Newsletter Articles
January 8, 2020
The Roaring 20’s!
Raging Bull Market. The financial markets turned into a raging bull market in 2019 as Federal Reserve policy reversed in mid-year from tight money to extraordinary easy money since Labor Day, 2019. With most stock indices at or near record highs currently, investors should enjoy the positive returns and stay invested.
The Wall of Worry remains as trade wars, Brexit, European negative interest rates, and rumors of war prevail. The energy market remained tame through the end of 2019 until the recent prospects of Iran causing political unrest in Iraq. Some things never seem to change. 2020 will be marked with higher oil prices and generally higher commodity prices due to Middle East uncertainty.
The accelerated money supply growth will be inflationary. The courage to print money and monetize the $1 trillion U.S. Treasury annual deficit is unsettling to say the least which eventually destabilizes the U.S. dollar. In extraordinary times, extraordinary policy is favored to thwart negative interest rates in the U.S. capital markets. Ultimately, international investors will begin to dump U.S. Treasury debt leading to higher yields.
The Roaring 20’s!
To Infinity and Beyond–Ten Largest USA Publicly Traded Companies:
| Company | Symbol | Mkt Cp ($Billions) | PE | DIV |
|---|---|---|---|---|
| Apple Inc. | AAPL | $1.322 | 25.09X | 3.08% |
| Microsoft, Inc. | MSFT | $1.225 | 29.86X | 1.27% |
| Alphabet, Inc. | GOOG | $943.5 | 39.81X | 0 |
| Amazon.com Inc. | AMZN | $929.6 | 83.81X | 0 |
| Facebook, Inc. | FB | $598.2 | 33.68X | 0 |
| Berkshire Hathaway, Inc. | BRK.A | $552.9 | 20.61X | 0 |
| JP Morgan Chase & Co. | JPM | $442.5 | 13.57X | 2.55% |
| Visa Inc. | V | $412.3 | 35.38X 0 | 63% |
| Johnson & Johnson | JNJ | $384.2 | 27.33X | 2.62% |
| Walmart, Inc. | WMT | $337.5 | 23.56X | 1.78% |
| Company : Apple Inc Symbol:AAPL MktCp($Billions) $1.322 PE: 25.09X DIV:3.08% |
| Company : Microsoft, Inc. Symbol:MSFT MktCp($Billions) $1.225 PE: 29.86x DIV:1.27% |
| Company : Alphabet, Inc. Symbol:GOOG MktCp($Billions) $943.5 PE: 39.81X DIV:0 |
| Company : Amazon.com Inc. Symbol:AMZN MktCp($Billions) $929.6 PE: 83.81X DIV:0 |
| Company : Facebook, Inc. Symbol:FB MktCp($Billions) $598.2 PE: 33.68X DIV:0 |
| Company : Berkshire Hathaway, Inc. Symbol:BRK.A MktCp($Billions) $552.9 PE: 20.61X DIV:0 |
| Company : JP Morgan Chase & Co. Symbol:JPM MktCp($Billions) $442.5 PE: 13.57X DIV:2.55% |
| Company :Visa Inc. Symbol: V MktCp($Billions) $412.3 PE: 35.38X 0 DIV:63% |
| Company : Johnson & Johnson Symbol: JNJ MktCp($Billions) $384.2 PE: 27.33X DIV:2.62% |
| Company : Walmart, Inc. Symbol: WMT MktCp($Billions) $337.5 PE: 23.56x DIV:1.78% |
If you are in any growth mutual fund, you already own these. The 20 largest mutual funds all own these positions in some form or fashion. The price earnings multiples are in the nose bleed sections exceeding 30 times in most cases. Arguably Apple is considered a value stock as it borrows money in Europe to pay its quarterly dividend. Alphabet trades at a paltry 39 times 2021 earnings. Needless to say, we believe that growth companies are outrageously overvalued similar to 1999-2000 dot.com bubble.
The growing U.S. Federal Budget Deficit is approximately $22 trillion in outstanding Treasury debt with no end in sight. We will not discuss off-balance sheet guarantees by Treasury in mortgages, and other government agencies that issue bonds which may exceed $75 trillion give or take. Debt has ballooned around the world as issuing bonds is as easy as tick tack toe. The nine largest banks in the USA also issue Credit Derivatives which may exceed $20 quadrillion in size which would trigger should rates rise in any significant way.
The 1978 to 1981 period of time was the last period in which the Federal Reserve inflated our economy. Similar to Germany in the 1930’s, hard assets appreciated in value while financial assets dropped in value. Bond investors saw real market declines in bonds issued beyond five years as inflation rates exceeded bond interest. The misery index exceeded 20 percent in 1979 as Ronald Reagan coined the combination of unemployment and inflation rates.
We believe the housing market remains the best indicator for the direction of the financial markets. Monthly housing starts in the United States that includes residential housing and multi-family housing have recovered from 300,000 to 400,000 in 2008 to 1,320,000 units in more recent data. The strength in housing sends a strong sign the economy is growing along with a 40 year low in unemployment indicates that economic recovery will sustain itself for the next three to five years.
We believe that economically sensitive issues will continue to experience positive revenue and earnings growth for the foreseeable future. Companies with lower price earnings, higher dividend yields, and clean balance sheets should be rewarded in the stock market. We believe that value investments remain attractive for investment.
On February 14, 2020 we will celebrate our 24th year in operation as an investment advisor. The changes in the financial markets continue to be challenging and we continue to be honored to serve as your investment advisor.
Rusty Robinson
President
Robinson Investment Group
5301 Virginia Way, Suite 150
Brentwood, Tennessee 37027
October 1, 2019
Current Investment Perspectives.
“Courage is being scared to death, and saddling up anyway!” The financial markets continue to be resilient as much turmoil is swirling all around the world. Money Supply growth has most recently accelerated during the second and third quarter providing much needed liquidity to sustain reasonable economic growth for the next twelve to eighteen months. Inflation remains tame despite efforts by the Federal Reserve to attain a 2% inflation rate. Recent movement in U.S. Treasury yields have reversed rather dramatically since June 30 with the 30 year bond yielding 2.13%, the lowest level in fifty years!
“A Man Deserves a Second Chance, but Keep Your Eye on Him.” Trade negotiations between the White House and the Chinese government continue to dominate headlines while another level of trade tariffs have been invoked on Chinese goods coming to the USA Labor Day Weekend. The financial markets have responded as retailers have been hit the hardest as prices have risen in imported goods from China. No evidence appears the Chinese are willing to change their ways. Four US Presidents have turned a blind eye from addressing unfair trade practices through the past 30 years. Japan, South Korea, and other countries have been guilty of flooding the markets and driving prices down in steel, aluminum and other raw materials into the US. Chinese products are all subsidized by the Chinese National Government and are lower in price and quality compared to similar US made products.
“A Man has to have a Code, A Creed to Live By.” Reflecting other past volatile markets, we can say that over the long term investors who are patient are patiently rewarded. Many of our clients took that dive into our investment process in the early 1990’s and received ample reward as the markets recovered from impossible real estate recessions. As the Federal Reserve continues to make more money every year, stock prices have continued to rise. The stock market rises and corrects through different business cycles. Similar to 1998-2000, the market rose, yet it was confined to a limited group of industries. The overall market is up over the past nine months but limited to a few large cap growth names.
“Tomorrow Hopes we have Learned Something from Yesterday.” The market challenges today include the growth in exchange traded funds, index funds and alternative investment strategies. The proliferation of private equity funds has privatized many good common stocks leaving many bad companies. The exploitation of technological advances has served as a major deflationary force as productivity has increased, efficiencies realized and product obsolescence resulted in lower profit margins in many traditional industrial companies.
Retail companies have experienced a double whammy with the rise in Amazon sales and the recent Chinese tariffs.
“Talk Low, Talk Slow, and Don’t Say Too Much!” The current low interest rate environment is a very bad sign for the economy and may impair the financial quality of all financial institutions. If the current European Union interest rate structure is a predictor of our interest rates to come, then banks will be less profitable in the future. More recent actions by the Federal Reserve injecting $75 billion a day in reserves at this stage indicates that interest rate increases last year were premature and now Chairman Powell maybe pressing the finance damage control button. Who does Chairman Powell receive advice from? With two years under his belt, he appears to be an amateur at managing the Federal Reserve.
“A Man’s Got to do What a Man’s Got to do!” We remain positive on stocks for the election year 2020. The valuations are not underpriced. Yet, the current 7% money supply growth should be enough fire power for stock prices to rise in the next 18 to 24 months. We would stay invested. The recent positive move in the US Bond move also points to higher stock prices in the coming months.
“All I’m For is the Liberty of the Individual.” We continue to favor telecom, pharmaceutical, chemicals, energy, semi-conductors, industrials, and health care stocks. We believe that dividend paying stocks are attractive. We view retail, finance, utilities and transportation stocks less attractive at this juncture.
“All Battles are Fought by Scared Men Who’d Rather be Somewhere Else.” We are concerned that record corporate
insider selling is occurring. We are concerned that Berkshire Hathaway has $175 billion in cash within its portfolio. We are concerned that nothing constructive may come out of trade negotiations with China. Ultimately, we are concerned that the U.S Treasury is issuing $1 trillion in debt on an annual basis.
We still consider it a privilege to manage your assets. We look forward to hearing from you in face to face meetings to evaluate your current investment objectives.
Russell L. Robinson
President
Robinson Investment Group
5301 Virginia Way, Suite 150
Brentwood, TN 37027
615-242-3447
July 1, 2019
Happy Fourth of July, 2019.
America, the Beautiful! America will celebrate its 243rd Birthday this Thursday. As we enjoy the summer time festivities this week, we should count our blessings of religious freedom and economic freedom to live in the greatest country in the world. George Washington rode his horse into New York City and read aloud the Declaration of Independence on July 4, 1776 that would later be ratified by the First Continental Congress in Philadelphia. The ensuing struggle with the British would last several years as the Colonists received help from the French Navy in bombing strategic British strongholds in New York City to eventually succeed as an independent United States of America. Washington was unequivocally elected President gaining the majority of Electoral Votes and was sworn in as President in 1789.
God Bless America. The financial markets during the current year have seen extraordinary market performance with the S&P 500 rising 17.1% since December 2018. Interest rates have finally dropped across the board as the Federal Reserve reversed its rising rate policy to considering lowering rates in the coming months. Already money supply growth has experienced a modest increase in the past 60 days.
The current US Treasury yields are as follows:
Term Yields
180 days 2.093%
1 Year 1.95%
3 Year 1.709%
5 Year 1.775%
10 Year 2.019%
30 Year 2.538%
My Country Tis of Thee. With the recent decline in yields along with Chairman Jerome Powell’s recent comments that the Fed may cut rates in the second half of the year, the U.S. stock market has responded with higher stock prices. The S&P 500 currently trades as 21.89 times earnings and yields 1.87%.
The Star Spangled Banner. The financial markets have muddled through international trade issues between the US and the Europe, China, and Mexico/Canada.
In spite all of the negative market sentiment, stock prices have rewarded the patient investor. The move in stocks since January has recouped most of what was lost in 2018.
The Stars and Stripes Forever. The U.S. Commerce Department released its 1st quarter GDP growth rate of +3.1%. The stock market continues to rise in spite of all the negatives which have persisted in the financial press.
This Land is Your Land. The Monteagle Value Fund which we have managed since 1999, currently trades at 14.71 times 2019 earnings and yields 3.6%. The industries favored in the Fund continue to be industrial and materials stocks. The Fund has near market weightings in Energy and Technology. The Fund owns both AT&T and Verizon Communications.
Proud to Be an American. Any lowering of interest rates should propel worldwide stocks higher. Any favorable news from Trade negotiations with China will also be a market positive. The US economy already is humming as employment levels are at 50 year highs. We would be worried that inflation could creep into the financial markets if labor remains tight. More recently the price of gold has risen from 1275 to 1425 as investors have been buying the precious metal since the first of the year.
Anchors Aweigh. The markets have several challenges which include the effects of Britain leaving the European Union and the rising Middle East tensions with Iran threatening to develop nuclear weapons (which has been going on for 20 years!). We certainly hope that the outcome for both will be positive.
The Battle Hymn of the Republic. We do believe that the Presidential election cycle will provide for better market conditions going into 2020. The stock market has already risen significantly in the past 2 and ½ years. Investors need to enjoy the ride.
We continue to consider it an honor to manage your assets and look forward to your feedback in the coming months.
Russell L. Robinson
President
April 1, 2019
March Madness is coming to a close. We have completed a remarkable quarter as the S&P 500 rallied from its December 24, 2018 short term low of 2416 to its present 2828 level recording an approximate 17% gain. Over the course of the last 30 years we have had only 4 Federal Reserve Chairmen which include Greenspan, Bernanke, Yellen and Powell who was appointed last year.
Normalizing Interest Rates. Chairman Powell’s initial task was to begin unwinding US Treasury assets purchased in the past 10 years in the Open Market to accommodate economic growth. Current assets held on the Federal Reserve balance sheet stands at $3.7 trillion which is down from $4.7 trillion two years ago dropping the monetary base by $500 billion. Much of the easy money has evaporated as a result.
American Economy on a Diet. Powell has reduced money supply growth from 8-9% to its present 4% level. In November 2018 after the financial markets tanked after Labor Day, Powell indicated no more asset sales until evidence appeared that the economy was overheating. Henceforth, the US stock market has rallied over the past 95 days. If money growth does not rebound in a significant percentage, the S&P 500 is approaching levels which are not sustainable.
Bonds Sending Mixed Signals. The US Treasury market has provided some excitement since yields reached a short term peak in November 2018. Interestingly, the short end of the curve is higher than five year maturities. The mini inverted curve certainly reflects a modest money supply growth with many analysts anticipating a recession.
Cyclical Crossroad. We are waiting on some signal from Chairman Powell. By lowering short-term rates, he would signal that the economy should continue to enjoy prosperity. If he chooses to either raise rates are stay at status quo, then the financial markets will weaken. Previous new Fed Chairmen have stumbled within the first year taking the job. Hopefully he will succeed.
Current U.S. Treasury Yields
Maturity Yield
90 days 2.42%
180 days 2.44%
1 Year 2.42%
5 Years 2.25%
10 Years 2.42%
30 Years 2.83%
Is the Stock Market Half Full or Half Empty? The S&P 500 currently trades at 18.25 times next year earnings with a dividend yield of 1.9%. Earnings for the S&P 500 are estimated to grow 9% in 2020.
Growth stocks have outperformed value stocks over the past eighteen months.
One of Our Own. The Monteagle Value Fund (MVRGX) which we have managed since 1999 currently trades at 15.7 times 2020 earnings and provides a dividend yield of 3.27%. We believe the time is right for value stocks to perform reasonably well in the current environment as investors left the stock market throughout 2018 running to quality. For the record, the Fund has risen from $13.25 to $15.13, or 14.18% from December 24, 2018 to March 28, 2019!
Our Current Equity Strategy. Using the Monteagle Value Fund as an example, our current equity strategy favors market weightings in energy, while we are overweight in industrials and material stocks. We are underweighted in financial, utility, and information technology stocks. We have held several of the large capitalization telecommunication and pharmaceuticals for well over 15 years. We have market weightings in health care and consumer stocks. Additional, the fund has 19% of its holdings domiciled in international markets. The stock turnover was at 6% for 2018 as we tend to hold investment positions for well over 5 years.
As Goes January, So Goes the Rest of the Year. Last year, stock mutual funds and exchange traded funds experienced a cash withdrawal from Labor Day to the end of the year of $95 billion. With the recovery in stock prices during the present quarter indicates that some of the cash returned to stocks. According to the Stock Trader’s Almanac (2019), the January barometer has worked 59 out of 68 years. Stock market strength in January, implies that the entire year will be strong. Should inflation numbers remain tame in 2019, the market could have better earnings than what is currently being projected.
We remain in Brentwood, Tennessee. On February 14, 2019 we celebrated our 23 anniversary as an independent investment advisory firm. We remain committed to providing investment plans that meet your individual investment needs. We consider it an honor to make investment decisions on your behalf.
Rusty Robinson
President
Robinson Investment Group
5301 Virginia Way, Suite 150
Brentwood, Tennessee 37027
615-242-3447
January 1, 2019
The New Year greets us with the sobering reality that the financial markets have declined around the world. The Federal Reserve has reduced monetary reserves over the past eighteen months leading to a less accommodative money supply growth. The animal spirits of extraordinary high money supply growth from 2009 through 2016 have disappeared.
All market indices dropped +10% for the month of December, 2018. Short-term interest rates have been raised 7 times since 2016. Fed policy indicates it intends to raise rates twice in 2019, but will base that on economic data. We believe that the Fed has already gone too far and should rest from further tightening.
In 1929, the Fed Chairman Roy A. Young decided to raise rates and drop money supply over 30% in three years as a response to the Great Crash of 1929. With very little experience, the Fed made an error in its policy leading to the Great Depression. Hopefully, Chairman Jerome Powell will reverse course and not raise rates further.
Current U.S. Treasury Bond Yields:
Maturity Yield
1 Year 2.61%
3 Year 2.50%
5 Year 2.55%
10 Year 2.72%
30 Year 3.03%
In response to the U.S. stock market decline, the silver lining for the financial markets is that yields on bonds have actually dropped in the past six weeks. Longer maturity bonds have declined significantly as the 10 year yield dropped below 3% having traded above 3 percent during the first half of 2018. The short end of the curve is inverted which suggests a minor recession is around the corner.
In 1987, the financial markets were tested yet the banks were able to negotiate the market collapse. We did have several investment banks that eventually went out of business including Drexel Burnham, Kidder Peabody and Prudential Bache. In 2008/2009, the fully deregulated banks were all in trouble. Essentially, the financial markets screeched to a halt as banks were caught with no capital. At present, we do not believe that any banks are in trouble. Should the financial markets drop further it will present a clear and present danger to the nine banks that are too big to fail.
All industries in the S&P 500 dropped in December. Previous market declines in 1987 and 2009 were quick and furious. This more recent decline was a steady daily drop essentially that began after Labor Day, 2018. The high-frequency trading platforms employed by private equity firms and hedge funds exacerbated daily volatility in stock prices. The powerful drop in the market suggests that either an economic slow-down or recession will occur in 2019. Great debate is occurring by leading market strategists arguing both sides of the fence. Recessions are defined as two successive GDP growth either being flat or declining. The latest quarterly GDP growth was up 2.7%.
According to the Wall Street Journal, net inflows for U.S. mutual and exchange-traded funds in the first 11 months of the year fell to $237 billion, according to new estimates compiled by research firm Morningstar. That was down 62% from the year-ago period, the steepest decline since 2008. Asset managers attracted a record $629.5 billion in net flows during the same period in 2017, a boom year for the industry. The five largest growth stocks which include Apple Computer, Amazon, Google, Facebook and Microsoft all declined since Labor Day.
Today we believe the decline is a welcomed entry point to buy good companies at a reasonable valuation. Investment positions held on a long term basis remain with good capital gains. More recently the dividend paying stocks have fared better than non-dividend stocks. Reflecting back on the severe market declines in the past, time has rewarded those who remained invested.
We look forward to the New Year. We believe the markets will recover as corporate earnings continue to be reasonably good. We will focus on companies that continue their corporate stock repurchase programs, insider buying, and competitive advantages in the market place.
We welcome the opportunity to meet with you in the coming months and consider it an honor to manage your assets.
Russell L. Robinson
President
Robinson Investment Group
5301 Virginia Way, Suite 150
Brentwood, Tennessee 37027
615-242-3447
October 1, 2018
O Say Can You See, By the Dawn’s Early Light. Over the past two years U.S. Treasury bond yields have risen significantly. During this period, the Federal Reserve has been unloading bonds which were purchased in the Open programs affectionately referred to as Quantitative Easing which lasted several years as a result of the Great Recession that began sometime in 2009. During this period, the Fed’s balance sheet grew from $800 billion to $4.7 trillion in 2015.
What So Proudly We Hailed at the Twilight’s Last Gleaming. The massive monetary stimulus did not produce the desired results as GDP growth never exceeded 2% during this period. Since 2017, the reduction in income tax rates and lowering government rules which restricted economic activity has actually jump started an otherwise anemic U.S. economy. The second quarter 2018 GDP growth rose to 4.1% signaling the economy was strong enough to allow the Fed the wiggle room to raise rates to more normal levels.
Whose Broad Stripes and Bright Stars Through the Perilous Fight. Rumors of trade wars have circled the globe as U.S. trade tariffs have been implemented regarding European, Canadian, Mexican and Chinese trading partners. The U.S. Trade Deficit has been massive versus these countries for twenty years or so. Since 1990, estimates that over 10 million jobs were eliminated in American as these countries had significant labor cost advantages.
O’er the Ramparts We Watched. The tax cuts in 2017 have actually encouraged corporate America to commit to bringing some jobs back and raising wages for many Americans. The unemployment rate recently dropped below 4 %, if you want a job, you can find a job! The stock market is the leading indicator for continued good economic growth as the major stock indices have reached historic levels during the current quarter.
Were so Gallantly Streaming? In spite of higher Treasury yields, the current shape of the U.S. Treasury curve is forecasting economic growth. Borrowing costs for corporations remains historically low even as corporate borrowing has been at historic levels over the past five years. Record government spending is also contributing to improving economic activity. Projections for the U.S. budget are forecasting the deficits exceeding $1.0 trillion by 2020. The Consumer Sentiment Index is at a twenty year high as well. We believe the short-term (1-3 years) Treasury bonds to be the sweet spot in the bond market.
Term Yield
90 days 2.19%
180 days 2.29%
1 Year 2.57%
5 Years 2.95%
10 Years 3.06%
30 Years 3.19%
And the Rockets Red Glare. The current valuation the S&P 500 trades at 20.4 times 2018 earnings and yields 1.73%. Earnings for the S&P 500 are projected to rise from $132.25 to $161.10 next year or 21%, which is very optimistic. We still believe that economically sensitive industries should perform reasonably well and favor industrials, energy, chemicals, materials, technology and consumer discretion stocks.
The Bombs Bursting in Air. As Apple Computer and Amazon’s respective market capitalizations surpassed $1 trillion during the quarter, we believe all kinds of market speculation abounds. Recent data from a leading krypto currency dealer indicates that Bitcoin’s current market valuation is approximately $115 billion. The size of the ten largest krypto currencies combined is approximately $166 billion. We believe this market is the most fictional Tulip bulb craze to ever occur. Mysteriously, one opens an account at one of the several dealers in these accounting entries ad ships money from the credit or debit card like a sports betting parlor. The “investor” has daily or minute by minute updates to the value of the currency. The smart investor gets in early and gets out early. We believe the krypto phenomenon is nothing more than a Grand Ponzi scheme…buyer beware!
Gave Proof through the Night that Our Flag was still there. As the price of gold sits at a 7 year low at $1200 an ounce, another anti-speculative indicator is there is no real inflation. Technological advancements have more to do with lower inflation than anything else. Yet, we believe a day will come when we experience higher inflation. In the Federal Reserve playbook, we know inflation comes when the market is not expecting it. During the last three years of the 1970’s, real assets experienced major appreciation. After living through the painful years of the Watergate era, Americans buried themselves in getting back to normal and never saw the inflation ahead.
O Say Does that Star-Spangled Banner Yet Wave. The Bretton Woods Agreement ended in 1974 allowing currencies to float in value. Gold had been fixed for 40 years at $32 an ounce. No one really knew what it was worth as it rose to $800 an ounce. We believe this sums it up for the current value of commodities. No one knows what they are worth. Should governments continue to issue more debt, finance the debt through Central Bank purchases, and get Venezuelan styled socialists in office, then our currency can collapse. Record levels of debt issuance by the U.S. government, state governments, corporations, and individuals will be the trigger for such a dollar devaluation leading to dramatic inflation.
O’er the Land of the Free and the Home of the Brave. How much is enough? We have lost several large accounts recently after we have compounded returns doubling, tripling and sometimes quadrupling their asset values. The quest for more is ever so great today. As we go into the cooler months in the fall, we believe that any further market appreciation is a good time to take profits off the table. We are more cautious about the next eighteen months as Fed policy is raising rates and reducing money supply growth. We look forward to conversation about your assets and believe that conservative strategies are advisable in the coming months.
We remain diligent to do the very best in making investments on your behalf. We strive to earn your trust and confidence in the investment management process.
Russell L. Robinson
President
Robinson Investment Group
5301 Virginia Way, Suite 150
Brentwood, Tennessee 37027
615-242-3447
Titles from the 1st stanza of the Star Spangled Banner, Francis Scott Key, 1814