Camelot Portfolios Talking Points

Unemployment fall, but is there a catch?

April unemployment data was released on Friday morning before the market opened. Expectations by forecasters suggested a 10 basis point rise month over month, but data given by the Bureau of Labor Statistics calculated a decrease in unemployment to 4.4 percent (Bureau of Labor Statistics). This is the lowest jobless rate since May 2007. Although unemployment keeps improving, other underlying factors suggest a couple of imperfections in the façade.

Picture1.jpg

The labor force participation rate still seems to show little improvement compared to unemployment. Last month, the participation rate hovered at 62.9 percent, but trajectory over the past 10 years shows a declining workforce (Bureau of Labor Statistics).

Picture1.jpg

Looking geographically at each state, rustbelt states are lagging behind the national average for unemployment. Ohio and Michigan’s unemployment rate is .70 percent above the national average at 5.1 percent (Bureau of Labor Statistics). Pennsylvania is above the national average by .40 percent (Bureau of Labor Statistics).

                                                      Source: Bureau of Labor Statistics

                                                      Source: Bureau of Labor Statistics

While participation and geographic disparities are lagging factors for unemployment, wages and hours worked continue to improve. Average hours worked per week stands at 34.4 hours and average wage per hour was $26.19/hour (Bureau of Labor Statistics). This is a year over year improvement for both month over month (Bureau of Labor Statistics).

1st Quarter Market Sales and Earnings

The past several weeks has been a major focus for both analysts and corporations. The majority of S&P 500 companies report earnings within a 3 week window every quarter. Using a market cap weighted average, earnings growth across domestic companies increased 3.94 percent year over year in the first quarter (Morningstar Direct). Weighted average sales growth increased 1.05 percent. Sectors with the greatest income growth were energy, up 19.33 percent, and healthcare, up 4.64 percent (Morningstar Direct). The communication services sector continues to struggle with a decrease in earnings of 1.45 percent (Morningstar Direct).

                                                         Source: Morningstar Direct

                                                         Source: Morningstar Direct

While earnings are growing at a steady pace, revenues continue marching close to the rate of inflation. The sector with the greatest increase in sales was energy, 4.99 percent (Morningstar Direct). Industrial sector revenue growth remained relatively flat year over year growing .33 percent (Morningstar Direct).

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Bureau of Labor Statistics. "April Unemployement Rate." 2017. News Release.

Morningstar Direct. direct.morningstar.com. May 2017. 2017.

 Disclosure

The material presented is for use by professional advisors only.  It is intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.  A435

Camelot Portfolios Talking Points

First Quarter GDP Disappoints

As “soft” economic data continues to point a rosy picture, “hard” economic data continues to diverge and paints a differing picture. Last Friday, the US Bureau of Economic Analysis released GDP data for 2017’s first quarter. The actual GDP growth rate was .7 percent, and average estimates from economists forecasted a 1.2 percent growth (Reuters). Domestic markets did not seem to react to this report leaving the S&P 500 losing .19 percent over Friday’s trading (Yahoo Finance). Economists at the start of the year were more optimistic. As the monthly economic data was released, estimates started to contract to the 1-2 percent range (Reuters).

Looking into contributing factors for GDP, personal consumption, private investment, and next exports/imports were expansionary over this quarter. Personal consumption grew .23 percent, private investment grew .69 percent, and net export/imports increased .07 percent (Bureau of Economic Analysis).

Government consumption detracted from GDP by .3 percent. Factors contributing to this decrease were federal consumption decreased .13 percent and State/Local decreased .17 percent (Bureau of Economic Analysis).

Looking forward towards the second quarter, the first estimate by the Federal Reserve of Atlanta points towards a greater increase compared to the first quarter. As of this week, the forecasted estimate for the second quarter is 4.3 percent (Federal Reserve Bank of Atlanta).

 Trump Tax Proposal

A press briefing by the White House staff outlined a proposal to cut corporate and individual taxes. The proposal called for a consolidation of tax brackets from seven to three. The three rates will be 10, 25 and 35 percent, but no income ranges were outlined (CNBC). Corporate tax rate will be cut from 35 percent to 15 percent (CNBC). Elimination of tax deductions with the exception of mortgage interest and charitable contributions (CNBC). There were other details ranging from repatriation of cash, and elimination of estate tax (CNBC).

There were a couple of concerns noted that were not addressed within the proposal. The major one not outlined was a plan to be budget neutral. Other issues not addressed were closing the debt to “manageable levels” (CNBC).  The Trump proposal and congressional proposals will likely be blended and compromised in the end. There will likely be battles between both parties over what is in the bill. It will likely take significant time and effort to create this bill considering the historical accounts when Reagan overhauled the Tax code.

Looking at this from afar, the tax proposal could have a significant impact for US investment. It does likely create meaningful changes for individuals and businesses, but special interests for proposed eliminated deductions could slow down the process.

 Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Bureau of Economic Analysis. Q1 2017 GDP. 2017. 2017.

CNBC. The White House just outlined its tax plan. Here's what's in it. 2017. 2017.

Federal Reserve Bank of Atlanta. GDPNow. 2017. 2017.

Reuters. US first-quarter growth weakest in three years, as consumer spending falters. April 2017. 2017.

Yahoo Finance. S&P 500 Historical Performance. 2017. 2017.

 Disclosure

 The material presented is for use by professional advisors only.  It is intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.  A430

Camelot Portfolios Talking Points

The Battle for the European Union

This past weekend, France held its first round of elections for president. Emmanuel Macron and Marine Le Pen received the most votes and will be a part of the run-off election held May 7th. Politics in France, as well as other European countries, have altered their views over the past decade because of tensions derived from decisions made by the European Union. The major theme that has markets on edge is whether or not France will leave the EU like its United Kingdom counterpart (Wall Street Journal). Other themes of this election are labor reform and immigration (Wall Street Journal). 

European markets were optimistic after the first round of elections. In France the CAC 40 index, which is made up of the 40 largest and actively traded shares listed on Euronext Paris (EuroNext), increased 4.1% on Monday (EuroNext). The German DAX index, similar to the CAC 40, increased 3.3% during Monday’s trading session (Bloomberg). Other major swings in the market were the Euro currency strengthening 4.9% in value compared to the US Dollar (Bloomberg).

While there are 11 days until run-off election, sentiment among the media and financial professionals are pointing towards the status quo. Both candidates would be considered on the “right” side of the US right/left political spectrum. Emmanuel Macron seems to be in favor due to his more centralist ideas among French constituents (BBC). Marine Le Pen has been getting the most headlines because of the ongoing terrorist attacks in France (BBC).

Is US Housing Market Booming or Peaking?

As winter has lost its grip, spring and summer traditionally bring peak season for housing and construction. Last month, building permits across the United States rose 4.2 percent month over month (Economics).  While this is impressive growth, permits are still down historically from its average of 1356 thousand permits (Economics). New housing starts are still gradually increasing year over year by 9.2 percent, but it is 6.8 percent below February housing starts (US Dept of Housing and Urban Development). There is an increasing trend within construction, but is demand meeting up with supply.

The demand for residential properties is still keeping up with the supply around the United States, yet the price and inventory pressures are starting to creep into the picture. New home sales rose 5.8 percent month over month and 15.6 percent year over year (Bureau). The median sales price was $315,100 (Bureau); this is an increase of 1.8% year over year. Inventory for housing remained steady at around 5.2 months. 

Overall, demand and supply seem to be in equilibrium. There are a couple of deviations from the month to month, but construction and sales are in a steady increasing trend. A long term factor that may affect housing in the future are likely increases in interest rates. The Fed may have enormous control over short term interest rates, but fiscal, corporate, and consumer trends tend to play a greater part in long term interest rates. Whereas interest rates and job prospects play a role, every good realtor knows it comes down to “location, location, location.”

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

Works Cited

BBC. French Election 2017. April 2017. 2017.

Bloomberg. Bloomberg Markets. April 2017. 2017.

Bureau, US Census. Monthly new Residential Sales. April 2017. 2017.

Economics, Trading. Trading Economics. April 2017. 2017.

EuroNext. CAC 40. 26 April 2017. 2017.

US Dept of Housing and Urban Development. Monthly New Residential Construction. April 2017. 2017.

Wall Street Journal. French Election Results. April 2017. 2017.

Disclosure

The material presented is for use by professional advisors only.  It is intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  A408

Camelot Portfolios Talking Points

Market Volatility Report

In the past three months, the overall US equities market has been excellent for investors. In this time period, the S&P 500 increased 7.06 percent in 92 days (yahoo finance). Average Daily volume over these three months has been lower than the yearly average daily volume by 4.6% (yahoo finance). This is still within a reasonable confidence level, yet we have seen a relatively consistent decrease in trading volumes over this time period. Many factors are have caused an increase in market sentiment, and investors are starting to buy in upward trending market.

Decreased market volumes and buying investor sentiment in this relatively short time period seem to have substantially lowered volatility below historical market levels. Volatility on the S&P 500, commonly known as “VIX”, has stayed within a very tight range between 10.85 and 14.12 for 3 months (yahoo finance). This is fairly uncommon for the VIX to stay this low, but if the S&P 500 keeps methodically increasing over time, then we will likely see low volatility (yahoo finance).

Last years heightened Volatility levels appeared to have come from 3 market events. These events increased market volumes and decreased the S&P 500 greater than 1% day over day (yahoo finance). The first event occurred on February 11 when crude oil was at its lowest point on the futures market. On this date crude was trading at $26.21 per barrel (Investing.com), and the VIX was 28.14 (yahoo finance). The second historical event was June 24 when the UK had a referendum vote. The VIX spiked to 25.76 (yahoo finance). The third event was November 4. This spike in volatility pertained to US election, and volatility spiked to 22.51 (yahoo finance). Each of these events captured the media headlines beyond the usual business channels and created a buzz of uncertainty for domestic markets at the macro level.

Current market volatility may continue to stay benign, but there are a couple of events in within the realm of possibility that may shift the equities market. Significant movement in market for this year could come from interest rate hikes by the Federal Reserve, individual and corporate tax overhaul, and general elections in Europe.  The chairman of the Federal Reserve, Janet Yellen, has made remarks on the possibility for increasing short term interest rates. This in effect could put pressure on capital expenditures for both corporations and individuals. Currently, financial analysts predict at least one rate hike to three rate hikes in 2017 (Vielma).

Tax reform in the United States is another macro issue because of the effect it has on accounting habits. Many corporations continue to pursue tax havens outside of the United States due to high marginal tax rate relative to other countries. Early reports by a major accounting firm, KPMG, indicate decreased corporate income tax rate from 35 percent to 20 percent (KPMG). This could alter balance sheets for companies with deferred tax assets and deferred tax liabilities (KPMG). Although tax accounting changes are certainly a headache for accounting firms, companies stand to substantially benefit long term. 

The third movement in markets could come from European elections. In 2016, a referendum in the United Kingdom initiated a short term spike in our domestic markets, so it is not out of the realm of possibility if other European countries feel the same way. This year, French elections are held between the end of April and early May (O'Grady). German elections are held in October (O'Grady). Although these elections do not directly affect domestic markets, they may have an effect on large multinational corporations within the United States.

The beginning of 2017 has been positive for markets and volatility. Historical low market volatility and decreased volume activity are a net positive for the equity markets, but uncertainties in monetary, fiscal, and European affairs could cause for fluctuations in the near future.

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Matthew Moses, CAP®, President

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Investing.com. Historical Crude Prices. February 2017. 2017.

KPMG. "What's new in Tax." 2017.

O'Grady, Sean. These six elections are set to change Europe forever. 2016. 2017.

Vielma, Antonio Jose. Probability for June 2017 rate hike jumps after Fed meeting. Dec 2016. 2017.

yahoo finance. "S&P 500 ." 2017.

Disclosure 

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable. 

The S&P 500 is an unmanaged index used as a general measure of market performance.  You cannot invest directly in an index. Accordingly, performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. A354

Camelot Portfolios Talking Points

Retail Sentiment and Antiquated Retail Stores

As a new year begins, consumers seem to be optimistic about the future, yet the retail industry data continues to offset the mindset of the customer. As of January 2017, consumer sentiment reached 98.5 (Economics). It is the highest reading since 2004, and it has risen roughly 41 points since 2008 (Economics). This survey is taken by the University of Michigan to gauge the mindset of the consumer. With this sense of optimism about the American Economy, brick and mortar retail companies have yet to see the rise in top line and bottom line growth.

 

Traditional retailers did not seem to see the results they were looking for in 2016, and guidance from companies is not giving a glowing picture either. Companies in the clothing store and department store sectors seem to not have taken the news over the years to change with the pace of technology and consumer opinions. According to Kiplinger, in-store holiday sales grew only 1.4 percent, while online grew 14% (Payne). If we take a dive into the census bureau data, retail sales growth was driven primarily by auto and gas sales (Census Bureau). Department store sales shrank 8.4 percent year over year (Census Bureau). Clothing store sales only grew 0.9 percent year over year (Census Bureau). Historically, these retail businesses were leading in growth, but times in which we live in will likely diminish these lines of business.

Fundamental Value by Country

The United States was one of the highest market returning countries in the world in 2016, but macro valuations on the United States are on the “rich” side compared to other international markets. As of December 2016, the US is valued 31st out of 40 countries based on valuations (Star Capital). The Shiller CAPE ratio for the US stands at 26.4. Historically, the US is around 17-18. US market Price to Sales and Price to Book are 2.9 and 1.9, respectably (Star Capital). Understandably, the United States makes up roughly 43 percent of the entire universe and it has depth to market valuations, yet it seems to garner attention to possible countries with value opportunities.

 

A couple of developed countries with lower valuations are Italy and Spain. Both Italy and Spain have had macroeconomic headwinds over the past 5 years, but from a value standpoint, Italy and Spain appear undervalued. Italy’s CAPE ratio is 12.7 and Spain’s CAPE ratio is 11.7 (Star Capital). These countries, relative to other developed markets, are undervalued by 42 percent and 46 percent (Star Capital). If we look at country market returns for 2016 using market cap exchange traded funds, Spain’s market was down 2.18 percent year over year, and Italy’s market was down 9.4 percent (iShares). It is still safe to assume there are other forces tugging on the companies within these countries, but there may be a case in macro fundamental value for Italy and Spain.

Source: starcapital.de

Source: starcapital.de

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Matthew Moses, CAP®, President

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

 

References

Census Bureau. December Retail Sales Report. 2017. 2017.

Economics, Trading. Trading Economics. January 2017. January 2017.

iShares. Market Capped ETF. 2017.

Payne, David. Economic Forcasts. January 2017. 2017.

Star Capital. Global Stock Market Valuation Ratios. 2017. 2017.

 

Disclosure

 

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable. 

 

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.  A34

Camelot Portfolios Talking Points

2016 Housing Market Review

The housing market in 2016 continued to show positive signs in a once battered industry. It has been 8 years since the lowest point, but housing starts in the US have climbed to 1.23 million new starts in the month of December (US Census Bureau).  Compared to 2015, housing starts rose an average of 4.9 percent year over year (Economics). The median sale price rose 4 percent year over year to $232,000 (Kusisto).

Diving deeper into the statistics, the South region makes up the majority of new housing starts at 572 thousand (US Census Bureau).  The largest year over year growth in new housing starts in December are the Midwest and West regions at 13.4 and 13.5 percent, respectively (US Census Bureau).

Beyond the numerical statistics of new houses, the size and the amount of features new homes have given indications into why the substantial increase in prices over the past decade. An average new house has well over 2500 square feet with a lot size well over 8500 square feet (US Census Bureau). Compared to even a decade ago, home owners prefer a large house with less land. The average home in 2000 was 2000 square feet with 9000 square feet (US Census Bureau). With prices hovering around where they were a decade ago, this has added value on a price per square foot basis.

There are other factors beyond the size of the home but many indicators are driven by the dimensions of the house or sales volume within a metropolitan area. The Case-Shiller national home index tracks the volume of residential real estate in the US which has now crossed its peak from 2007. This indicates metropolitan cities are returning to prices seen in the mid 2000’s. Today the index stands at 185.06, and the prior peak of the index was 184.06 in September 2006 (S&P indicies).

It has been a slow and steady recovery from the trough in 2009-10, and the housing market continues to show consistent growth. Although the housing market continues this march upward, outside factors will likely continue to pressure this industry. The Fed and the financial industry are likely to continue to raise nominal interest rate in 2017 from 4 percent to 4.5 percent (Kusisto). This potential 50 basis point jump would add an additional 720 dollars per year to a new $200,000 30-year loan. With this possibility of a rise in interest rates, it is difficult to see the same 4 percent growth in housing year over year that the US has experienced over the past 5 years.

Fed policy for 2017

With 2016 in our rearview mirrors, 2017 may be just as interesting for monetary policy. Over the past year, the Federal Reserve Bank tiptoed around the possibility of hiking short term interest rates. The mixed signals in inflation and growth indicators curtailed the efforts by the Fed to have two or more hikes in 2016 (Oyedele). Since the December rate hike, Mrs. Yellen has started to point towards a hawkish stand in raising rates in 2017. Last week, the chair met with the Commonwealth Club in San Francisco in a Q&A session (Oyedele). She mentioned a couple of times the expectation to raise interest rates a few times this year (Oyedele). This coincides with her arguments to return towards the natural rate of inflation of 3 percent (Oyedele).

With only a month into 2017, the Fed is likely to collect data from the first couple of months before they make a decision. The next FOMC meeting is next week on January 31 and February 1. The current targeted short term interest rate is .75 percent (Economics).

 

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Matthew Moses, CAP®, President

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

 

References

Bloomberg . Economic Calendar. 2017. 2017.

Economics, Trading. Trading Economics. January 2017. January 2017.

Kusisto, Laura. U.S. Existing Home Sales Fell 2.8% in December. January 2017. 2017.

Oyedele, Akin. The Fed is close to its goals and expects to hike rates 'a few' times this year. January 2017. 2017.

S&P indicies. S&P CORELOGIC CASE-SHILLER 20-CITY COMPOSITE HOME PRICE NSA INDEX. January 2017. 2017.

US Census Bureau. Press Release. 19 January 2017. 2017.

 

Disclosure

 

       Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels.

       This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Camelot Portfolios LLC can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.

       Some information in this presentation is gleaned from third party sources, and while believed to be reliable, is not independently verified.  A34

Camelot Portfolios Talking Points

3 Charts that Explain 2016

With only days remaining in this calendar year, 2016 ended up being quite historical in both domestic and international markets. There were corrections, contractions, reversals, expansions in what seemed to be an emotional roller coaster for many investors. This leads us to back to February of 2016. Just 10 months ago, oil was down to $27/barrel. The energy sector was still stalling as this sector continued its

Price of Crude Oil, January 21, 2016 through February 25, 2016.                                              Source: OFDP.org, continuous futures contract- Crude Oil

tailspin towards the ground. Since this inflection point, petro related companies have significantly shifted expenditures; even OPEC made cuts in November.

S&P500 (blue line) & VIX Volatility measure (green/red)                                                       Source: Yahoo Finance: S&P 500

Continuing our quest to tell of our journey of 2016, we turn to June 23, 2016. On this date, the citizens of the United Kingdom decided to leave the European Union. Markets in the United States, United Kingdom, and the rest of Europe reacted swiftly when the markets opened on June 24th. The uncertainty of the referendum spiked volatility to north of 20 on the S&P 500. This date marked the largest macro market movement for the year 2016.

S&P500 (blue line) & VIX Volatility measure (green/red)                                                     Source: Yahoo Finance: S&P 500

While Europe continues into the great unknown, the United States experienced a very different reaction in its markets since November 8th. In the past 50 days, US equity markets like the S&P 500 and Dow Jones Industrial have spiked 8-9 percent. To put this in perspective, leading up to November 8th, S&P 500 was only up 2 percent leading up to the primary election. Today, the S&P 500 is set to gain 10 percent by the end of the year baring any major catastrophe.     

The Times We Live In

How do you view the world? Is it one that is inherently broken and could never be fixed for the better? If you are that pessimistic, then you may need to change your thought process. A recent study by an economist who measures living conditions around the world considers the world to be much healthier, safer, and wealthier than you might believe (see chart below). Max Roser dives into some of the data that looks at the standard of living across the world (Roser). Other the past 100 years, people today live longer, are better educated, healthier, and are politically freer (Roser).

While there is considerable evidence in favor for higher standards of living, the human population, as a whole, is not replacing the population it supports. A hundred years ago, fertility rates were hovering around 5-6 children per woman (Roser). Today, it hovers around 2.5 children (Roser). It is true women may not have the need to have 5-6 children if you know all of your children are going to live past the age of 5, but it does play a major factor in the economic growth over the next 25-50 years (Roser). As a whole, the vast majority of humans are under better circumstances compared to their parents and or grandparents. Hopefully, we will continue to develop beyond even our current recognizable standard of living.

Source: Max Roser/A History Of Global Livin.

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Matthew Moses, CAP ®, President

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Roser, Max. A history of Global Living. December 2016. 2016.

 Disclosure

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable. 

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.

The S&P 500 is an unmanaged index used as a general measure of market performance.  You cannot invest directly in an index. Accordingly, performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.

A332

 

Camelot Portfolios Talking Points

FED Hikes Interest Rates

As of last week, Janet Yellen and the members of the Federal Reserve Open Market Committee (FOMC) voted to increase short term interest rates by 25 basis points. This increases the target federal funds rate from .5 percent to .75 percent (Federal Reserve). According to a statement released by the Fed Reserve, the governors unanimously voted in favor of the hike. Analysts where quite certain leading up to the decision on December 14th with Bloomberg projecting a 99 percent change in the Fed Rate (Whiteaker).

Reasons for the rate hike seemed to be in line with their previous remarks leading up to their decision (Federal Reserve). One of the major highlights for the decision was the labor market pressure on inflation (Federal Reserve). The other major highlight was full employment (Federal Reserve). These highlights are in tune with their prevailing policy guidelines, yet hesitations seem to persist amongst the governors on future rate hikes.

Minutes on the meeting will be released in the first week of January 2017. The next FOMC meeting is January 27-28, 2017.

Yearly Performance across Sectors

When we look at 2016, the picture seems to post the market in a pretty rosy light. As of December 21, 8 out of 10 sectors have increased since January 1st. The largest sector gainers are energy and financials. The two worst performing sectors were health care and real estate. The overall S&P 500 has seen an 11.10 percent increase since January 1st.

Source: sectorsspdr.com

This picture for 2016, in particular, has more depth from telling how strong 2016 was for many industries. In 2015, 4 out of 10 sectors were positive sectors for that year, and their minimal contribution pushed the S&P 500 slightly positive in 2015 (Sector SPDR).

Reasons for such a strong 2016 pertain to a couple a major favorable conditions. In the energy sector, oil started to march upward because of crude targeting around $50-60 per barrel by the end of 2016 (Sharples). Although energy has had a strong year, it was down 10% in the first quarter of the year (Sharples). Technology continues to have a strong year with continual improvement in product lines and steady profit margins. Revenue may not have improved considerably in this sector compared to previous years, yet considerable margins allow for steady stock increases. Financials may be the darling this year with favorable conditions going forward due to increased interest rates and subsided regulatory pressures.

With roses in the market, there are thorns on the vine. The real estate sector may have major headwinds in the domestic market with the rising interest rate environment, yet new housing developments have continued on a steady accent. Healthcare is the black box compared to other sectors. This sector has considerable mysteries due to regulatory issues which in part makes it highly subject to downward market pressures.

As the candle begins to flicker out for 2016, new opportunities and challenges will be present for the domestic market in 2017.  

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Matthew Moses, CAP®, President

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Federal Reserve. Press Release. 14 Dec 2016. 2016.

Sector SPDR. Sector Returns. 30 Sep 2016. 2016.

Sharples, Ben. Oil Prices Could Jump 50% by the End of 2016. 2 February 2016. 2016.

Whiteaker, Chloe. When Will The Fed Raise its interest rate? 11 Dec 2016. 2016.

 Disclosure

 The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable. 

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.  A329

Camelot Portfolios Talking Points

Rising Yields in Bond Market

Yields in the domestic bond market have risen by a significant margin over the past month. In the middle of 2016, the spread between the 10-year t-bond and 2-year t-note was 76 basis points (St. Louis Fed). The latest spread as of Monday, December 5th was 126 basis points (St. Louis Fed). This widening in the yield curve should give fixed income investors greater room to capitalize on increased yield.

This rise in long term interest rates could boost the financial sector, but it does put pressure on prices on fixed income securities in the short term. One of the prevailing indicators, Barclays Aggregate Bond Index, has seen this shift in the yield curve over the past month.  The Barclays Aggregate decreased 2.47% over the past 30 days (Bloomberg). This is the largest short term market decline in five years (St. Louis Fed). Although this jab to the gut for conservative investors is justified, there is potential opportunities in the future shifting towards higher grade investments with greater flexibility to move in fluctuating market environments.

Unemployment at 4.6%, but what’s the Catch

As 2016 is winding down to a close, the United States labor continues to have a “Jekyll and Hyde” type mentality. The Dr. Jekyll in this economic story is the continued improvement with low unemployment and growth in hourly wages. This rosy 4.6% number will catch the headlines for the quick sightseer, showing the robustness of the United States workforce, but if we peer beyond the surface of this Unemployment report, then the details show the insane “Mr. Hyde” covering in the shadows of the labor outlook. 


Labor force participation continues to be the prevailing shadow for the United States labor force. As of the release of the Employment Situation by the Bureau of Labor Statistics, labor force participation is at 62.8 percent (Bureau of Labor Statistics). This has been steadily decreasing over time with an aging baby boom and gen-x workforce, so the question going forward for unemployment does the prevailing demographics favor a robust workforce in the future? The current answer is likely no, for now. We are still seeing constants for average number of hours worked at 34.4 hours/week (Economics). Although a constant number of hours work is positive today, the millennial workforce alter ego of Mr. Hyde needs to seamlessly integrate toward its genuine Dr. Jekyll personality to effectively contribute to future US labor market. 

Compiled by the Camelot Portfolios Investment Committee
Darren Munn, CFA, Chief Investment Officer
Sarah Berndt, Portfolio Manager
Eric Kartman, Research
Drew Steinman, CPA, Trader/Research
Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References    
Bloomberg. Barclays US Agg Total Return. 7 December 2016. 2016.
Bureau of Labor Statistics. The Employment Situation- November 2016. 2 December 2016. 2016.
Economics, Trading. Trading Economics. Aug 2016. Aug 2016.
St. Louis Fed. 10 Year Treasury Minus 2 Year Treasury. 7 December 2016. 2016.

Disclosure

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  Source information may be obtained by contacting Matthew Moses at mmoses@camelotportfolios.com.  

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information. A320

 

 

 

 

 

Camelot Portfolios Talking Points

Tis the Season

As Thanksgiving passes us in the rearview mirror, Christmas season becomes the major focus for businesses around the world. The 30 shopping days before Christmas are historically the busiest days for consumer businesses. The two main days for sales come from two days in particular, Black Friday and Cyber Monday. As of yesterday, Cyber Monday accounted for $3.45 billion in sales online (Wahba). This is a 12.1% increase from last year’s Cyber Monday (Wahba). Notable toys for this festive season are still mostly electronics related items like the PlayStation 4, Xbox One, IPhone, and Amazon Fire (Wahba).

Shifts in consumer behavior are leaning towards clicking a button online rather than fighting the rush in stores. Reports from the National Retail Federation show estimates of a 2 percent year over year increase to 154 million customers paying for items over the weekend (National Retail Federation). The NRF reported 44 percent of consumers shopped online while 40 percent of consumers surveyed went to brick and mortar stores (National Retail Federation). Although there was a modest increase in activity in shopping, customers on average spent less than they did last year, a decrease of 3.47 percent totaling $289.19 on purchases per person (National Retail Federation).

Sales for the 2016 Christmas season are trending in the right direction with a strong start over the Thanksgiving weekend. While incentives on the latest and greatest trinkets catch the consumer’s eye, it is easy to deviate our focus away from the bottom line. Hopefully, balance sheets and sales in this quarter reflect the behavior in our economy.

OPEC Changes Production

In the early working hours on Wednesday morning officials from OPEC decided to cut oil production. The oil cartel will reduce output by 1.2 million barrels per day to 32.5 million barrels per day (Grant Smith). Before the futures market opened crude prices increased 7 percent when headlines started to pour in (Grant Smith).

At the beginning of the week, negotiations seemed to stall between Saudi Arabia and Iraq/Iran (Grant Smith). Officials were pushing cuts to come from the largest producer, Saudi Arabia, rather than secondary producers.  This initial agreement by OPEC is the first cut in production since 2008 (Grant Smith). Production level targets are effective starting January 1, 2017.

Changes in production quotas could mean an opportunity for many oil producers outside OPEC. US drillers have unloaded non-favorable producing assets as well as written off a majority of these on their income statements over the past year and a half. In particular, offshore and shale wildcat companies have de-levered capital to loosen their interest expense. It is likely production will still come from existing rigs and slow gains in rig count.

OPEC still has a say on the direction of crude, but non-OPEC producers are catching up. Economically his gradual change over time will create more crowding in an already competitive marketplace. In the long term, OPEC countries like Venezuela, Nigeria, Iraq and Iran may want to widen its economic footprint rather than harvesting from one tree.

GDP Revised Upward

Yesterday, the Bureau of Economic Analysis released its revised 3rd quarter Gross Domestic Product (GDP). The revised growth rate increased to 3.2 percent from the estimated 2.9 percent in October (Economics). The revised estimate is the highest GDP growth rate in two years (Economics). A major contributor to the revised estimate was the increase in personal consumption. A major contractor to GDP growth was the decrease in fixed investments (Economics).

The unexpected revised upward GDP growth continues to point the US economy on a slow and steady growth rate. Whether or not increases in interest rates will change the overall projections is the question some economist are asking themselves, but shifts in productivity growth and population growth seem to point to long-term headwinds for the US economy.

 

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

 

References

Economics, Trading. Trading Economics. Aug 2016. Aug 2016.

Grant Smith, Wael Mahdi, Javier Blas. OPEC Agrees to Cut Production in Drive to End Record Glut. 30 November 2016. 2016.

National Retail Federation. RETAILERS MADE BLACK FRIDAY IRRESISTIBLE FOR CONSUMERS WITH GREAT DEALS, ONLINE AND IN-STORE. 2016. Web.

Wahba, Phil. Cyber Monday Sales Hit a New All-Time Record in 2016. 29 November 2016. Web.

 

Disclosure

The materials presented is for use by professional advisors only.  It is intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.    A319

 

Camelot Portfolios Talking Points

Revisiting Chinese Debt Bubble

As capital markets become more entangled in the global web, China has seemed to stay on the sidelines in allowing its debt to affect the world market. Debt in China continues to rise compared to its growth in GDP. Currently, Debt to GDP stands close to 250%, which is a considerable rise from 150% in 2008 (IMF, PBOC). This increase in debt is largely dictated by the communist party's objective to stimulate economic growth with massive infrastructure policy (Kushlis). Prior indications point to continued infrastructure building even beyond the current slowdown because of the party’s belief in continual urbanization across China. Outside of the push to continue to have expansive growth in China its citizens are the best savers in the world with a savings rate hovering close to 51.6 percent (Chaturvedi).

 

While China has frugal minded citizens its financial sector does not exhibit the same conservative tendencies. The Chinese banking sector outside of its major banks has seen elevated delinquencies and bankruptcies in loans. These are emerging in what are so-called tier 2 and tier 3 cities in China (Kushlis). In perspective, this is equivalent to cities like Las Vegas, Orlando, and Phoenix in the United States. State run banks continue to only accommodate certain industries while restricting others (Kushlis). It is inevitable to see cracks within the Chinese financial structure but it is likely government officials will continue to avert disaster with ongoing stimulants for the Chinese economy.

Yellen Talks to Congress about the Economy

In the waning weeks of the 114th session of Congress, Janet Yellen met in front of joint committees of Congress to talk about the US economy. Mrs. Yellen opened her testimony giving indications of a rate hike in the near future. She stressed the importance of the underlying macro fundamentals like housing formation, labor and inflation in her opening remarks. Another key point of interest was that monetary policy should be “moderately accommodative” to macroeconomic trends. Mrs. Yellen is still keen on raising interest rates to the intended 2 percent target in due time. The Federal Open Market Committee (FOMC) is aware of the problems with keeping interest rates lower than .5 percent, and their intent is not to encourage “aggressive” market activity.

After the conclusion of Mrs. Yellen’s testimony about the American economy members of Congress asked questions ranging from differing viewpoints. One of the questions asked from Congress pertained to revising the stated objectives of the Fed. Mrs. Yellen did not seem swayed by this and continued to state the benefits of the objectives laid out by Congress a century ago. Another probing question was on the independence of the Fed. Again, she discussed the benefits for having an independent monetary policy. Although the questions from Congress did not overtly paint Mrs. Yellen into a corner she delivered confident remarks pointing out the US economy is heading in a positive direction.

 

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

 

Bibliography

Chaturvedi, Neelabh. Just how much does China save vs the rest of world? October 2015. 2016.

IMF, PBOC. Rise in China's Debt. March 2016. 2016.

Kushlis, Chris. "China's Rising Debt." Price Point October 2016: 1-6.

Disclosure

The materials presented is for use by professional advisors only.  It isintended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  A318

Camelot Portfolios Talking Points

The Day After

In one of the wildest elections in United States history, the people elected Donald Trump as the 45th president. By no means was this even predicted by many in the media, and capital markets on Monday and Tuesday were moving towards a Hillary Clinton presidency. Other major points in the 2016 election are the House of Representative and the Senate will continue to be under Republican majority. As all of the votes are counted, this will be the first time Republicans have held both houses of Congress and presidency since 2005. 

Source: Real Clear Politics (as of November 09, 2016, 10AM EST)

Predictions on what a Trump presidency will look like are difficult, but there is an economic outline looking at Trumps ideas and people around him. Ultimately, it will take time beyond the first 100 days from what he outlined in his address in Gettysburg. Economic positives will likely come from deregulation, but what type of deregulation outside of energy and infrastructure is for the lawmakers to decide.

The day after an election is uniquely American. You will not see blood shed by the factions who make up the electorate. You see civility on both sides, and I believe that millions of Americans understand there is a future beyond the second Tuesday in November.

Unemployment Rate Stays Level, BOE continues QE

Beyond the major spectacle of the US elections, there was actual news which statistically shows the direction of domestic and global economics. The Bureau of Economic Analysts reported unemployment rate in October was holding steady at 4.9% (Bureau of Labor Statistics). The concerning part of the jobs report is the continual decline in the labor market which reported a decrease by 10 basis points (Bureau of Labor Statistics). This pattern in the labor force is largely a combination of discouraged workers leaving the market as well as baby boomers retiring (Bureau of Labor Statistics). Patterns may start to shift in the future for an uptick in unemployment with many discouraged manufacturing workers optimistically looking for jobs.

Outside of the United States bubble, the Bank of England decided to continue quantitative easing and prolong open market rates at .25 percent. QE will continue to purchase assets at roughly £3 billion in UK government bonds and buy roughly £.7-1 billion in corporate bonds (England). All of this effort is in part due to the Brexit in the summer and the policy by the central bank to raise inflation to 2 percent. In the remarks by Governor Mark Carney, “demand and output are stronger and citizens are looking past Brexit (England).” Currently, UK inflation has grown from .6% to 1% year over year in September (Trading Economics). With the upward projection in inflation and GDP for UK, it may make for a difficult decision by the BOE to continue monetary stimulus if this pattern continues to strengthen.

 

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Bureau of Labor Statistics. Local Area Unemployment Rate. November 2016. 2016.

England, Bank of. Market Notice. 4 Nov 2016. 2016.

Trading Economics. UK inflaction rate. Nov 2016. 2016.

US Bureau of Economic Analyst. Press Release. 2016. 2016.

 

Disclosure

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable. 

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information. A302

 

Camelot Portfolios Talking Points

 

 The Feds Labor Market View

Over the years, the Federal Reserve has been initializing dynamic ways to assess the United States economy. Primary indicators like unemployment rate, GDP, and inflation rate are still excellent indicators to quantify a broad picture, but the increased need for models by the fed has paved the way for more robust indicators. In 2014, the Fed created the Labor Market Conditions Index to summarize multiple correlated indicators into one model. Currently, the model indicates low to no growth in 2016. 

According to the Washington Post, this is one of Janet Yellen’s primary indicators on whether or not to raise interest rates (O'Brien). If we go by this assessment, it is difficult to see a rate hike in November or December if labor conditions continue to be below normal. Many analysts still believe there will be a rate hike in December (Robb). Other indicators and some Fed Governors are voicing their view to a hike as well. 

 

Modest Gains in GDP and Housing Formations

In the final week of October, the Bureau of Economic Analyst released 3rd quarter GDP growth. The overall economic growth expanded at an annualize rate of 2.9% (US Bureau of Economic Analyst). The largest contributor to 3rd quarter growth were consumers which contributed 1.47 percentage points (Economics). This is a telling sign considering consumers tend be a net detractor to 3rd quarter growth (Economics). Other positive contributors were increased growth in federal government spending adding .09 percentage points (US Bureau of Economic Analyst). Revisions to this initial growth rate will be issued in the coming weeks, but strong quarterly growth is a satisfactory sign on the outlook for the United States.

The other major economic news published last week was another strong month in new housing sales. In September, there were 593,000 sales of new single family homes. This is an increase of 29.8% compared to last year’s September sales (US Census Bureau). Regional home sales continue to be strong in the South and West regions. Along with the increase in sales, prices have continued to creep higher. The median house price in September was selling for $313,000, which is still in line with last year’s median price in September (US Census Bureau). We are continuing to see a rise in new home sales, but it is still well under the 1990-2008 levels. 

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Economics, Trading. Trading Economics. Aug 2016. Aug 2016.

O'Brien, Matt. Janet Yellen said to pay attention to this chart. So why isn’t she? 8 June 2016. 2016.

Robb, Greg. Fed expected to tee up December interest-rate hike. 2 Nov 2016. 2016.

US Bureau of Economic Analyst. Press Release. 2016. 2016.

US Census Bureau. New Residential Sales. September 2016. 2016.

 

Disclosure

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  A293

 

Camelot Portfolios Talking Points

Dead Weight in the ECB

As stagnation continues to plague the members of the European Union, council members decided to keep the status quo. In a press release statement from the European Central Bank (ECB), lending facilities will remain unchanged at 0% with present levels to remain constant well into the future (European Central Bank). Another decisions made by policy makers was the continued use of quantitative easing through asset purchases. The ECB will purchase €80 billion per month until at least March of 2017 (European Central Bank).This includes a continuation of corporate bond purchases of large companies like Nestle and Roche (European Central Bank). According to Mario Draghi, these policies are in line with the goal to converge inflation towards 2% in Europe (European Central Bank).

Looking at this from another angle, it is difficult to see any substantial progress by the ECB influencing economic policy for member countries. Overall, it seems that while Germany and France continue to have satisfactory economic conditions within Europe, Portugal, Italy, Greece, and Spain (PIGS) continue to hamper any efforts. Unemployment within PIGS continues to be considerably elevated between 10 and 23 percent (Trading Ecomomics). If we compare this to our states with the highest unemployment like Alaska and New Mexico, their unemployment is around 6.9 percent (Bureau of Labor Statistics). There are differences between states and countries, but the governance in monetary policy is still governed by a central bank. Collectively, to keep the Euro currency stabilized, it has to deal with significant pressures by all of its members. Outside of Germany and France, governments appear unwilling to change policies to allow monetary policy to work in their favor.

 

Insights from the District Governors

Every month and a half, the US governors for each reserve bank send information regarding their respective states into book call the Beige Book. It gives comprehensive views of the economic conditions in each state/district and what determines policy in the near future. Slow but continual economic growth continues to drive most of the districts coming from demand in housing and transportation services (Federal Reserve District). Loan and credit quality remain strong as well as delinquency rates remain low (Federal Reserve District). Compare this to a Beige Book in 2008-09, this points to an optimistic viewpoint by the Federal Reserve Bank. An area of concern by a majority of districts remaining on the table is a decline in industrial manufacturing. This seems to stem from the considerable decline in the oil sector, but stability is coming from aerospace and automobile manufacturing (Federal Reserve District).

Another interesting factor from most of the governors is pointing to pressures on wages. In New York, San Francisco, and Boston, employment agencies are reporting an increase in compensation negotiations (Federal Reserve District). The governors across the country believe the reason behind the pressure to increase wages is from the loss/reduction of health care benefits from many employers (Federal Reserve District). Shortages in health care benefits and health care workers is creating problems in other industries because of the need stabilize cost for employers (Federal Reserve District). It is interesting to review what the governors have to say. The overall positives in their remarks continue to point for a rate hike in December, if not more in 2017. 

 

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Bureau of Labor Statistics. Local Area Unemployment Rate. September 2016. 2016.

European Central Bank. Monetary Policy Decisions. Press Release. Frankfurt, 2016.

Federal Reserve District. Current Economic Conditions. 19 October 2016. 2016.

Trading Ecomomics. Jobless Rate. 2016. 2016.

 

Disclosure

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  A292

 

Camelot Portfolios Talking Points

Slowing Domestic Auto Sales

At the start of October, monthly sales for the auto industry started to decline to the point where auto companies shut down production. The Ford Motor Company announced on Tuesday it will temporarily shut down production in Kansas City, Louisville, and Mexico (Durbin). Other auto makers are seeing a slowdown in demand, but GM and Fiat will not halt factories. While 2015 was a record year for the auto industry, many auto analysts are pointing at a downgrade from peak production (Durbin). 

An upward trending in inventory by auto makers is another telltale sign indicating recessed demand. According to Kelli Felker, a Ford spokeswoman, many of the bestselling brands are off from their projections. These include the Mustang, down 30% year over year, Fiesta, down 40%, and Fusion, down 18% (Bloomberg). The other major concern is over supply in inventory. Currently, the F-Series pickup is up to 93 days of supply compared to 83 a year earlier (Bloomberg). The other major increase is the Fusion, which is up to 72 days from 51 days last year (Bloomberg). Other companies have not released sales data or inventory data, but the signs from Ford are pointing in this direction across the auto industry. 

Weakening Pound pressures Great Britain

In recent months, the British Pound (GBP) has seen a considerable drop in value compared to other major currencies. At the beginning of June, the exchange rate was trading at $1.44/£, and as of today, it is trading at $1.23/£ (Investing.com). For US citizens awaiting for their trip to London, this is a good sign, but to British companies, it has put a strain on exports. This depreciation in domestic currency is not something new, although the UK did not intentionally devalue its currency.

There are a couple of major reasons for the repricing of the Pound over the past 4 months. The first is the referendum vote to leave the EU. While this has been decided since June, there is uncertainty in the UK banking industry on capital flows (Elliott). Banking and Finance in the UK is one of the most established in the modern world, but when regulations are not established, there is an incentive for companies and people to move capital to established markets (Elliott). The uncertainty could subside once the Prime Minister, Theresa May establishes the exit from the EU in March 2017. 

Monetary pressure by the Bank of England (BOE) is the other major reason into the weakening in the pound. As of August, the BOE has started another round of quantitative easing as well as lowering targeted short term interest rates. This is to combat the uncertainty from leaving the EU. As with other regimes who are currently embarking on quantitative easing, i.e. ECB and BOJ, this pumps money into the system while the US Fed is not a part of QE (Elliott). This makes the US Fed look as though they are having a tightening effect on the US dollar, while it is not currently participating in QE (Elliott). This weakening in the pound will continue until the BOE ends QE (Elliott). Even though these are the major reasons for the devaluation in the pound, other economic pressures in the United Kingdom are certainly contributing.  

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Bloomberg. Ford to Idle Four Factories as Slowing Sales Bloat Inventory. 17 October 2016. 2016.

Durbin, Dee-Ann. Fortd cutting productionas U.S. demand slows. 18 October 2016. 2016.

Elliott, Larry. Let the Pound Fall and the economy rise. 16 October 2016. 2016.

Investing.com. USD/GBP. 2016. 2016.

Disclosure

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.

A290

Camelot Portfolios Talking Points

Australian Economic Leash

The west, for the most part, has had consistent economic growth since 2008. Tucked away in the bottom corner of the globe lies Australia; this country has not exhibited the same economic problems compared to its European counterparts. The major reason why Australia has grown substantially lies in exports to China. According to the Australian Trade Commission, China accounted for A$107.5 billion (USD$81 billion) in 2014 in goods in services exported (Austrade Economics). This accounts for almost 40 percent of exports in 2014 (see chart below)(Austrade Economics). The majority of the Chinese exports comes from Australian iron ore which accounts for 80 percent of the exports to China in 2014 (Austrade Economics). The slowing demand in infrastructure and other major real estate in China since 2015 has influenced increasing dependence of trade with China which has created substantial pressure on their policy makers with the slowing growth in China. 

One of the pressures with the slowdown in the Australian economy is to lower interest rates by the Reserve Bank of Australia (RBA). The RBA has lowered the target rate from 2% at the beginning of 2016 to 1.5% (Trading Economics). The yield curve has started to shift towards a flattened yield curve, but it is still steeper compared to other developed markets.  Although the RBA has loosened monetary policy, there has been a pickup in the economy starting in July (Trading Economics). This is highly correlated to the recent acceleration in the Chinese housing market (Trading Economics). It’s difficult to say how much of an influence trade with China has on the monetary policy for Australia, but it certainly has an effect on the macroeconomic picture which central banks depend on to adjust interest rates.

The Samsung Problem

Ever since the release of their next generation cell phone, Samsung has had difficulty with unexpected explosions from batteries on their flagship Galaxy Note 7. The internal lithium ion batteries have tended to overheat for differing reasons in the phone causing a catastrophic reaction (Peterson). On Monday, Samsung released a statement recalling all Galaxy Note 7 phones as well as a restriction on retailers from selling this device (SANG-HUN). Shares have taken an 8 percent hit, which is their largest daily drop since 2008 (SANG-HUN). According to Samsung’s last quarterly report, mobile devices account for 47 percent of revenue (Samsung). Although this is not nearly as concentrated as the iPhone is for Apple (58 percent) it does present a significant impact to Samsung’s income statement (Apple). There will likely be more news coming out about the financial impact to Samsung at the end of Q4, but trust in this technology brand in this competitive space will need to improve in order to stay in this line of business.

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Apple. 10-Q. July 2016. 2016.

Austrade Economics. "How dependent are Australian Exports on China?" 2015 (February). PDF Doc.

Peterson, Andrea. Why those Samsong Batteries Exploded. 12 Sept 2016. 2016.

Samsung. INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF SAMSUNG ELECTRONICS CO., LTD. AND ITS SUBSIDIARIES. June 2016. 2016.

SANG-HUN, BRIAN X. CHEN and CHOE. Why Samsung Abandoned Its Galaxy Note 7 Flagship Phone. 11 October 2016. 2016.

Trading Economics. China Industrial Production. Aug 2016. 2016.

Disclosure

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  

 

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.

A280

Camelot Portfolios Talking Points

Downward pressure on Deutsche Bank

Over the past month, Deutsche Bank has been experiencing pressure on multiple fronts pertaining to capital structure and governmental fines. The US Department of Justice proposed a $14 billion fine over the handling of mortgage securities (Strasburg). The bank has said it does not have any intentions of paying this fine of $14 billion, but they are in talks with the justice department on the correct fine amount. Sources within the financial media believe DB have negotiated the settlement lower to $5.4 billion (Strasburg). This speculation has many analysts and pundits predicting the collapse of Deutsche Bank, because of the comparison to Bear Stearns and Lehman Brothers. Credit spreads have started to widen on Deutsche Bank CDS to 2.5% compared to normal spreads around 1-1.25% (Cheng). 

While the negative news has created a stir within European financial markets, Deutsche Bank (DB) should be able to deal with short term liquidity concerns. Regulations in the United States and Europe have created stringent liquidity requirements to mitigate risks by commercial banks. According to 2nd quarter financial statements, DB has €223 billion in short term reserves (Deutsche Bank). Prior to the financial collapse of 08-09, Bear Stearns and Lehman Brothers had limited short term liquidity coupled with major default on long term securities (Cheng). Although some of the data is dated, we believeDeutsche Bank has the ability to weather a storm by the Department of Justice, shareholders, and account holders.

Risks in Higher Education

It has been close to a month since the fallout from ITT Tech shutting its doors. The closure of ITT Tech left over 35,000 students in a bind to finish their education (Nisiripour). For many years, this institute for higher education has given a black eye to this industry because of its lack of accreditation and pressuring tactics for students to enroll (Nisiripour). The Department of Education barred ITT Tech from allowing new students to use federal loans, which made the school unable to support continuing operations (Nisiripour). The business practices by this one educational institute seems to have created a negative opinion on the education industry. 

Along the line of economic ramifications this has in the United States, the arguments on the use of student loans has opened more speculation into an education bubble. Currently, there is roughly $1.26 trillion in student loan debt with the majority held by Sallie May (Elverly). Delinquency rates have started to creep up over time close to 11.6% as of 2016 (Elverly). On average people who attend schools like ITT Tech carry a higher amount of student loans at $39,950 (Elverly). Although student who take on this debt are unable to remove this burden from bankruptcy, it does cause pressure for 43.3 million student debt holders on pursuing other major purchases like housing, health, and automotive (Elverly).  Our team is not proposing any sort of changes within government to move towards an agenda, but students who take on this debt need to know the responsibilities of taking on this debt.

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

 

References

Cheng, Evelyn. Deutsche Bank, U.S. DOJ Continue to Discuss Mortgage-Securities Settlement. 29 Sept 2016. 2016.

Deutsche Bank. 2Q16 Fixed Income Investor Conference Call. 28 July 2016. 2016.

Elverly, Joel. Is There a Student Loan Crisis? Not in Payments. 16 May 2016. 2016.

Nisiripour, Shahien. ITT Technical Institutes Shuts Down, Leaving a Hefty Bill. 6 September 2016. 2016.

Strasburg, Jenny. Deutsche Bank, U.S. DOJ Continue to Discuss Mortgage-Securities Settlement. 2 October 2016. 2016.

Disclosure

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.

A274

Camelot Investment Committee Talking Points

The Political Circus

On Monday night, the highly anticipated debate between Republican candidate Donald Trump and Democratic candidate Hillary Clinton began the homestretch in US politics. The hour and half debate focused on security in the United States, race relations, and economics. Each candidate shared their view point to an audience estimated at 84 million people (Stelter). Both Trump and Clinton expressed their views similar to how they have debated in the past primary debates. Although the moderators tried their best to stick to the questions both candidates tended to meander away from the questions and express another point. This marks the first of four presidential debates. The next debate is between vice-presidential candidates Mike Pence and Tim Kaine on Tuesday, October 3rd. 

Beyond the heated spectacle, the presidential election cycles tend to create elevated volatility in the markets. Over the past elections cycles, the VIX has risen in the 2 month leading up to the elections compared to non-election years (Greiner). Volatility today is between 13 and 15, which is below the historical average of 20. This may be the case because of other factors outside the election, but investors historically tend to create a reaction when the voters have decided on the second Tuesday in November (Greiner).

Mistrust in OPEC

This week, leaders of OPEC met to discuss about cutting production to deal with the slide in oil prices since 2014. The technological innovations in oil drilling have started to put this cartel in a quandary. For decades, OPEC has had a considerable voice on the price of crude, but as other countries discover and drill for oil, OPEC members are in a bind. It seems that the OPEC nations’ main economic driver is still oil, and if they cut oil, they will most likely lower revenues from higher prices. This possibility gives shale producers the opportunity to increase production, which causes a decrease in OPEC share and influence on oil (Kantchev). If they continue to produce oil or increase production, they still stand to lose revenue due to lower prices (Kantchev). This has caused a strain on OPEC members because of this lose-lose situation.

The closed door meeting attempts to create an agreement between Saudi Arabia and Iran about capping Iran’s oil production (Kantchev). The current cap is 3.6 million barrels for Iran, and the proposal is to increase the cap to 4 million barrels a day (Kantchev). Iran is coming off of debilitating restrictions from international pressure, so it is in Iran’s interest to increase beyond this proposal to stimulate economic activity (Kantchev). On the other side, Saudi Arabia and Venezuela are petitioning the cap because of recessionary pressures in their economy. Tensions are starting to rise between the two Middle-Eastern powers, and oil markets will continue to exhibit erratic activity until there is a compromise. 

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Greiner, Bill. Market Volitility and Presidential Election Years. 16 December 2015. 2016.

Kantchev, Georgi. OPEC Ministers Reach for Compromise on Oil Output. 28 Sept 2016.

Stelter, Brian. Debeate Breaks Record as most-watched in US History. 27 September 2016. 2016.

 

Disclosure

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  A271

 

Camelot Investment Committee Talking Points

Japans Refocuses Monetary Policy

As the Bank of Japan meetings come to an end, the monetary policy makers decided to change its strategy to fuel growth. The framework for the new policy focuses on “yield curve control” and “inflation overshooting commitment” (Bank of Japan). The Bank of Japan (BOJ) is now aggressively targeting the yield curve by completely controlling the short term rates by applying negative interest, and long term interest rates by purchasing 10 year Japanese bonds (Bank of Japan).  Along with the purchases of long term government bonds, the BOJ will purchase exchange traded funds and real estate investment trusts (Bank of Japan). Also, it will maintain its balance of corporate paper and corporate bonds. The majority of the governors for the BOJ voted in favor of these proposals. With all of this extension of quantitative easing, the BOJ hopes this will achieve a 2 percent inflation “at the earliest possible time” (Bank of Japan). 

With these remarks by the BOJ governors, the yield curve for Japan will continue to be one of the flattest curves in the developed world. Short term interest rates will most likely continue to be negative for the foreseeable future. While the BOJ focused primarily on short term rates in the past, the 10 year yield will likely line up with short term rates, because of the decisions made by the governors. Today, the 3 month rate is -.1 percent, and the 10 year rate is -.036 percent (Bloomberg). Along with the purchase of debt, the purchase of equitable positions, i.e.: ETFs and REITs, could raise Japanese stocks. This macro-economic approach is certainly an “all hands on deck” strategy, and this framework could be the method by other central banks to deal with stagnating economies. 

Yellen Decides to Wait on Hike

On Tuesday at 2 pm, the Federal Reserve decided to forego an increase in short term interest rates. The target rate will remain between .25-.50 percent. (Federal Reserve) Previously, Janet Yellen alluded to the possibility of at least 2 rate hikes in 2016, but gradual increases need to evolve with changing economic conditions (Federal Reserve). Compared to 2015, the economic indicators do not seem to line up for a full vote of confidence by the members of the Federal Reserve. According to the Federal Reserve, “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives” (Federal Reserve). In this meeting, quarterly economic projections are presented by federal material, the target rate by most of the governor’s points to .5-.75 percent by the end of the year (Federal Reserve), and the indicators point in a positive direction compared to prior meetings. Another key takeaway from the meeting is the Fed firmly believes inflation will start to increase to 2 percent in the next 2-3 years (Federal Reserve). This news was to be expected by the market, and expectations are still favorable for a rate hike by the end of the year.  

Canada’s Fiscal Policy to Combat Economic Downturn

Our friendly neighbors to the north are starting to see a slump in their economy. Although both of our economies are some of the most robust in the world, Canada has started to deflate with the slowing commodities market. The Canadian annualized GDP growth shrank -1.6 percent in Q2 2016 (Trading Economics). This drop-off in the economy is the largest contraction in the Canadian economy since 2009 (Trading Economics).

To combat this slowdown in the economy, the Canadian government is starting to use a Keynesian approach to stimulate growth. The liberal government is planning a two-phase 

infrastructure program (Bloomberg). Along with this proposal, the Canadian government has increased the deficit to 1.96 billion in 2015-16 fiscal year. The Canadian government has balanced the budget on a number of occasion over the past decade, but the outlook going forward point to a continued deficit.   

Source: Statistics Canada

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Bank of Japan. New Framework for Strengthening Monetary Easing. 21 Sept 2016.

Bloomberg. Canada Might Get Small Boost From Fiscal Policy. 29 August 2016. 2016.

—. Japan Generic Gov 10y yield. 21 September 2016. 2016.

Federal Reserve. Press Release. 2016.

Smith, Noah. Reality Might Topple a Beloved Economic Theory. 4 Nov 2014. 2016.

Trading Economics. Canada GDP Growth Annualized. 2016. 2016.

Disclosure

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information. A268

Camelot Investment Committee Talking Points

Future Domestic Monetary Policy

On September 20-21, the Federal Open Market Committee (FOMC) will meet in Washington to discuss the US economy and contingent policy. According to Bloomberg, there is a 20% chance of a rate hike this month (Spalding). While bond traders are pessimistic about an increase in short term rates this month, Yellen has indicated positive economic conditions in her speech in Jackson Hole. From the macro-economic indicators presentenced over the past couple of weeks, monthly lagging and coincidental indicators have created a distorted picture in some economists’ eyes. According to Wells Fargo Senior Economist Mark Vitner, “Hours and wages have been weak over the past month. The Fed is more inclined to wait for more data. They don’t want to surprise the market. Quarterly and yearly data will indicate strong signs by the end of the year” (Vitner).  

Looking along the lines of long term federal monetary policy, there are indications pointing towards more “exotic” ways in supporting the economic activity. In the United States, the fed decided to lower short term interest rates while buying longer term notes (Federal Reserve Bank). This traditional easing is intended to flatten the yield curve to achieve target inflation. On the other side of the world, the Bank of Japan (BOJ) has decided to do the opposite by selling longer term notes and buying shorter term notes (Anstey). This is called a reverse operation twist. The BOJ has had deflationary pressures on their economy, so they are attempting to steepen the yield curve to create inflation. If this effort works in Japan, it would not be surprising to see other central banks adopting this policy to increase economic growth after all of the quantitative easing. 

Slowing Production in China

The current ‘factory of the world’, i.e. China, continues to see slower growth. Over the past 20 years, Chinese monthly production expanded well over 10-15% year/year, but has declined to levels hovering around 5-6%. The growth in industrial production for August was 6.3% (Trading Economics). 

Another indicator provided by the Chinese bureau of statistics shows a flattening and/or decreasing trend in cement production (graph below) from its peak in 2014. Although there is a seasonal recognition to the data, the spring and summer months decreased year over year. The reported cement production amount in July 2016 was 214.1 million tons (Trading Economics). Historically peak cement production months tend to be in the fall, and this will be interesting to see if there will be greater capacity this fall. 

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Anstey, Chris. Bloomberg. 7 Sept 2016. 2016.

Spalding, Rebecca. Bloomberg. 12 Sept 2016. 2016.

Trading Economics. Cement Production. 2016. 2016.

Vitner, Mark. Wells Fargo Monthly Economic Outlook. 12 September 2016. 2016.

https://www.federalreserve.gov/newsevents/press/monetary/20110921a.htm

Disclosure

The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information. A267