over several decades once told me: “when everyone is buying, I like to sell, and when everyone is selling, I like to buy”.  We may not be at the point of selling right now, but be aware and stay prepared to change course.  

At MSA CAPITAL MANAGEMENT, we continue to hold between 15% to 25% cash in most equity accounts, depending on their risk tolerance.   In Fixed Income accounts, we adhere to a Short Duration Policy to obtain maximum yield, with minumum  interest rate risk.  If you have questions, do not hesitate to give me a call.

“Invariably, investors who disregard where they stand in cycles are bound to suffer serious consequences”.....HOWARD MARKS, OAKTREE CAPITAL

Sam Altimore
Principal/Owner
MSA CAPITAL MANAGEMENT, PLLC  REGISTERED INVESTMENT ADVISOR
Sam Altimore
31711 Wild Oak Hill
Fair Oaks Ranch, Texas 78015-4106

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

 FEBRUARY 28, 2019 

EQUITY INDEX    12/31/2018      01/31/2019    02/28/2019    Mo. +/-          Mo. %+/1 

DOW JONES         23,327                 24,999              25,916                +917                +3.66%  

S&P 500                  2,506                   2,704                 2,784                  +80                  +2.96%  

NASDAQ                  6,635                   7,281                 7,532                  +251               +3.44%  


The month of February continued the January advance of the equity markets by increasing 3.00%-3.50%.  Since January 2, the equity markets have posted a positive move of approximately 11.00% +/-.  By most standards an 11.00% advance in two months will be very difficult to sustain in coming months.  Earnings reports have been mixed with a number of misses, but a few that have been exceptional.  The market seems to have no mercy when there is something gone wrong; KHC (Kraft Heinz) was trounced from approximately 48 to 36 on the basis of a major write-down, or a decline of 25%, +/-.   The major indices are all trading around 16-17X earnings, which is about the norm.   Thus, there is room for the markets to continue their advance, all-be-it at a much slower pace…..I would hope.  When the markets scream to the upside, like happened a few times last year, one can only expect a correction of the same magnitude.  But, when there is an orderly advance, corrections tend to be orderly and not take everything in sight down as well.    


The talks with China appear to be moving toward a positive resolve and that should be good for the economy and for future earnings of U.S. companies.  These trade negotiations are far overdue, but a very delicate and difficult task.  The fact remains that labor is cheaper in China (and many other countries) which gives those countries a distinct advantage with cost of production and eventual pricing of goods.  On another front Greet Britain continues to move forward with their move to exit the Euro.  There could be some very strong advantages with trade involved when Great Britain eventually frees itself from the strong arm of Germany and the Euro.  Do not be surprised to see Italy follow the “Brits” in exiting the Euro in the not too distant future.  Italy is burdened with an exorbitant amount of debt and the Euro rules are weighing very heavily on the current Italian government.  


I listen to/watch either CNBC or Bloomberg virtually all day, every open market day, and it amazes me that the journalistic talking points are either “tech” or “cannabis”.   There seems to be no interest in the basic industries unless there is a problem.  These journalist will discuss earnings to a minor degree on the basic industry companies, but quickly turns to cannabis or tech.  Now don’t misunderstand what I am saying, Tech is vitally important, and a big part of most industries today.  But it seems like most of the conversations center around tech start ups, IPO’s, and eventual collapses (of which there are many).  Retail seems to get a fair amount of exposure around the holidays, but then it fades.  I hear and see very little about transportation, manufacturing, agriculture, medical, shipping, petroleum, construction, etc.  I guess, I am just of the age, that cannabis is simply an illegal drug and should be treated as such, not a new industry that should be embraced by all.  


We continue to hold approximately 70% of our portfolios (depending on the individual account) in basic industry companies that are essentials to everyday life.  Additionally we monitor approximately 100 companies that we will consider from time to time as relative values present themselves.  The markets continue to be technically sound and should continue their upward path for the near future.  


U.S. TREASURY MARKET    12/31/2018    01/31/2019    02/28/2019    Mo. +/- 

3MO. U.S. TSY BILL                  2.45%                 2.41%               2.45%                +.04 BP 

2YR. U.S. TSY NOTE                 2.48%                 2.45%               2.52%                +.07 BP 

5YR. U.S.TSY BOND                  2.51%                 2.43%               2.52%                +.09 BP 

10YR. US. TSY BOND               2.69%                 3.63%               2.73%                +.10 BP 

30YR. U.S. TSY BOND              3.02%                 2.99%               3.09%                +.10 BP


The month of February saw interest rates move in a very narrow path for the month, ending slightly higher than the beginning.  The FED’s basic reversal in January placed interest rates in “park” for all of February.  The fact remains that virtually every sector of our economy, from Government, to corporations, to students, to individuals are OVER-LEVERAGED…..TOO MUCH DEBT.  The national debt is now slightly over $22Trillion, Household debt is up for 18 consecutive quarters and now sits at $869Billion.  Outstanding student loan debt is now $1.46 Trillion with 11.4%, 90 days or more delinquent.   Delinquencies on car payments are at the highest level since 2012; Farm debt is over $400Billion, the highest since the farm crisis of the 80’s and bankruptcies have surged to a 10 year high.  


With all this debt surrounding us, Primary Dealer Treasury holdings are at all time highs as foreign buyers are balking at buying our debt.  China has slowed their purchases significantly while Japan has totally backed away, at least for now.  Central banks continue to encourage this reckless indebtedness by artificially holding interest rates at absurd levels; which in many cases is negative levels.  As more Governments continue along these reckless paths, do not be surprised to see Hyper Inflation at some point.  This may not happen over the near term, but it is an almost given.  At some point investors will say enough and demand higher rates as inflation accelerates with free money flooding the system.  Look back at the Greenspan years (1978-2006) and all the give away programs; that did not work out too well for many.


Much of what we do in the Fixed Income Market revolves around “Safe Money”; that is wealth that is available at a moments notice (Fed Funds the next day).  This is accomplished by utilizing shorter maturities of U.S. Treasuries (sometime Federal Agencies) in a manner that allows us to have maturities that roll off on given time frames or liquidate with minimal discount exposure.  For Financial Institutions we are well versed in the Fixed Income arenas that accommodate their reserve and liquidity needs.

Be cautious, and remember:  If it is too good to be true, it probably isn’t!!

Sam Altimore/Principal

MSA CAPITAL MANAGEMENT, PLLC
 

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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