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.

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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
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.

No File Found

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.

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
When we began 2018, we thought the markets would be dominated by two important changes: the passage of the new tax law in the final days of 2017 and a decline in dollar liquidity as the Federal Reserve both raised short-term rates and reduced the size of its balance sheet

Letter to My Daughters: On Retirement
Girls, I hate to tell you this, but you should plan on saving more and working longer than your parents and grandparents…

Avoiding Escheatment
Escheatment is when forgotten, abandoned, or unclaimed property (including physical and financial assets) is turned over to the state of the owner’s last known residence if the company holding the property is unable to contact its rightful owner. Take steps to prevent escheatment of your accounts…

Register for our Upcoming Webcast
Join Tony Muhlenkamp as he hosts a chat with portfolio managers Ron and Jeff Muhlenkamp. Hear about current market activity and the state of the economy. In addition to listening to the discussion, you will have the opportunity to ask questions.

Archive Available – November 15, 2018 Webcast
At our November webcast, Ron and Jeff Muhlenkamp examined the ripple effect and the unintended consequences of changes to interest rates, regulations, tariffs, and the money supply. An example being: In an effort to unwind its Quantitative Easing measures, the Federal Reserve is continuing to raise short-term interest rates and reduce its balance sheet. These higher interest rates have contributed to a slowdown in the housing market which could lead to a decline in home prices.

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By Ron Muhlenkamp and Jeff Muhlenkamp, Portfolio Managers

When we began 2018 we thought the markets would be dominated by two important changes: the passage of the new tax law in the final days of 2017 and a decline in dollar liquidity as the Federal Reserve both raised short-term rates and reduced the size of its balance sheet. We thought the first change would be good for the economy in both the short and long-term and the second change would be negative for most asset markets. We didn’t hazard a guess regarding when the negative influence would start to appear. As a result, we were comfortable holding some cash at the start of the year but also wanted to participate if the economy took off.

As the year unfolded we ended up selling into what was a rising market in the spring and summer—not because of the larger view, but because of changes to the fundamental outlook or the price action of the stocks we owned. We sold some companies because their business prospects changed and no longer met our expectations and sold others that had become fully valued or overvalued and lost their upward price momentum—our normal sell criteria. Since we were unable to find good companies at attractive prices we held onto the cash. As a result, we looked pretty dumb during the first half of the year with our return significantly underperforming a still rising S&P 500. When the S&P 500 began to decline in September and October we didn’t look (or feel) quite so dumb as our cash helped us to outperform on a relative basis late in the year. The outperformance late in the year was not enough to outweigh the underperformance earlier in the year, thus we underperformed for the year as a whole.

As we begin 2019 we are still in a slowly shrinking dollar liquidity environment: the Federal Reserve has indicated it will continue to shrink its balance sheet and consider additional short-term rate increases during the year. Additionally, the European Central Bank (ECB) ended its asset buying program in December 2018, so it is no longer pushing additional euros into global asset markets. Thus, support of asset prices by central banks continues to gradually shift into reverse. This year we cannot identify any big positive change(s) for the U.S. economy like last year’s tax bill. In fact, in October we saw a decline in U.S. housing activity as high new home prices and higher mortgage rates reduced new home sales. We expect the slowdown in housing to continue in 2019 and consider it an incremental negative as we look at the U.S. economy. Additionally, we don’t see a big positive for any other economy around the globe. We are seeing slowing economic growth in Europe, Japan, and China as well. In sum we are seeing slowing economies and shrinking liquidity —a poor environment for good returns on assets.

Our outlook on inflation has shifted a little bit recently. Six months ago we said we were uncertain about whether we would see higher inflation going forward but we thought the risks were to the upside. Since then oil prices have dropped from $75 per barrel to $45 per barrel with many other commodity prices dropping as well. Consequently we no longer think the risks are to the upside and don’t expect higher inflation in the near future.

We also see a couple of wild cards out there. The first is Brexit, which is scheduled to happen in late March. Currently there is no agreement between the United Kingdom and the European Union (EU) to govern relations between them post Brexit and the proposed agreement they’ve been negotiating for two years has yet to come up for a vote in the English Parliament. If Brexit occurs without an agreement (a “hard” Brexit) we expect some volatility, but don’t know how much. It is also possible that an agreement will be reached or that the negotiation process will be extended. The second wild card is the ongoing trade dispute between the U.S. and China. This has the potential to get better or worse and we have no insight into which way it will go. The range of possible outcomes is wide and could impact markets significantly either in a positive or negative fashion.

As the New Year begins we have plenty of cash available to invest but are in no hurry to put it to work. We will continue to methodically search for good investment opportunities and will be patient until we find them.

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.

Federal Funds Rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. It is the interest rate banks charge each other for loans.

S&P 500 is a widely recognized, unmanaged index of common stock prices. The S&P 500 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.

No File Found

At our November webcast, Ron and Jeff Muhlenkamp examined the ripple effect and the unintended consequences of changes to interest rates, regulations, tariffs, and the money supply. An example being: In an effort to unwind its Quantitative Easing measures, the Federal Reserve is continuing to raise short-term interest rates and reduce its balance sheet. These higher interest rates have contributed to a slowdown in the housing market which could lead to a decline in home prices.

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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At the age of 75, Ronald H. Muhlenkamp retired from the investment management firm Muhlenkamp & Company, Inc. on February...
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2017 marked the 40th anniversary of the founding of Muhlenkamp and Company, Inc. We are pleased, proud, and grateful that...
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