By Ron Muhlenkamp
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 andprices 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. Ten-Year Treasuries now3% and 30-Year Treasuries now 4 percent.1 We do think most of the damage to bond prices has now been done, at least unless and until picks up (which is a goal of the Fed).
As the Fed has held interest rates below economic levels, many investors have sought (and demanded) other sources of “Quarterly Letter, April 2013, we warned you about “creative sources of ” that Wall Street was—and is—marketing in response to these demands. Some of these products confuse payout (of capital) with (on capital). Our warning remains current: generally speaking, did poorly in 2013, in concert with .” from their investments. In the
The increase in U.S. interest rates, along with weakprices and other factors, also limited gains in emerging markets, making it tough to make money there, as well. While we had not specifically warned you about this , we avoided the area to your (and our) benefit.
Employers continue to be squeezed by taxes, regulations, and healthcare costs; hence, potential employees continue to have trouble getting hired. Retirees and pension plans continued to be squeezed by below-normal interest rates; (see the essay, The Big Squeeze).
Europe has not fixed their fundamental problems (although the passage of time helps dissipate the fears).
China continues to try to transition from a capital-driven to a consumer-driven economy, but it’s taking longer than planned. (It always does.) The China transition helps our conviction that thecycle peaked a year ago.
So where does that leave us? We continue to expect slow growth in the U.S. economy, but good values are getting harder to find. We do think that long-term trends remain positive in select financials, natural gas-based energy, biotech, and some areas of U.S. manufacturing (largely based on natural gas prices). We are investing your money (and ours) accordingly.
1 As of January 6, 2014, the 10-Year Treasurywas 2.98%; the 30-Year Treasury was 3.90%. Source: www.treasury.gov
The comments made by Ron Muhlenkamp 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.