A Word from Jeff: Mid-year Performance Commentary

After a very robust and profitable 2017, performance across most equity markets has struggled this year. This has been particularly noticeable where there is a strong international investment, as in many Camarda portfolios.  After a very impressive 2017 and early 2018, the stock markets have stalled, and non-US investments have stalled the most. There are many reasons for this. US interest rates continue to rise, attracting capital flows and driving the dollar higher, as forces sell foreign currencies and buy dollars to access US markets. This trend is accelerated by governments like China actively driving their currencies lower to make their exports cheaper in dollar terms. A higher dollar makes it harder for US companies to compete worldwide as our goods become more expensive when purchased with foreign currencies, and it hurts investors like Camarda in foreign stock markets, as those investments drop in the dollar terms our statements are calculated in. A second factor is the rising cost of oil – which is priced in US dollars – increasing production and transportation costs for all but especially emerging markets economies, reducing profitability. But the big factor is the looming trade World War, driven by US actions. While Camarda still believes this will come out all right and even better than before, there is no doubt that it is already costing everyone a lot. Since the US is the world’s biggest market, protectionism here – tariffs on imports – puts a big damper on the economic prospects of those who sell here, namely most of the rest of the world. The fear of this economic chill is currently priced into non-US markets, which have stumbled since the economic sabers commenced to rattle early this year.

Camarda does not expect these conditions to continue. The potential for pain and deep economic damage is just too high. A good analogy may be the old Cold War nuclear doctrine called MAD for Mutually Assured Destruction. No one would start a nuclear war since all sides would perish.

Camarda continues to believe that non-US investments offer outstanding value compared to a fairly frothy late-stage US bull market, and ultimately will be more profitable. For this reason we think clients should continue to have significant allocations to Offshore exposure. The price of long term out performance is very often short-term pain and uncertainty, but we believe Camarda investors will be very richly rewarded for their patience and fortitude.

As some of you may recall, we were honored this summer to be interviewed by Barron’s, who wanted to publish our views on smart investment allocations for the markets ahead. We were doubly honored to be asked by a senior Barron’s writer and expert in non-US markets for a follow up interview this week, a very smart lady and graduate of the Columbia School of Journalism. After quizzing and challenging Jeff for some time about Camarda’s views on non-US investments, she admitted at the end that our views echoed Barron’s. It’s nice to be in smart company!

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