Don’t miss our next webcast:

Join Tony Muhlenkamp as he hosts a chat with portfolio managers Ron and Jeff Muhlenkamp. Volatility has made a comeback in 2018. Ron and Jeff share their views of the recent market swings and their concern of investors’ margin debt. They will discuss their observations of the markets and the economy and what they feel is important to monitor. In addition to listening to the discussion, you will have the opportunity to ask questions.

Date: Thursday, May 24, 2018

Time: 4:00 p.m. – 5:00 p.m. ET

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Ron and Jeff Muhlenkamp explain that recent tax cuts and deregulation should help keep the economy moving. Asset markets, on the other hand, could be affected by monetary tightening as the Federal Reserve and other central banks reduce or reverse their easy money policies. Tightening of the money supply could cause bond yields to increase and some market disruptions.

Watch the video archive or read the amended transcription (including slides).


Click here for the amended transcription (including slides).

Click here for slides only (no audio or transcription).

If you have questions or comments about the content of the webcast, don’t hesitate to send us a message or call us at (877)935-5520 extension 4.

For the Top 20 Holdings and performance data as of the most recent quarter-end, refer to the SMA All-Cap Value Fact Sheet.

The opinions expressed are those of Muhlenkamp and Company and are not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

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By Ron Muhlenkamp and Jeff Muhlenkamp, Portfolio Managers

If you had told us a year ago that the market would rise 20% in 2017, we would have been skeptical. Yet, here we are at the end of the year and the S&P 500 Total Return Index was up 21.83% for 2017. The S&P 500 Index was up 19.42%. (The difference is the Total Return Index includes dividends.) Technology stocks led the charge; health care, consumer discretionary, and industrials also beat the average. Every other sector delivered below-average returns with energy and telecommunication services posting losses for the year. Our performance was quite close to the S&P 500 Index all year. (Please refer to the 12/31/2017 Fact Sheet for our final performance numbers.) Apple, Inc. (AAPL), ON Semiconductor Corporation (ON), and Universal Display Corp. (OLED) contributed the most to our performance this year, while Teva Pharmaceutical Industries (TEVA), Spirit Airlines (SAVE), and Allergan PLC (AGN) were the biggest drags.

Economically speaking, U.S. Gross Domestic Product (GDP) growth during the first three quarters (4th quarter data hasn’t come out yet) averaged a little over 2.1%, but 1st quarter was the low quarter, and 3rd quarter was the high quarter—so the trend was up (which has been the case since June 2016). Unemployment is generally low, inflation is low, and most of the economic metrics we keep an eye on are looking benign. If you want more detail on that, we’ll refer you to the webcast we did at the end of November.

At a high level, two “big things” are happening. First, the Trump administration and Congress are working to remove legal and regulatory impediments to economic growth. They are obviously not unified in this effort and the process has been, shall we say, contentious. Nonetheless anti-growth regulations have been rolled back to a degree and a new tax law was signed just before Christmas. We think this is the reason Small Business Confidence jumped post-election and remains at a very high level. We think the new tax law and the shift in the regulatory environment are generally positive developments. We think of it in these terms: when businesses are fleeing your borders, it is a HUGE sign that you are doing something wrong. When businesses hire armies of lawyers to avoid taxes instead of simply paying them, it’s a sign you are doing something wrong. It’s been happening in the U.S. for years now, as companies merge with foreign businesses to shift their headquarters to more welcoming tax and regulation locales or create complicated corporate structures and hold cash overseas to reduce taxes. Erecting barriers to exit was the knee-jerk reaction but it never works. Congress is taking action to address the root causes of businesses leaving the U.S. and we think what they’ve done will improve the situation. It’s also happening at the state level, just look at Illinois as businesses move to Indiana. Illinois hasn’t figured this out yet and continues to chase businesses away. Does anybody think Amazon is seriously considering putting its second headquarters in Chicago? We doubt it.

The second “big thing” is the movement of interest rates in the direction of what we think is “normal” and the reduction of assets held by the U.S. Federal Reserve. As you probably know, for two years the Federal Reserve has been gradually raising short-term rates. Allowing rates to rise to where they “should be” relative to inflation is a positive. If they raise rates more than that, it will become a negative. Additionally, this summer the Federal Reserve started executing a plan to gradually reduce the assets they hold on their balance sheet by not reinvesting all of the money they receive when bonds mature. Their plan is to initially reduce their assets by $10 billion per month ramping that up to $50 billion per month over time.

Simultaneously, the European Central Bank has announced a reduction in its bond purchase program beginning in January 2018. The Bank of Japan is the only major Central Bank that has not signaled a reduction in its “print and purchase” program. We believe that all the money printed during the last 8 years helped boost asset prices—stocks, bonds, houses. As central banks start slowly withdrawing some of that money, it may well have a reverse effect on asset prices. The Federal Reserve certainly intends to draw down their balance sheet slowly enough that markets don’t even notice, but they may not succeed in that. We laid this out in greater detail during our November webcast, take a look at that or give us a call if you want to have a fuller discussion of our thoughts on this.

As we look forward to 2018 then, we see two “big things” working in opposition to each other as far as the markets are concerned: prospects for improved economic growth is a plus, while a reversal (U.S) or reduction (Europe) of central bank support is a negative. Each of these forces may get traction at different times.

With that as a backdrop, we will continue to search for investment opportunities and put our money to work when we find them.

Until next quarter…

The comments made in this commentary are opinions and are not intended to be investment advice or a forecast of future events.

Refer to the SMA All-Cap Value Fact Sheet for the Top 20 Holdings and performance data as of the most recent quarter-end.

Central Bank is the entity responsible for overseeing the monetary system for a nation (or group of nations). The central banking system in the U.S. is known as the Federal Reserve (commonly referred to “the Fed”), composed of twelve regional Federal Reserve Banks located in major cities throughout the country. The main tasks of the Fed are to supervise and regulate banks, implement monetary policy by buying and selling U.S. Treasury bonds, and steer interest rates.

S&P 500 Index is a widely recognized, unmanaged index of common stock prices. The S&P 500 Index is weighted by market value and its performance is thought to be representative of the stock market as a whole. One cannot invest directly in an index.

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Click here for a printer-friendly PDF of the Memorandum.

Refer to the SMA All-Cap Value Fact Sheet for the Top 20 Holdings and performance data as of the most recent quarter-end.

In this Muhlenkamp Memorandum:
Quarterly Letter
If you had told us a year ago that the market would rise 20% in 2017, we would have been skeptical. Yet, here we are at the end of the year and the S&P 500 Total Return Index was up 21.83% for 2017. The S&P 500 Index was up 19.42%…

Don’t Let the IRS Define Your Investing
The idea of “spend the income, don’t touch the principal.” It’s an investing mantra that has been passed down and has become the guiding principle for how to invest in retirement; invest for the maximum income; spend that income, and don’t touch the principal. I think this ignores the effects of inflation and taxes on your assets and it’s a trap that hinges on allowing the IRS to define the terms of investing…

Register for our Upcoming Webcast
On Thursday, February 22, 2018 from 4:00 p.m. – 5:00 p.m. ET, join Tony Muhlenkamp as he hosts a chat with portfolio managers Ron and Jeff Muhlenkamp. What do the recent tax cuts mean to you and to businesses? How may the actions of central banks be influencing the markets? Ron and Jeff will discuss their thoughts on these matters as well as others that they continue to monitor.

Archive Available – November 30, 2017 Webcast
During the conversation, Ron and Jeff shared their review of 2017, a year with unusually low market volatility, record-high market levels, and expensive equity valuations. They provided charts and checklists to better explain consumer and business spending and optimism, inflation, investors’ margin accounts, and many other items they monitor to determine where the economy is at year end and what concerns them going into 2018.

ONLINE EXTRA: Make a Financial New Year’s Resolution
The beginning of a new year is a great time to get on the right course. We’ve created our Muhlenkamp Marathon Financial Training Workbook (with some running tips, too) to provide 26.2 miles of financial guidance…

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Tony Muhlenkamp hosted a chat with our portfolio managers Ron and Jeff Muhlenkamp. During the conversation, Ron and Jeff shared their review of 2017, a year with unusually low market volatility, record-high market levels, and expensive equity valuations. They provided charts and checklists to better explain consumer and business spending and optimism, inflation, investors’ margin accounts, and many other items they monitor to determine where the economy is at year end and what concerns them going into 2018. They also explained how actions of the Japanese and European central banks may be influencing the U.S. stock market.

Watch the video archive or read the amended transcription (including slides).


Click here for the amended transcription (including slides).

Click here for slides only (no audio or transcription).

If you have questions or comments about the content of the webcast, don’t hesitate to send us a message or call us at (877)935-5520 extension 4.

For the Top 20 Holdings and performance data as of the most recent quarter-end, refer to the SMA All-Cap Value Fact Sheet.

The opinions expressed are those of Muhlenkamp and Company and are not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

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Click here for a printer-friendly PDF of the Memorandum.

Refer to the SMA All-Cap Value Fact Sheet for the Top 20 Holdings and performance data as of the most recent quarter-end.

In this Muhlenkamp Memorandum:
Quarterly Letter
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. We won’t bore you (this time!) by enumerating the things we’re watching that haven’t changed since we wrote about them in June….

Reflecting over 40 Years—Lessons Learned and Changes Observed
To celebrate the anniversary of Muhlenkamp & Company, I was asked to put on paper what I have learned over the last 40+ years in the industry and comment on any changes I’ve seen over that period. This essay is my attempt at meeting this request…

Register for our Upcoming Webcast
On Thurstday, November 30, 2017 from 4:00 p.m. – 5:00 p.m. ET, join Tony Muhlenkamp as he hosts a chat with Portfolio Managers Ron and Jeff Muhlenkamp. You will have the opportunity to submit questions to the portfolio managers.

Archive Available – August 22, 2017 Webcast
During the webcast on August 22, 2017, Jeff Muhlenkamp, Portfolio Manager, summarized the economy using his 10-point checklist. Also, to celebrate our 40th anniversary, we asked Ron Muhlenkamp, Portfolio Manager, to reflect on lessons he has learned and changes he has seen since he founded Muhlenkamp & Company in 1977. Ron’s insights and observations are included.

Don’t Be Left Out On Important Notices and Invitations
Muhlenkamp & Company regularly publishes information that gets distributed by email only. If you don’t want to be left out, join our email list by clicking HERE or call us at (877) 935-5520 extension 4. Your contact information will not be released to any third party.

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By Ron Muhlenkamp and Jeff Muhlenkamp, Portfolio Managers

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. We won’t bore you (this time!) by enumerating the things we’re watching that haven’t changed since we wrote about them in June. There have been a couple of surprises: three destructive hurricanes and escalating tensions with North Korea (which the markets have mostly ignored). We believe that while the hurricanes have had a massive impact on the affected areas, their impact on the national economy will be fairly small and temporary. We believe war with North Korea is unlikely. We’ll keep an eye on developments and update our assessment as events unfold.

In March, we highlighted the increase in small business optimism that accompanied the election results. Looking at the latest numbers, business optimism remains at a high level in spite of (because of?) paralysis in Washington. A decline in business optimism would be of concern, but it is holding up nicely. Speaking of Washington, the broad outlines of the proposed tax reform were released in late September and, based on what we saw, it looks like an improvement on the existing situation. We have no idea, however, how much of it will actually be enacted or when.

The markets remain on the expensive side and that’s making a lot of investors of all stripes nervous. In an odd way investor nervousness is itself a bit reassuring. It could prevent some of the risky behavior we tend to see when investors are wildly optimistic and convinced they can’t lose (recall the internet bubble, the housing bubble, and currently the enthusiasm around Bitcoin and its siblings). If the market is making you nervous, you might consider reviewing your expectations of the market and your financial plans and make sure that you are prepared for the inevitable downturn. Using the four seasons as an analogy, we estimate we’re in late summer and while we don’t know exactly when winter will arrive, we know it’s coming, so it’s appropriate to prepare for it. Give us a call if you’d like to discuss these topics in more detail, we’d love to hear from you.

Until next quarter…

The comments made in this commentary are opinions and are not intended to be investment advice or a forecast of future events.

Refer to the SMA All-Cap Value Fact Sheet for the Top 20 Holdings and performance data as of the most recent quarter-end.

*S&P 500 Index is a widely recognized, unmanaged index of common stock prices. The S&P 500 Index is weighted by market value and its performance is thought to be representative of the stock market as a whole. You cannot invest directly in an index.

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Visit our webcast archive to hear Jeff Muhlenkamp, Portfolio Manager, summarize the economy using his 10-point checklist. Also, to celebrate our 40th anniversary, we asked Ron Muhlenkamp, Portfolio Manager, to reflect on lessons he has learned and changes he has seen since he founded Muhlenkamp & Company in 1977. Don’t miss Ron’s insights and observations.

Watch the video archive or read the amended transcription (including slides).


Click here for the amended transcription (including slides).

Click here for slides only (no audio or transcription).

If you have questions or comments about the content of the webcast, don’t hesitate to send us a message or call us at (877)935-5520 extension 4.

For the Top 20 Holdings and performance data as of the most recent quarter-end, refer to the SMA All-Cap Value Fact Sheet.

The opinions expressed are those of Muhlenkamp and Company and are not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

No File Found

Click here for a printer-friendly PDF of the Memorandum.

Refer to the SMA All-Cap Value Fact Sheet for the Top 20 Holdings and performance data as of the most recent quarter-end.

In this Muhlenkamp Memorandum:
Quarterly Letter
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. The European Central Bank hinted during a speech in late June that it may be appropriate to think about ending their program, but the Bank of Japan isn’t even discussing ending theirs. We’ll have to see how things develop…

Muhlenkamp & Company’s 40th Anniversary
This year marks the 40th anniversary of the founding of Muhlenkamp and Company, Inc. We are pleased, proud, and grateful that we have been able to serve our clients and the community for the last forty years…

Creating a Budget
A budget is a written plan of how you will spend your money for a specified time period (usually monthly). Typically in the form of a spreadsheet, this tool can help you manage your future spending in an attempt to keep your expenses aligned with your income and your financial goals. Budgeting is planning and looking forward, not backward…

Register for our Upcoming Webcast
On Tuesday, August 22, 2017 from 4:00 p.m. – 5:00 p.m. ET, join Tony Muhlenkamp as he hosts a chat with Portfolio Managers Ron and Jeff Muhlenkamp. You will have the opportunity to submit questions during the second half of our webcast.

Archive Available – May 11, 2017 Webcast
When it comes to building our portfolios, we say we build them from the bottom up and then we edit them from the top down. During our webcast Portfolio Manager Jeff Muhlenkamp along with President Tony Muhlenkamp shared our process. Jeff also talked about some of the key indicators that we are following to give investors an insight into what we are doing and why.

Don’t Be Left Out On Important Notices and Invitations
Muhlenkamp & Company regularly publishes information that gets distributed by email only. If you don’t want to be left out, join our email list by clicking HERE or call us at (877) 935-5520 extension 4. Your contact information will not be released to any third party.

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By Ron Muhlenkamp and Jeff Muhlenkamp, Portfolio Managers

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. The European Central Bank hinted during a speech in late June that it may be appropriate to think about ending their program, but the Bank of Japan isn’t even discussing ending theirs. We’ll have to see how things develop. French elections, which had the potential to be disruptive, turned out to be a non-event. We’ll see what Macron does now that he’s in power. He may manage to make some changes that will free up the French economy and get it moving again.

International trade has not been disrupted by a U.S./China trade war which some feared based on statements made by President Trump. Chinese economic growth continues to meet their government-set goals of about 6.5% and the renminbi has been fairly stable against the dollar. Interestingly, the organization that governs what countries are included in global stock indices decided in mid-June to start including Chinese shares in the global index (MSCI EAFE Index*) for the first time. Lastly, the war in Syria hasn’t created any economic problems either.

Domestically, the economy continues to grow at about 2% when adjusted for inflation. Inflation remains below 2%, aided by declining oil prices which have dropped from about $50 per barrel at the start of the year to close to $40 per barrel currently. Unemployment remains low but wages haven’t grown much. The Federal Reserve raised the Federal Funds rate (short-term interest rate they charge banks that sets short-term rates in the U.S.) by another .25% to 1.25% as expected and they detailed how they intend to reduce the size of their balance sheet in the near future, but not when they would start. While short-term interest rates have risen, long term-interest rates have not.

In the March newsletter and again during our May webcast (both of which can be located on our website www.muhlenkamp.com) we told you that small business optimism had improved immensely postelection—it remains at high levels even though neither the promised health care revamp nor tax cuts have yet come out of Washington. First quarter earnings in the aggregate were good, with both revenues and earnings coming in higher than the prior quarter. On the negative side, we are seeing enormous disruption in the retail sector as consumers change how they shop, creating a few big winners and many big losers. A year ago we saw increased bankruptcies in energy companies, now it’s happening to retailers. We are also seeing an increase in credit defaults by consumers—mostly with auto loans but a little bit with credit cards too.

The U.S. stock market, in aggregate, is expensive relative to its own history and margin debt (money borrowed from brokers to buy stocks, using the stocks themselves as collateral) is once again setting new highs.

That’s what we are seeing. Here’s what we think:
• We expect slow economic growth in the U.S. to continue in the short term while recognizing we can’t see very far down the road. The signs we are seeing in the credit markets are not immediately disconcerting, but will become a concern if they get worse. Increased business optimism hasn’t resulted in increased capital investment by companies—we’re watching for signs of that too.
• We think assets in general (bonds and stocks) have been supported in part by central bank asset purchases. That era may be coming to an end as the Federal Reserve begins to shrink its balance sheet. This makes us cautious and we’ll be paying close attention to the plans of the foreign central banks we’ve talked about as well as the implementation of the Fed’s plans.

Here’s what we are doing:
• We continue to sell assets that have done well for us and reached what we consider full value and invest in undervalued companies when we find them. We are comfortable holding cash when we can’t immediately find undervalued companies.
• We don’t own any bonds as they remain overpriced relative to inflation.
• We are slowly reducing our holdings of companies that are most exposed to the cyclical aspects of the domestic economy.

Until next quarter…

The comments made in this commentary are opinions and are not intended to be investment advice or a forecast of future events.

Refer to the SMA All-Cap Value Fact Sheet for the Top 20 Holdings and performance data as of the most recent quarter-end.

*MSCI EAFE Index is a stock market index that represents the equity market performance of large and mid-cap securities outside the U.S. and Canada. The EAFE acronym indicates that the location of the 21 developed markets are within Europe, Australasia, and the Far East.

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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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