Quarterly Letters

Quarterly Letter, October 2017

From a market perspective, this has been a quiet summer. As of 9/30/2017, the S&P 500 was up 6.63% over the last six months with hardly a dip. Low economic growth continues on a global basis, none of the major central banks have altered course in any fashion, inflation remains low, second quarter earnings came in nicely, etc.
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Quarterly Letter, July 2017

As June comes to a close, we find that most of the things we talked about in March haven’t changed much. Starting at the international level, both the European and Japanese Central banks continue to buy bonds (Japan also buys equities) in order to manage interest rates and support their economies...
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Quarterly Letter, April 2017

The plot of the National Federation of Independent Business (NFIB) Small Business Optimism Index since March 2000 is the single most interesting chart we’ve seen in the last quarter. The NFIB conducts monthly surveys of its members in order to better understand the environment in which small businesses are operating. The way we interpret the chart is that small businesses are MUCH more optimistic about their future post-election than they were pre-election...
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Quarterly Letter, January 2017

2016 was a disappointing year for us as our accounts, on average, lost about 3.56% of their value over the course of the year (individual performance varies by account), while the S&P 500 gained 11.96%—both figures include reinvestment of income. The obvious question is “Why the underperformance relative to your benchmark?” The short answer is that we didn’t own enough of the best performing sectors in the market: energy, financials, and industrials and we owned too much of the worst performing sector in the market: health care...
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Quarterly Letter, October 2016

Last quarter we said “It seems like every quarter something big happens for us to talk about… .” Well, not this quarter. The last three months have been very quiet – economic growth hasn’t changed much, central bank policies haven’t changed much, bond prices haven’t changed much, commodity prices haven’t changed much, etc...
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Quarterly Letter, July 2016

It seems like every quarter something big happens for us to talk about, this quarter was no exception. The UK voted itself out of the European Union on 23 June. The markets (currency markets, equity markets, commodity markets) reacted violently to the development on 24 June—a bunch of market participants must have been caught by surprise...
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Quarterly Letter, April 2016

In the spirit of our times, when trigger warnings abound, we should probably warn you now that what we’re about to discuss may make you uncomfortable. Continue reading at your own risk. And no, we won’t be discussing politics...
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Quarterly Letter, January 2016

In the fourth quarter, the S&P 500 Index was up a bit over 7% and up 1.38% for the year. Our accounts, on average, were up 3.52% in the quarter and down 5.03% for the year. (Individual performance varies by account.) The gains for the broader Index in the quarter were mostly made by a small number of large capitalization tech stocks, Facebook, Amazon, Netflix, Google, and Microsoft among them.
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Quarterly Letter, October 2015

The domestic quiet we wrote about in June did not last very long. Between August 17 and August 25 the S&P 500 Index dropped 11%. The S&P 500 Index bounced back about 4% and, as of September 30, it is down 6.4% for the quarter. For the year, the S&P 500 Index is down 5.3%.
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Quarterly Letter, July 2015

Economic news and domestic equity markets have been pretty quiet since we last wrote to you in April. On the domestic economic front the revised numbers for 1st Quarter Gross Domestic Product (GDP) came in at -0.7%, significantly worse than most expected.
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Quarterly Letter, April 2015

We’ll start with our views on the U.S. stock market, then briefly touch on some broader U.S. and global issues, then close with a summary of how it all ties together.
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Quarterly Letter, January 2015

Tony had some ideas and observations he wanted me to share, but I thought it made sense for him to tell you directly in this edition of our Quarterly Letter. -— Ron
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Quarterly Letter, October 2014

My first draft of this letter, which I wrote three weeks ago began with: Europe has not solved its problems; Nor has Japan; Nor has China; Nor has the U.S. The rest of that draft is now obsolete. Since mid-September, several items have changed—some economic, some market-related, some psychological.
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Quarterly Letter, July 2014

In Europe, Banco Espirito Santo, the largest bank in Portugal, has defaulted on interest payments on its bonds. Europe has not solved its problems. In the U.S., for at least the fourth consecutive year, estimates of real GDP (Gross Domestic Product) growth, which exceeded 3% prior to the beginning of the year, have been reduced to 2% or less by midyear (now). The U.S. continues on a slow path.
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Quarterly Letter, April 2014

Most of the economic and market trends we’ve been discussing for the past few years remain in place. Russia’s action in the Ukraine/Crimea may have long-term implications, particularly for Europe, but the near-term economic implications are modest. It remains to be seen whether this gets added to our long-term worry list or not.
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Quarterly Letter, January 2014

Some of the things we’ve been talking/warning you about in recent years came to fruition in 2013. Specifically, medium- and long-term interest rates rose and commodity prices declined. While the U.S. Federal Reserve (Fed) continues to hold short-term interest rates near zero, rates in the intermediate to longer term, (5-30 year) increased substantially during the year, driving bond prices down.
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Quarterly Letter, October 2013

Since 2008, the Federal Reserve (Fed) has been a huge manipulator of the money supply and of interest rates. Beginning with TARP (Troubled Asset Relief Program) in 2008—and continuing through Quantitative Easing II (QE2), Operation Twist, and QE3, the Fed has added over $2 trillion to our money supply (nearly $20,000 per household) and purposely bought U.S. Treasuries and mortgaged-backed securities to keep prices of these securities up and keep interest rates artificially low.
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Quarterly Letter, July 2013

In a world where the U.S. economy is growing at 2% and most other economies are also growing well below potential, we expect that the stocks of companies that can report good revenue and earnings growth will do well. The great disappointment is that the improvements in the U.S. stock market and Federal income tax receipts (and in European bond markets) have given politicians on both sides of the Atlantic an excuse not to rein in government spending in a meaningful way.
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Quarterly Letter, April 2013

For two years or more, we’ve been discussing Europe, China, and U.S. politics as drivers for the financial markets. These drivers continue. Europe has reentered recession. That was expected. But it was also expected that, by now, Europe would have found an approach to deal with its problems. It has failed to do so, both politically and financially. Elections have been inconclusive (Greece and Italy), and the responses to the recent banking problem in Cyprus (a tiny country) were more problematic than the banking problem itself.
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Quarterly Letter, January 2013

2012 was a year of mixed results on the economic front, but generally good investment returns as measured by the S&P 500 Index. Some progress was made in Europe and China, and some clarification in direction was made in the U.S. We presented our thoughts on these topics at our December 6 seminar. A brief review follows.
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Announcements

Muhlenkamp & Company’s 40th Anniversary

2017 marks the 40th anniversary of the founding of Muhlenkamp and Company, Inc. We are pleased, proud, and grateful that...
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