2016 continues to unfold better than many had expected during the dismal first quarter. The U.S. economy is chugging along at a respectable pace, and remains the envy of the world. Consumers’ optimism and spending remains strong, which is significant as they represent about 70% of economic activity. While some real estate sectors’ valuations are looking a bit frothy, the housing industry continues to improve and lend strength to the economic picture. Business spending and investment seem to be in pause mode, widely attributed to hesitation over how to adapt to the uncertain policies of the next presidential regime, a cloud I expect to clear by year’s end. The unusual presidential election politics of this cycle have given many pause and reason to keep powder dry until the smoke starts to clear near the end of the year. Adding to the uncertainty is the so-called “Brexit” dilemma, the U.K.’s referendum to restore Britain’s economic independence—a simpler process for the Brits as they’re the only ones not to have exchanged their sovereign currency for Euros. While Camarda believes that a Brexit would be somewhat disruptive, we don’t think it would be devastating. Some financial which many readers will recall to have been an overblown non-event. Regardless of which way it goes, we believe Europe (including the U.K.) to on the mend, and a very undervalued place to invest right now, and is a prime area targeted by the new AIMS™.
As we noted last issue, the old adage “sell in May, and go away” was likely not sound advice this year with the month producing solid gains and the market actually reaching new highs recently. As we’ve said a few times this year, “Camarda believes that stocks will continue to perform for the next year at least, for several reasons. Among them: 1) U.S. economic data continues to improve with employment and inflation (at last!) both up 2) the Fed appears set to slow the pace of interest rate increases, weakening the dollar (good for exports and big companies’ bottom lines), and leaving few alternatives to stocks for investors seeking even modest returns, and 3) oil seems to have (for the moment at least) bottomed hard and bounced from the low 20s to over 40, alleviating a concern that had (somewhat irrationally) scared the dickens out of investors around the world.” These expectations continue to seem to be holding true as we move into midsummer. While we expect it to persist another year or so, the bull market in U.S. stocks has become overlong in the tooth, and, overall, represents an overvaluation in our view. Bargain hunting and shrewd selections are especially important in times like these, and as Mario Gabelli recently said in Barron’s, “. . . it’s a great time to pick stocks.” Camarda is adjusting its portfolio advice to all clients in anticipation of the market conditions it expects in the months and years to come.
As noted last time, we expect the U.S. economic outlook to remain good but not great, and still expect Europe to brighten considerably over the next year—Brexit or no. We remain neutral on Asia and most emerging markets and are still slightly negative on South America. We still see U.S. interest rates going up but very slowly, with most of the rest of the world hovering at or below zero into 2017 at least. We think the U.S. dollar will remain stable to slightly weaker in line with our interest rate expectations, which is good for exports and the U.S. economy.
As suggested above, the fairly-to-overvalued U.S. stock market, while still buoyant, is probably best approached from a value perspective; we particularly like U.S. small cap value stocks and non-U.S. value stocks across the cap range (big ones, small ones, and medium ones), and repeat that we think that Europe is very cheap right now.
Once again, we believe that a new bear market will eventually come, but not in the near term. When we do get a significant downdraft, most investors will probably be best served by staying invested and riding out the turbulence, rather than trying to time the market, an exercise that most practitioners (even highly trained professionals) find disappointing at best. The great meltdown of 2008 provides many heartbreaking examples of investors who sold at or near the bottom, then stayed in cash (some for years) missing most of the rebound. While this huge bear market was painful, those who stuck to their guns eventually did quite well, and, perhaps, did much better than those who were swayed by emotion and made a long-term decision based on short-term information. Over the long term, the stock market has done very well for nearly every significant period, and investors who find a way to make peace with riding this wave are usually very richly rewarded. While we believe the path forward to be a bit uncertain and that our investment decisions and selections should be especially deliberate, remembering the long-term tendency of the markets helps us to overcome the anxiety of day-to-day price moves, ignoring distractions, and staying more comfortably on the path to wealth.
Finally, please pay more attention to the statements Camarda produces for you quarterly. They contain very accurate performance information, and quickly (on the first two EZ pages) show you exactly how much you are up (or down) since inception and for the last quarter, after fees, after how much you may have put in or taken out, and with all dividends and interest neatly added up.
