USO

The Bounce in Energy and Potash’s “Surprising” Dividend Cut

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Nothing like Valuentum’s optimistic article last week, January 21, in Barron’s to get the energy markets popping, “Is Kinder Morgan on Road to Recovery,” would you say? Of course, we say that in jest. The equity markets January 28 were defined by optimism that two of the globe’s major energy resource producers, the cartel OPEC and Russia (RSX), would finally come together to alleviate the pain that has been exerted on the price of the black liquid the past 12-24 months with a “meeting.” What we found to be peculiar, however, is that instead of OPEC letting what turned into a “rumor” run, helping to further drive crude oil prices higher, OPEC delegates quickly denied the talk of a potential … Read more

What’s Working in Today’s Market?

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By Brian Nelson, CFA As emerging markets around the world suffer from commodity-price-led economic weakness, capital continues to find a safe-haven in US government bonds (TLT, TBT), but for those equity-oriented funds that mandate a fully-invested status, not something we’re particularly advocates of, assets within US equities have favored “lower-beta” utilities (XLU) and consumer staples (XLP) sectors while cyclically-dependent and credit-levered sectors such as the financials (XLF) and materials (XLB) have suffered thus far in 2016. The industrials (XLI) and energy (XLE) sectors have also encountered higher-than-normal selling pressure in the first few weeks of the New Year, as investors evaluate the global economic landscape and what a prolonged period of low energy prices may mean for the lowest quality … Read more

Breaking: Markets in Free Fall

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By Brian Nelson, CFA I was up late last night watching the 10-year Treasury fall below 2%, crude oil drop below $28 (and now below $27) per barrel, and the Dow futures collapse more than 500 points. Asset correlations are going to 1 — so much for modern portfolio theory, right? The benefits of diversification are sometimes absent at the very time you need them the most. If market observers didn’t learn this during the Great Depression, certainly they must have learned it during the Financial Crisis of 2008-2009. That’s why we like cash so much at times. We have a 35%+ cash weighting in both newsletter portfolios. The Dow Jones Industrial Average (DIA) is now down ~400 points (-2.5%), … Read more

Excited About Putting Cash to Work…Eventually

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Investors are fretting over a lot of things as of late. China (FXI) announced January 19 that fourth-quarter GDP fell to 6.8%, with many noting that the measure was a 25-year low. Even if you believe that number, which may be a stretch in light of collapsing local stock markets in Shanghai and Shenzhen, the outlook can’t be much better. Steel mills across the country are reeling, and while published housing numbers don’t look that bad, we have a difficult time believing the Chinese banks are in good shape. HSBC (HSBC), Standard Chartered, and Citigroup (C) remain most exposed to what we would describe to be the growing likelihood of a contagion from weakening commodity-dependent sectors in the country. Intel … Read more

ICYMI: 5 Concerns About Impending Rate Hikes

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The first Fed rate hike in nearly a decade came and went December 16, putting an environment of ZIRP (zero interest rate policy) to an end, a policy that grew out of the Financial Crisis and the depths of the Great Recession late last decade. The Fed had paused plans to hike the federal funds rate for much of 2015 as a result, in our view, of getting a more informed read on the potential implications of emerging market developments–namely dislocations in the local Chinese equity markets (FXI) and recessionary conditions in Brazil (EWZ)–and the stock market crash (SPY) in the US in August that sent equities of some of the most well-known stocks including Apple (AAPL) and General Electric … Read more

Bye Bye Energy MLPs

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West Texas crude oil prices (USO) just broke through $32 per barrel to the downside for the first time since 2003. Share prices of those in the energy complex (XLE) continue to reel, and we maintain our view that the tremendous fallout in energy master limited partnerships (AMLP, AMZ) may not be over. From our perspective, the MLP business model may not survive in its present state, as equity markets continue to “wise up” to the artificial equity pricing paradigm that has centered on the group’s financially-engineered payouts. Without an artificial pricing paradigm to “prop up” their equity prices, for example, the incentive to perpetuate such a business model is substantially reduced. Distribution cuts would then inevitably ensue as a … Read more

Seeking to De-risk the Newsletter Portfolios

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There’s never a good reason to panic in investing, but the 276-point slide in the Dow Jones Industrial Average (DIA) January 4, the worst start to a year since the credit crisis in 2008, reminded us why we hold more than a 30% cash position in both newsletter portfolios at the moment: with a US stock market still near all-time highs, we like having ample capital available to scoop up bargains as stocks inevitably give back some of their gains. The question for us is not whether the broader US stock market will decline from here but whether such a decline will be 10%, 20% or more. After all, the S&P 500 (SPY) has essentially tripled from the March 2009 … Read more

Is the Worst Behind Us? Not Likely

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By Brian Nelson, CFA US natural gas prices (NGAS) recently dropped to the lowest level in nearly 14 years. Unseasonably warm weather may be to blame for the near-term drop, but we point to more structural concerns that may keep natural gas prices low for some time. Including both unconventional and conventional global natural gas resources, for example, there are more than 200+ years’ of supply based on the current trajectory of demand, and that doesn’t account for technology advances that will inevitably be made in the coming decades. Can you believe it? The situation with crude oil prices is not much better. West Texas crude oil prices (USO) dipped below $35 per barrel recently, still the high end of … Read more

The Fed Freezes; Outlook as Bad as Feared or Worse?

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The cheering on CNBC has been short-lived. The sell-off we had expected irrespective of the Fed’s decision has ensued. Selling pressure in the markets may only intensify in coming weeks as uncertainty regarding Fed policy continues to take center stage. Broader market valuations remain stretched, market technicals remain weak, and sentiment is the worst it has been in some time. On September 17, the Fed announced that it has reaffirmed its view that the current 0%-0.25% target range for the federal funds rate “remains appropriate.” Though acknowledging US economic activity is expanding at a moderate pace and that both the housing sectors and labor markets have improved, it also indicated that “recent global economic and financial developments may restrain economic … Read more

As the World Turns

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Our growing concern over market participants’ lackadaisical approach to what will inevitably become a contractionary monetary cycle has been evident for months. The US market crash of August 24 has disrupted the comfort levels of many investors, however, but it has not derailed the confidence of long-term planners, nor has it interrupted the conviction of optimists that believe the sky is the eventual limit for equity prices in their lifetimes. We take a more measured and cautious view of risky assets at Valuentum, and we’ll never tell investors to ignore the information contained in market prices. The risk of a recession in the US beginning this year is remote, but concerns are mounting for 2016. US gross domestic product continues … Read more