Camelot Portfolios Talking Points

US GDP Growth Continues in Q2, Q1 2017 GDP State Breakdown

Last Friday, the Bureau of the Economic Analysis reported the US expanded 2.6% in the second quarter of 2017 (Bureau of Economomic Ananlysis). This increase in GDP is greater than the revised Q1 2017 GDP and greater than last year’s Q2 growth (Economics).  Positive contributions to growth of GDP came from personal consumption, federal government expenditures, and nonresidential fixed investment.  Detractors were state and local government and residential fixed investment (Bureau of Economomic Ananlysis). Personal consumption constituted 69.1 percent of total GDP while government consumption made up 17.4 percent of Q2 GDP (Bureau of Economomic Ananlysis).

US GDP Growth Continues in Q2, Q1 2017 GDP State Breakdown

Last Friday, the Bureau of the Economic Analysis reported the US expanded 2.6% in the second quarter of 2017 (Bureau of Economomic Ananlysis). This increase in GDP is greater than the revised Q1 2017 GDP and greater than last year’s Q2 growth (Economics).  Positive contributions to growth of GDP came from personal consumption, federal government expenditures, and nonresidential fixed investment.  Detractors were state and local government and residential fixed investment (Bureau of Economomic Ananlysis). Personal consumption constituted 69.1 percent of total GDP while government consumption made up 17.4 percent of Q2 GDP (Bureau of Economomic Ananlysis).

GDP in the majority of states increased in the first quarter. Texas lead the charge with 3.9 percent change in Q1, and Nebraska decreased by -4.0 percent (Bureau of Economic Analysis). Looking at a regional perspective, the Sunbelt, South East, and Midwest continue to grow, and the Great Plains region detracted in the first quarter (Bureau of Economic Analysis).

Yield Curve Movements

Interest rates have seen some significant changes in 2017 compared to the last several years. Short term interest rates have continued to rise thanks to decisions made by the Federal Reserve. The 75 basis point rise over the past year has flattened the nominal yield curve throughout the durations. To put this in perspective, the 5 minus 1 year term steepness in January 2016 was 98 basis points (Federal Reserve). In August 2017, this spread decreased to 58 basis points (Federal Reserve). Another significant move along the yield curve is the entire shift upwards over the past year (Federal Reserve).

Corporate investment grade and high yield fixed income spreads continue to tighten as well. Current spreads between high yield and treasury spot are 3.60 percent (Federal Reserve). Last year, spreads widened likely due to energy companies’ risk of default, but this has subsided even though crude prices remained depressed (FRED Economic Data). Other reason behind tighter spreads is stronger fundamentals by companies versus credit metrics (Putnam).

While spreads are tightening in some areas, Libor is continuing to shift upward over the past year. In July 2017, the 3 month Libor stood at 1.31 percent (Federal Reserve). This upward shift has also compressed the spread between 3 month treasuries and 3 month Libor, also known as TED spread. At the end of July the TED spread was 16 basis points (FRED Economic Data). This is a decrease from a five year high in September 2016 of 48 basis points (FRED Economic Data).

Data Source: Treasury.gov

Data Source: Treasury.gov

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Zach Hartenburg, Analyst

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

 References

Bureau of Economic Analysis. GDP by State: Q1 2017. 2017. 2017.

Bureau of Economomic Ananlysis. Q2 2017 GDP. 2017. 2017.

Economics, Trading. Trading Economics. May 2017. 2017.

Federal Reserve. Libor Rate 1 month. 2017. 2017.

FRED Economic Data. TED Spread. August 2017. 2017.

Putnam. Fixed Income Outlook. 2017. 2017.

 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.  A485

Camelot Portfolios Talking Points

Central Banks Divergence

This summer, the major central banks around the globe have started to head in different directions as macroeconomic conditions change. In Europe, the European Central Bank (ECB) continues to keep easing as well as maintain 0.0 percent interest rates for members (Trading Economics). The ECB will remain purchasing €60 billion until the end of December at the minimum (Trading Economics). Continuing within the European theatre, the Bank of England (BOE) had a split decision to keep interest rates at 25 basis points even with rising interest rates from 0 percent in January 2016 to 2.9 percent in June 2017 (Trading Economics). The BOE diverged from the ECB by discontinuing quantitative easing earlier this year (Trading Economics).

In the Far East, the Bank of Japan (BOJ), lines up similarly to the ECB. The BOJ continues to keep short term interest rates at -10 basis points, and has continued to increase its balance sheet. Japan is also trying to preserve 10 year interest rates target at 0 percent (Trading Economics). Japan’s policymakers continue to target 2 percent inflation, yet indicators show inflation at .4 percent (Trading Economics).

While the other major central banks continue to ride this ship of easing with low interest rates, the Federal Reserve has decided to march in a different direction. According to the Federal Open Market Committee (FOMC), the inflationary and labor conditions of the United States accommodate the raise for interest rates (Federal Reserve). The short term target interest rate increased 25 basis points from 1.00 percent to 1.25 percent (Federal Reserve). The other substantial policy change by the FOMC is reducing the balance sheet. This “normalization” policy will start soon, with a $6 billion per month initially and reaching $30 billion per month over a 12 month period (Federal Reserve).

Mid-Year Volatility Snapshot

This year has been quite steady for many investors in terms of low volatility. The past six months have seen one of the lowest movements in the market (Chan). As of last week, the VIX stood at 9.36. To put this in context, the VIX has only been lower than 10 in 1.19 percent of the time over the past 5 years (Chan). All of these occurrences have happened over the past 3 months. The average range over the past 5 years was 14.89, and peaking in August 2015 with speculation in European Debt Crisis (Chan).

Data for both Graphs: Yahoo Finance

Data for both Graphs: Yahoo Finance

This period of low volatility has kept the VIX futures curve in steep contango. Over the past month, the one month difference in futures hovered around 10 percent on average (Vix Central). The 7 month minus 4 month continued to climb over the past 3 months from 7 percent to 13.3 percent as of July 24, 2017 (Vix Central).

Source: Vixcentral.com

Source: Vixcentral.com

There is a lot of speculation into why volatility is low compared to historical ranges. One of the prevailing reasons for low realized volatility is the substantial inflows into equity index ETF’s (Bhansali). Retail investors have flocked towards equity markets after transitions from national elections. The other major reason for low volatility is volatility strategies have been profitable strategies for generating yield over time. The premiums received for selling options is quite high, and rolling over options month to month creates a yield enrichment for investment managers (Bhansali).  Whatever the case may be for low volatility, it’s still prudent to look at other fundamental factors to analyze market forces in the future.

 Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Zach Hartenburg, Analyst

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Bhansali, Vineer. Why Is Volatility So Low And What Should We Do Now? May 2017. 2017.

Chan, Szu Ping. Debt crisis: as it happened - July 23, 2012. 23 July 2012. 2017.

Federal Reserve. Press Release. June 2017. 2017.

Trading Economics. Euro Area Interest Rate. July 2017. 2017.

Vix Central. Contango. 2017. 2017.

 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.  A479

Camelot Portfolios Talking Points

U.S. Auto Industry at a Glance

On my drive to work in the morning, I pass by two car dealerships. Most of the time I glance quickly at the cars in a parking lot similar to the one you find at a Costco. The lot seems to be full of new cars all the time, so I presume these dealers are only for show. Apparently, initial looks can be deceiving.

The past couple of years, the U.S. auto industry was on top with record sales and plant production expanding. This tends has seemed to stall for some vehicle types, but light trucks continue to expand. June sales for cars have decreased 11.4 year to date while the light truck industry grew 4.6 percent (Wall Street Journal). General Motors was the leading domestic manufacturer year to date selling 1.41 million vehicles (Wall Street Journal). Ford Motor Company leads the top spot in the vehicle category with their F150 line of pickups. Ford has increased the F150 sales year over year by 8.8 percent (Wall Street Journal).

International Motor companies are taking market share away from the big three in other vehicle categories. Import cars account for 76.4 percent of the car category. Challenges are prevalent with a shrinking market in this space, due to a 7.7 percent decrease in sales year over year (Wall Street Journal).

Average gas prices nationwide continue to stay quite steady. The current national average for a gallon of gas is $2.258 per gallon (AAA). From a historical perspective, US citizens are below the inflation adjusted average when they pay at the pump. The state with the lowest average for a gallon of gas is South Carolina at $1.962 per gallon (AAA).

Source: energy.gov

Source: energy.gov

Although sales of automobiles have picked up in the past couple of years, the average age of vehicles continues to increase. As of 2016, the average age is 11.6 years.

Source: Bureau of Transportation Statistics

Source: Bureau of Transportation Statistics

There are other macroeconomic factors that play into the sales, age, and total usage in the auto industry. Sales for automobile are forecasted to flatten out compared to the growth in 2015-2016 (Wall Street Journal).  While headwinds from increased regulation on safety and fuel consumption, the car will continue to be a major part of operations for the US workforce.

 

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Zach Hartenburg, Analyst

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

AAA. Gas Prices. July 2017. July 2017.

Wall Street Journal. Auto Sales. 5 July 2017. July 2017.

 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.  A454

Camelot Portfolios Talking Points

American Housing Picture

As summer starts kicking into high gear, backyard barbeques, lawn chores, and renovation projects start coming to mind. Corresponding to these household tasks is construction season. Most of us experience this every time we drive our cars on the roads, but its construction season for homebuilders.
The warmer weather in the summer naturally allows for higher productivity for this industry. The housing industry for the past several years has seen tremendous growth, but has the first half of 2017 continued on this trend?

Looking into the June release of new residential construction, the short term trends continue to send a mixed message for growth. Housing starts for the month of May trickled down to a seasonally adjusted rate of 1.092 million units (US Dept of Housing and Urban Development). This is a decrease of 5.5 percent month over month from April (US Dept of Housing and Urban Development). 2 of the 4 regions devised by the census bureau decreased month over month; the Northeast and Midwest corridors continue to grow (US Dept of Housing and Urban Development).

Considering that construction starts only tells us how many home are being built, we need to consider the price inflation. As of 2016, the median price per square foot to build a new home was $97.19/foot2 (Census Bureau). This is a 5.46 percent increase from 2015 and a 3.86 percent increase over a five year period (Census Bureau). Considering that inflation over this time period was on average 2 percent, housing has diverged from this measure creating a mismatch in affordability (Trading Economics).

Diving deeper into the supply side of housing, the monthly supply of homes continues to stay within a bounded range from month to month. As of April 2017, the monthly supply of houses was 5.7 months. This is a slight uptick from 4.9 in March. Over the past 5 years, the supply ranged from a minimum of 4 months in January of 2013 to a maximum of 6.1 in July of 2014 (Census Bureau).

The other significant factor pushing home prices higher are the continued low interest rates being offered. As of June 21, 2017, the interest rate for a 30 year fixed mortgage is 3.91 percent (FreddieMac). While the Fed continues to increase short term interest rates, longer term interest rates continue to remain relatively unchanged.

A Tightening in the Credit Market

While the Fed’s decision to raise short term interest rates was considered baked in by analysts, the fixed income market continues to flatten across this market. The spread between the 10 year treasury and the 2 year treasury has tightened to 83 bps (Saint Louis Federal Reserve). This is a 45 bps tightening over a 6-month period (Saint Louis Federal Reserve).

Other credit instruments continue to tighten as well; the option adjusted spread between all bonds in a given rating category is 3.77 percent (BofA Merrill Lynch). This is a 5.10 percent decrease over last year’s speculation and shakeup in the oil market (BofA Merrill Lynch). This flattening between durations and quality continues to increase overall prices of bonds because of their inverse nature relative to interest rates.  

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Zach Hartenburg, Analyst

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

 References

BofA Merrill Lynch. BofA Merrill Lynch US High Yield Option-Adjusted Spread. 2017. web. 2017.

Census Bureau. Median and Avg Price per Square Foot. 2016. document. 2017.

FreddieMac. 30 Year Fixed Rate Mortgage. 2017. web. 2017.

Saint Louis Federal Reserve. 10 year treasury minus 2 year treasury . 2017. web. 2017.

Trading Economics. US Inflation. 2017. web. 2017.

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

 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.  A449

Camelot Portfolios Talking Points

Crypto-Currency, a Replacement for the Almighty Dollar

Every single day, exchange rates regularly fluctuate between different currencies. Some countries’ currencies are more volatile on a daily basis, but some are fairly close to the value day to day. An interesting part about all of these traditional currencies is they are backed by the full faith of their respective governments. Take for instance the US Dollar. When you open your wallet and pull out any bill, the words “This note is legal tender for all debts, public and private.” You will also find the signatures of two members of the Treasury of the United States to make the note a valid contract. Now this may seem archaic believing the value is backed by some government, but crypto currencies derive their value in a less traditional manner.

In the digital age, the trade of digital currencies is creating a new exchange of value among people. The properties of these currencies are the same:

1.     Store of Value

2.     Medium of Exchange

3.     Unit of Account

The first point is the most controversial for digital currencies. The value of a cryptocurrency is backed by no substantial entity like a commodity or government. Although the value is not traditional, adopters of the currency attribute its value to an enormous “network effect” (Lingham). This “network effect” is crucial to the store of value because of the entities who use it to trade goods and services (Lingham). The greater the pool of entities who use this currency, the greater the stability and acceptance. Thinking along these lines given there is a greater pool, the largest digital currency, Bitcoin, has an estimated 10 million holders (Torpey). While there is a greater amount of people who hold bitcoin, the velocity of the exchange of digital currencies is another concern in this pioneering idea.

The concern with the exchange of digital currency is most of the currency used as an investment tool rather than a transactional base. According to a study from Coinbase, 54 percent of the users in the survey use bitcoin as an investment (Torpey). Reported transactions have increased over time for this digital currency, yet the velocity of exchange is important for liquidity.

Despite the fact there are problems with the credibility into the properties of digital currencies, there is a definite euphoria around the rates between digital and traditional currencies. The exchange rate between Bitcoin and USD peaked on June 6 with 1 Bitcoin trading at $2881 (Yahoo Finance). Other digital currencies like Etherium reached $395 on June 13th (Yahoo Finance).

It may see the same fate as 3D printing in 2011-2013, housing in 2007-2008, or dot com companies in 1997-2000.  Whether or not digital currencies continue to trade at these levels is hard to tell, but they are catching attention.

FOMC Raises Interest rate Target, Normalize Balance Sheet

In the their 4th meeting for 2017, members of the Federal Open Market Committee decided to increase rates by 25 basis points (Federal Reserve). Going forward, the target rate by the Fed is 1.25 (Federal Reserve). This is the second rate hike this year, and many forecasts provided by financial firm’s project at least one more rate hike in 2017. Chairman of the Federal Reserve Bank (‘Fed’), Janet Yellen, gave suggestive vocal ques over the past couple of months indicating this increase in rates. In the minutes from their previous meeting in May, the views of members in the committee noted “…The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate.” (Federal Reserve)

Other interesting notes taken from June’s meeting were plans to reduce the balance sheet. Initial plans outlined by the committee include trimming reinvestments in treasuries by $6 billion per month, and $4 billion per month for MBS (Federal Reserve). They intend to increase these amounts in 3-month increments (Federal Reserve). Adjustments will be accommodative pending the economic environment (Federal Reserve).

 Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Zach Hartenburg, Analyst

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

 References

Federal Reserve. FOMC issues addendum to the Policy Normalization Principles and Plans. June 2017. https://www.federalreserve.gov/newsevents/pressreleases/monetary20170614c.htm. 2017.

—. FOMC Minutes May 2017. May 2017. federalreserve.gov. 2017.

Lingham, Vinny. Bitcoin: Commodity, Store of Value or Digital Currency? January 2017. https://vinnylingham.com/bitcoin-commodity-store-of-value-or-digital-currency-93457cd27c9c. 2017.

Torpey, Kyle. Report Estimates There are More Than 10 Million Bitcoin Holders Worldwide. 11 January 2017. https://coinjournal.net/report-estimates-10-million-bitcoin-holders-worldwide/. 2017.

Yahoo Finance. BTC/USD. 2017. finance.yahoo.com. 2017.

 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.  A448

Camelot Portfolios Talking Points

Bankruptcy in Retail

In the 1990’s retail stores were one of the most popular destination for shoppers. Retailers like Sears, Kmart, Marshall Field’s glittered suburban and rural landscapes. Fast forward to today, discount retail chains are going the way of the dodo bird. Even specialty clothing stores like Aeropostale, Abercrombie and Fitch, American Apparel have filed for bankruptcy.  While these specialty stores were able to restructure their companies through the courts. The once mighty discount clothing store may not have a chance to restructure.

In the past 10 years, retail bankruptcies have become quite routine. The 2008 recession did claim a number of the retailers, but the technological normalcy of switching to e-commerce continues to cut into the brick and mortar model. As of March 2017, there have been 9 bankruptcies. So far, 3 of them resulted in full liquidation (Gustafson).

In a recent study, certain retail stores have a higher probability depending on their focus. Department stores, electronic, and apparel stores probability of default is above 1.5 percent (Bloomberg). While elastic goods stores feel the pinch, non-elastic good’s stores have a lower probability of default below .6 percent (Bloomberg).

Looking at the broad focus of why brick and mortar retailers are vulnerable, the focus lies within the financial deck these companies operate in. Adjusting for lease obligations, pre-tax margins operating margins are less than 7 percent, and unadjusted net margins are less than 3.5 percent (Damodaran). This is 200-300 bps compression in margins comparing this to the total market less financials (Damodaran).

Whether or not this trend continues is yet to be seen, but it is in the best interest of the surviving companies to adapt their retail model quickly. Unfortunately, ease and adaptation to change has been slow historically for this industry (Gustafson).

IPO market

One of the most honored traditions on Wall Street is ringing the New York Stock Exchange bell. Many companies who IPO during that trading day get the chance to ring the bell. Over the past 36 years (1980-2016), there have been 8,249 companies that went public (Warrington College of Business). In the past couple of years though, there has been a slowdown in initial public offerings. In 2016, there were 76 IPO’s, which is less than a depressed market state in 2010 with 91 IPO’s (Warrington College of Business). While the IPO market may not be as coveted as it has been historically, other data points to less of a price bump when the company goes public. The late 1990’s saw astronomical first day returns averaging 60 to 70 percent (Warrington College of Business). As of 2015 the average first day return was around 11 percent (Warrington College of Business).

Other interesting statistics within the IPO space relate to the technology sector. Since 1980, roughly 37% of the all offering are in the technology industry (Warrington College of Business). Median market value over the past 10 years has hovered around 700 million in market value after the first day (Warrington College of Business).

There has been an uptick in IPO’s in 2017 compared to this time last year. As of today, 58 IPO’s have taken place between the NYSE and NASDAQ (IPO Scoop).  Eight companies are on the dock for IPO’s in the month of June (IPO Scoop). The most noteworthy proposed IPO in the coming months is Blue Apron, who delivered 159 million meals across the United States since 2012 (IPO Scoop).

References

Bloomberg. Retailers are going bankrupt at a record pace. 2017. 2017.

Damodaran, Arwath. Margins By Sector. January 2017. 2017.

Gustafson, Krystina. Retail bankruptcies march toward post-recession high. March 2017. 2017.

IPO Scoop. Last 100 IPOs. 2017. 2017.

Warrington College of Business. IPO Data. 2017. 2017.

Camelot Portfolios Talking Points

Game Theory in Action for Crude Oil

In every beginner’s economics class, students are likely taught the law of supply, and the law of demand. When these laws interact with each other, they form an equilibrium. This fundamental economic idea is the basis for explaining markets around the world, and intellectuals have expanded economic thoughts to explain why markets work the way they work. One economist changed this belief about equilibrium into why markets gravitate towards sub-optimal equilibrium. Economist and mathematician John Nash explained the behavior around sub-optimal markets around this idea of game theory. This situation can be applied to crude oil, one of the most followed markets around the globe.

Since the rise of shale and other “ground-breaking” technologies in the crude industry, game theory rationally explains the concepts of the dilemma faced by OPEC and shale producers. The best example to simplify the sub optimal markets in oil is the prisoner’s dilemma. Assume there are two criminals arrested for a crime. There is an interrogation by the police, and each criminal is independently interrogated. If both of the criminals stay silent, they get 1 year in jail. If they confess to who committed, they walk free, and the other person has 5 years in jail. However, it they both confess they get two years in jail.

In this example, both of the criminals are likely to betray their fellow criminal. Their interest lies with a better outcome if one does not confess, and the other betrays. So it is expected both of the criminals to betray each other for their self-interests, and both will have to serve jail time.

Getting back to the oil industry, current events are operating in a similar way as the two criminals operate. Depicting the oil industry as criminals is not what this article is implying, rather the intentions of the major participants in the oil industry.

In a simplified version of current events in the oil market, OPEC tried to cut oil production in an effort to increase prices in the oil market about six months ago. Unsurprisingly, shale production did not seem to share the same thoughts as OPEC. Shale producers continued to ramp up production and have started to see a boost in revenues. Today, OPEC countries have lower revenues and continue to see a decreasing piece of the pie.

Looking back in history, the game was completely different since OPEC was the only game in town. They could make the decision to keep production or cut without harming market share. Rather than admitting to changing circumstances, economic losses for countries heavily dependent on oil production could continue.

Growth continues around the World

While the United States has seen market increases over the past six months, the tides in foreign market have turned towards the upside. Both the developed and the developing markets are positive after the first four month of the year. In Europe, Poland’s market index, WIG, is leading with 29.3 percent growth year-over -year, and Greece’s market index, Athens General, has grown 25.59 percent (Economics). In Asia, the developed Japanese market, Nikkei, has grown 19.05 percent, while Korea equity index, KOSPI, has grown 17.19 percent (Economics).

The tides have lifted the majority of markets around the world, yet some countries continue to struggle. In Africa, Kenyan’s market index, Nairobi 20, decreased 19.3 percent year-over-year (Economics). The Botswana stock market decreased 8.13 percent (Economics). In the Americas, Ecuador’s equity index, ECU, decreased 3.51 percent (Economics).

Overall, the majority of market indexes around the globe have seen increases in the past year. There are exceptions for some lagging countries because of political and economic instability.

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

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. 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.

These materials contain references to hypothetical case studies.  These are presented for the purpose of demonstrating a concept or idea, and not intended to be interpreted as representing any specific person.  Such representations are not intended to substitute for individual investment advice, even if the case study appears to have similar characteristics.  A442

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