Don’t miss our next webcast (Rescheduled from November 21, 2019):

Join Tony Muhlenkamp as he hosts a chat with Ron and Jeff Muhlenkamp. They will discuss what they are seeing in the economy and the markets. In addition to listening to the conversation, you will have the opportunity to ask questions.

Date: Wednesday, December 11, 2019

Time: 4:00 p.m. – 5:00 p.m. ET

Registration is required, so CLICK HERE TO REGISTER
After registering, you will receive a confirmation email containing information about joining the webcast.

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Don’t miss our next webcast:

Join Tony Muhlenkamp as he hosts a chat with Ron and Jeff Muhlenkamp. They will discuss what they are seeing in the economy and the markets. In addition to listening to the conversation, you will have the opportunity to ask questions.

Rescheduled Date: Wednesday, December 11, 2019

Cancelled Date: Thursday, November 21, 2019

Time: 4:00 p.m. – 5:00 p.m. ET

Registration is required, so CLICK HERE TO REGISTER
After registering, you will receive a confirmation email containing information about joining the webcast.

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
It’s been a noisy summer. Lots of political news, lots of tariff and trade war news, lots of international headlines of various sorts. Funny thing though, as we write this note during the last week of September the S&P 500 Index is within three percent of the all-time high it set in July. By that measure, it’s been a quiet summer…

Letter to My Daughters: On Money
We talk about money a lot in our family, which is no surprise since the family business is helping people with their money so that they can enjoy financial independence and some freedom in how they live. And most of our conversations are practical and pragmatic in terms of how to earn money, how to invest it, how to support a philanthropy, how to fund an education, how to manage taxes, etc. When we talk about money, we rarely make any value judgements about it…

Register for our Upcoming Webcast
Join Tony Muhlenkamp as he hosts a chat with Ron and Jeff Muhlenkamp. They will discuss what they are seeing in the economy and the markets. In addition to listening to the conversation, you will have the opportunity to ask questions.

Archive Available – August 29, 2019 Webcast
During our webcast Ron and Jeff Muhlenkamp examined some financial indicators to determine the overall health of the economy. In summary, they share that economic indicators remain mixed, though a little worse off than last quarter. In some aspects of the economy, there has yet to be a full recovery from the previous recession. Are we headed for another downturn in the near future? See what your conclusion is after hearing their economic report.

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By Ron Muhlenkamp, Founder and Jeff Muhlenkamp, Portfolio Manager

It’s been a noisy summer. Lots of political news, lots of tariff and trade war news, lots of international headlines of various sorts. Funny thing though, as we write this note during the last week of September the S&P 500 Index is within three percent of the all-time high it set in July. By that measure, it’s been a quiet summer.

If we filter out the noise, what are the important things going on today, economically, financially, and politically? Here’s what we observe:

1. The reset in trade relations between the U.S. and China is still being negotiated. Some of the tariffs announced over the last year have actually taken effect, others have been delayed. At this time, we hesitate to predict when a comprehensive agreement might be reached and are assuming the negotiations continue for the foreseeable future with the accompanying noise.

2. The renegotiation of the relationship between the United Kingdom and the European Union (EU) is ongoing. Despite a new Prime Minister (Boris Johnson) in the United Kingdom and an October 31st deadline, this doesn’t look like it will be resolved any time soon either. We are likewise loathe to predict the eventual outcome of this debate or to estimate the timeline. It seems that investors have reached a similar conclusion as news on this topic hasn’t impacted markets lately.

3. Germany is very near, or already in, a recession. Slowing growth in China is having a magnified effect on Germany—which supplies China with capital and luxury goods. As the biggest economy in the EU, a German recession could hurt a lot and increase the risks to financial markets presented by weak European banks. We don’t think we’ve seen the full impact of this yet.

4. U.S. treasury yields plunged in August, setting new lows for the 10-year and 30-year, inverting the yield curve (when short-term rates are higher than long-term rates), prompting the Federal Reserve to end their balance sheet reduction program ahead of schedule and to cut the Federal Funds Rate (short- term interest rates that they control) twice: by .25% in August and by .25% again in September. Recall that the Federal Reserve raised the Federal Funds Rate by .25% in December 2018—they have very quickly reversed themselves. An inverted yield curve has historically been the harbinger of recessions in the United States, with a lag of between 6 and 18 months. Historically, the yield curve typically inverts when the Federal Reserve raises short-term rates above long-term rates in a deliberate effort to slow the economy and contain inflation—that’s not the case this time. The Federal Reserve is not trying to fight inflation and was trying to restore short-term rates to something they consider “normal”. Long-term rates dropped below short-term rates, surprising the Fed (in our opinion). We hesitate to say “this time is different” with regard to a yield curve inversion as that is usually a dangerous statement to make, but things are a little different this time and it is at least possible that the outcome will be different as well.

5. Inflation remains low. The U.S. Consumer Price Index (CPI) shows 1.7% year-over-year inflation at its latest reading. Recall that the Federal Reserve’s goal is inflation of 2%—thus the above statement that they are not raising rates to contain inflationinflation is actually lower than their target.

6. The industrial growth is slowing in the U.S. and globally (see German recession above). In the U.S. this looks a lot like the slowdown we saw in late 2015 – early 2016. In fact, this is the third such slowdown since the last recession—the first was in late 2011. Neither of the first two resulted in a recession. If the availability of credit drops (we’re not seeing this now) or the service side of the economy slows down as well (the signals here are mixed), we could be looking at a recession in the near future.

Looking forward, it’s not a stretch to suggest that political actors will increasingly attempt to sway voters with their actions, and market participants will factor into their forecasts the likelihood of policy change. Does that mean President Trump will look for a “win” with China timed to help him in the ’20 election? Very possibly. Has the recent weakness in Healthcare and Energy been due to the emergence of Senator Warren as the Democratic frontrunner? Also possible. What we believe is certain is that investors like us will do their best to anticipate the outcome of the election and position their portfolios accordingly.

We remain reasonably defensive in our holdings and continue to evaluate them on an individual basis—selling when full value is reached, buying what we view as undervalued. In general, we are not adding companies that we consider particularly sensitive to the economic cycle because we haven’t seen indicators of the slowdown begin to improve and frankly most “cyclical” companies aren’t priced for a recession. We’ll be patient.

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.

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During our webcast Ron and Jeff Muhlenkamp examine some financial indicators to determine the overall health of the economy. In terms that we can all understand, they explain each chart, slide by slide, looking at both causes and symptoms of conditions that can lead to growth or decline. In summary, they share that economic indicators remain mixed, though a little worse off than last quarter. In some aspects of the economy, there has yet to be a full recovery from the previous recession. Are we headed for another downturn in the near future? See what your conclusion is after hearing their economic report.


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.

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
The Federal Reserve last raised short-term interest rates in December 2018 and is now actively talking about cutting them. The futures market, in fact, is pricing in two to three cuts this year. The Fed has also stated they will end the shrinking of their balance sheet in October. They’ve undergone quite a shift in thinking over the last six months…

Lions and Tigers and Bears, Oh My!
Lately I am reminded of the scene from the Wizard of Oz which introduces the Cowardly Lion. Just before he leaps out at them, Dorothy and friends are worried about “Lions and Tigers. And Bears. Oh My!” Today we are hearing “Inflation and Deficits and Trade Wars, Oh My! Recessions and Debt and Negative Rates, Oh My!

Register for our Upcoming Webcast
Join Tony Muhlenkamp as he hosts a chat with Ron and Jeff Muhlenkamp. They will share their observations on 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.

Archive Available – May 30, 2019 Webcast
Ron and Jeff Muhlenkamp used several economic charts to discuss the trends they see, data that concerns them, and indicators that keep them optimistic. Listen to the archive to hear the discussion.

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By Ron Muhlenkamp, Founder and Jeff Muhlenkamp, Portfolio Manager

Here are the highlights of what we’re seeing so far this year:

The Federal Reserve last raised short-term interest rates in December 2018 and is now actively talking about cutting them. The futures market, in fact, is pricing in two to three cuts this year. The Fed has also stated they will end the shrinking of their balance sheet in October. They’ve undergone quite a shift in thinking over the last six months! Our concern last year was that the Fed, through the reduction of the balance sheet, would reduce dollar availability and cause asset markets to fall. The Fed’s actions this year have alleviated that concern.

Another dramatic reversal occurred in early May when the trade negotiations with China, which had appeared to be moving towards an agreement, came to a screeching halt as China had second thoughts about some of the terms of the agreement and the U.S. imposed another round of tariffs. The relationship with China was further strained a week later when the United States restricted sales of semiconductors and software to Huawei (a large Chinese tech firm that makes networking gear and low-cost cell phones). Huawei is somewhat of a national champion company in China, and cutting them off from U.S. suppliers is a mortal threat to the company. President Trump and President Xi met at the G-20 meeting in Osaka at the end of June and agreed not to take additional measures in the near term and to resume formal talks. The path forward is murkier than ever and we have no idea how or when a resolution will be achieved.

The same can also be said of Brexit (the withdrawal of the United Kingdom from the European Union). Prime Minister Theresa May has stepped down in the United Kingdom after having failed to find a way to exit the European Union that Parliament could accept. The UK is now going through the process of selecting a new Prime Minister. What that will mean for the Brexit process is unclear. Brexit concerns have not influenced the markets in a while, but the potential exists for the matter to become important again depending on the course of action the United Kingdom chooses, if they ever choose one.

On the home front, a number of U.S. economic indicators that we keep an eye on have begun to weaken, particularly in the industrial portion of the economy. The odds that we will see a slowdown similar to the one we saw in the winter of 2015 – 2016 are increasing. The stock market has not priced that in yet, but arguably the bond market has, as interest rates have fallen pretty dramatically this year with the 10-year U.S. Treasury yield falling from a high of 3.2% in October of 2018 to just over 2% today (that’s a pretty dramatic move in the bond market). It is possible, but by no means certain, that the slowdown will become a recession. Developments in this area certainly have our attention.

In summary, the Fed is no longer squeezing, there is increased uncertainty around trade and Brexit, and we see indications that the economy is slowing down. That’s what has been happening.

As we look forward, we expect uncertainty over trade and Brexit will continue. Until market participants think they can handicap the potential outcomes with some confidence, the news flow will probably affect market prices on a daily basis, so we expect some volatility. Currently market participants view the bad economic news as good for the market because they anticipate weak economic metrics will prompt the Fed to cut interest rates. If economic fundamentals continue to weaken those same participants will come to view bad economic news as bad for the markets. We already consider bad economic news as bad for the markets, which is partly the reason we have a higher-than-normal cash position. The other reason we are holding cash is we are simply not finding many investment opportunities that look interesting. As we find interesting opportunities, we will put the cash to work.

You may know that we’ve owned a gold ETF for several years now. We bought it as a hedge against central banks doing stupid things but for most of our holding period it has done very little – until recently. Gold is up about 10% in the last month.

So that’s what we’re seeing, and thinking, and doing. As always, if you’ve got questions give us a call, we’d love to talk with you.

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.

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During our webcast, Ron and Jeff Muhlenkamp use several economic charts to discuss the trends they see, data that concerns them, and indicators that keep them optimistic. For example: Delinquencies in auto loans continue to tick up. Credit card debt is now a concern and negative nominal yields on bonds continue in some countries (a historical aberration). Small business optimism and consumer confidence remain high. Watch our webcast to see what else they have to say.


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.

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
A couple of noteworthy changes have occurred in the first quarter of 2019: First, the Federal Reserve has reconsidered their program of interest rate increases and balance sheet reductions. They now intend to hold short-term rates steady in 2019 and end their balance sheet reduction program in October 2019…

Letter to My Daughters: On Financial Health and Wellness
Financial Health and Wellness has a LOT in common with Physical Health and Wellness, especially in the sense that everyone knows it’s important, and they even know how to do it (make more, spend less, and invest the difference), but very few people actually do what it takes to achieve it. So, I’m starting to think people haven’t determined WHY they should work to get and stay financially healthy. Just as I needed a sufficient WHY to eat better, manage stress, and exercise; people need a good WHY to earn, save, and invest…

Register for our Upcoming Webcast
Join Tony Muhlenkamp as he hosts a chat with Ron and Jeff Muhlenkamp. They will discuss the U.S. economy and some highlights globally. They will look at the markets and talk about what they find interesting there. In addition to listening to the conversation, you will have the opportunity to ask questions.

Archive Available – February 28, 2019 Webcast
Ron and Jeff Muhlenkamp update their views on the economy and the global investing environment. Negative developments include: slowing global economic growth and diminishing positive impacts from the 2017 tax law changes. Positive developments include: a fairly stable domestic economy and a shift in Federal Reserve attitudes and possibly actions. Give it a listen for more details.

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By Ron Muhlenkamp, Founder and Jeff Muhlenkamp, Portfolio Manager

A couple of noteworthy changes have occurred in the first quarter of 2019:

First, the Federal Reserve has reconsidered their program of interest rate increases and balance sheet reductions. They now intend to hold short-term rates steady in 2019 and end their balance sheet reduction program in October 2019. Last year, we wrote extensively about the risk to asset prices we saw in the Federal Reserve’s asset reduction program and, we believe, the market started reacting to that program in October 2018. We are not at all surprised that the stock market rebounded when the Federal Reserve announced the change in their thinking.

Second, the U.S. Treasury yield curve inverted in late March 2019. A “yield curve inversion” occurs when short-term interest rates are higher than long-term interest rates. In this case the 3-month Treasury yield was higher than the 10-year Treasury yield. As we’ve mentioned before, conventional wisdom considers this a sign of an impending recession, with the recession following the inversion by anywhere from 6 months to 2 years. As a result of the inversion, stock prices didn’t move too much, but bond prices did: the yield on the 10-year Treasury went from 2.6% to 2.4% in two weeks—a sharp move in the bond market. Even with the recent drop in interest rates short-term rates have remained above the rate of inflation, a benefit to savers and pension funds and increasingly a rare set of circumstances when looked at from a global perspective.

Looking at the domestic economy, economists expect 2.4% real GDP growth in the U.S. this year and 1.9% real GDP growth next year. That’s significantly slower than the 2.9% GDP growth we saw in 2018. On balance, the economic data we are seeing is consistent with slower growth than last year. We are not seeing signs of an imminent recession. One bright spot is the housing market where we are seeing better than expected sales numbers as the spring selling season begins. Inflation remains subdued between 1.5% and 2%. We don’t currently see a reason for inflation to increase meaningfully.

Globally, economic growth is weak in China and virtually non-existent in Europe. The Chinese government is actively trying to manage its growth slowdown and, so far, appears to be successful—keeping growth in a range that they consider acceptable. Europe isn’t faring as well. As a result of weak economic numbers the European Central Bank (ECB), which ended its asset buying program in December, is talking about restarting the program to support growth. The “Brexit” debacle in Great Britain isn’t helping matters. After two years of negotiations, the British Government still has no clear idea what they want the split from the European Union (EU) to look like. The British parliament has voted on eight separate concepts, and rejected them all. The deadline for “Brexit” has been extended from March 29, 2019 to April 12, 2019. We expect it will be extended several more times as the debacle drags on. Also, on the international front, the U.S. and China continue to negotiate over trade and we expect something to get worked out this year. Neither “Brexit” nor the trade negotiations with China appear to move the stock market any more—we believe our views to be widely held.

In summary, the U.S. economy appears to be slowing this year, but perhaps not as much as we thought four months ago. The threat to asset markets posed by the Federal Reserve’s shrinking balance sheet is receding, and disruption due to tariffs or Brexit is also less likely. Slowing global growth remains a concern and we’ll be watching what happens in China pretty closely. The inversion of the yield curve is also a cautionary sign. During the last quarter we’ve invested some of our cash in good companies at prices we found attractive. We will continue to do so.

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.

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