Investment Insights Podcast – Leading Indicators Report Strong Economy

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded April 1, 2016), Bill reports again on the importance of leading indicators and what they are showing in terms of the stability of the economy and if a recession is likely:

What we like: Investors should focus on leading indicators; good economic data to report: order rates for manufacturing strong; employment data continues to be positive; wages are increasing; recession happening this year becomes less likely with strong data from these leading indicators

What we don’t like: On the contrary, the strong data makes a larger case for higher interest rates; with wage and labor reports positive, Fed may act on their mandate and the interest rate discussion heats up

What we’re doing about it: Portfolios will maintain the theme of interest rate normalization

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast – Markets Elect to Follow History

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded March 24, 2016), Bill weighs in on the presidential election race and its impact, or lack there of, on the markets:

Quick takes:

  • The Wall Street Journal survey indicates about 76% of respondents feel this election is introducing more uncertainty into the markets.
  • Evercore ISI research frames the election less as Democrats vs. Republicans and more as unconventional vs. mainstream.
  • While there is heightened uncertainty strewn across media headlines, the market reaction has been typical of past open presidential election races.

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast – Central Banks Back Economies

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded March 17, 2016), Bill explains why recession concerns should continue to lessen and what to expect from the upcoming earnings season:

What we like: Recent Wall Street Journal survey indicates that investors are becoming less fearful of a recession; that trend should continue as central banks across the world are firmly standing by their economies–Janet Yellen most recently

What we don’t like: Second quarter earnings season likely to have residual effects from the weak first quarter; markets may trend sideways for a time; corporations have been the largest buyers of stock but have to step aside during earnings season

What we’re doing about it: Continuing to look for opportunities within high-yield, energy and natural resources

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast – Jolting The Economy

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded March 10, 2016), Bill highlights the latest news out of Europe and China:

What we like: Mario Draghi and the ECB announced a number of pro-stimulus policies; banks supportive in lending to businesses; more quantitative easing supports sovereign debt markets; Draghi trying to be the backstop to support the economy; China’s Five-Year Plan focused on stimulating economy

What we don’t like: Market is realizing that pure monetary stimulus is not enough; there is a global oversupply and printing more money or having markets lend more money isn’t enough to offset; investors are hearing the rhetoric but looking for results

What we’re doing about it: Keeping the same mindset that there will not be a recession; looking for opportunities within high-yield and energy

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast – Markets Rally in Anticipation of G20 Summit

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded February 26, 2016), Bill discusses the recent string of positive news, the hopeful outcome following the G20 Summit, and what still remains as cause for concern:

What we like: G20 Summit underway to discuss new policies intended to help support economic growth around the world; Communist party in China soon to meet to discuss five-year plan; stock markets have rallied a bit recently

What we don’t like: Economic data continues to be mixed; need a steadier drumbeat of good data to gain more confidence

What we’re doing about it: Tactically speaking, we are leaning towards a more bullish stance; monitoring the stabilization of oil prices

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast – What Indicators Are Indicating

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded February 18, 2016), Bill comments on what the leading indicators are showing in terms of the stability of the economy and if a recession is likely:

What we like: Leading indicators, published by Department of Commerce, are out and are important in understanding chances of recession; so far, indicators are showing a healthy economy with no recession likely at least in the next six months; stability in oil prices helping to calm the markets; China is actively supporting their economy

What we don’t like: We still need to hear about the ECB exposure to bad loans in China; need more clarity if the Fed will raise rates in March; there’s enough global trauma out there to make raising rates seem unwise

What we’re doing about it: Monitoring this rally period between now and the spring as economic activity is decent; may look to take longer tactical positions

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast – Hope Springs Eternal

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded February 11, 2016), Bill addresses the current market climate and why there is reason to remain hopeful:

What we don’t like: Stocks are down around 10% in general; European stock markets are down even more; Asian markets down the most; it’s a tough environment for investors

What we like: We don’t believe this is a long-term bear market and don’t see a recession hitting the U.S.; labor and wages are positive; auto and housing is good as well; economy seems sturdy despite volatile market behavior; China poised to finalize five-year plan including lowering corporate tax rates and addressing government debt levels; ECB should start to show more support for its major banks

What we’re doing about it: Most of the damage is done; more sensible to see what we should buy or rotate into; hedged pretty fully in tactical products; staying the course in more strategic products

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

“It’s not nice to fool Mother Nature”

Miller_HeadshotBill Miller, Chief Investment Officer

“It’s not nice to fool Mother Nature” was the slogan used by Chiffon margarine, manufactured and trademarked by Anderson, Clayton and Company in the 1970s. It’s a catchphrase that is somewhat still indicative of the current market weakness in that China is meddling too much with its markets and currency.

Global risk assets are wrestling with the issue of “price discovery.” China is in the headlines for fooling both with its stock market and its currency. To speak as the Federal Reserve, this is probably not a “transient” problem.

The bar chart below titled, “China’s Stocks Still World’s Most Expensive after Rout,” indicates that the median Chinese stock is two to three times more expensive than other stocks globally. Such a large gap begs the question—are Chinese stocks worth it? Doubtful. China has a slowing economy, overvalued currency, overcapacity in many industries, and a lot of debt.

Last August, when we saw headlines such as “China meddling in stock market seen discouraging return of foreign funds” (Reuters – Aug 6, 2015), “China’s market meddling could do more harm than good” (CNN Money – July 28, 2015), and “China’s stocks keep falling because of government’s inept meddling” (INVESTORS.com – August 26, 2015), some of us wondered if we had just seen a preview of the future.

This week’s action seems to indicate, “yes.” China closed its stock exchanges twice and injected money at least once this week did little. On January 7, China also lifted its restriction imposed last summer on sales of shares held by large institutions. Now, investors have no idea what Chinese equities are worth. Price discovery will likely take time there.

Miller_China_Chart1

Source: Bloomberg

All of this, of course, leads us to sovereign bond markets around the world, most notably in the U.S., Europe and Japan. Central banks in these three developed economies have kept interest rates near zero for years now.

The European Central Bank appears increasingly willing to double down on this bet.

Miller_China_Chart2

Source: European Central Bank, Bloomberg

No doubt “fooling with Mother Nature” lurks in the minds of many investors. It is hard to fathom paying the government to save your money; but, that is exactly what German investors do when they purchase two-year German Treasury bonds at a -0.375% yield! Just think of all the retirees around that world that have been forced out of safe government bonds and bank certificate of deposits into higher-yielding riskier investments because they need income. There is a popular acronym for this forced behavior, TINA–There Is No Alternative.

To help quell this thought inside investor’s minds, check out Five Answers for the Voices in Your Head.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast – Why So Shaky, Markets?

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded January 7, 2016), Bill lends some insight into why markets have started the year so volatile, and what that means for the long-term outlook.

Two themes are at the heart of the current market weakness: (1) Chinese government has meddled too much with its market and currency and (2) Central banks have kept interest rates too low for too long.

China

  • Stock prices are two to three times more expensive relative to Germany, U.S., Japan and others
  • China halted trading (twice) so investor’s couldn’t get to their investments, causing panicked behavior among investors
  • Officials manipulated down the value of the yuan in an effort to stimulate exports, creating more fear in investors
  • Things must be weak enough where officials think that they have to stimulate exports

Central Banks

  • Central banks around the world have kept interest rates near zero, but now that is shifting
  • U.S. has raised rates and there is talk of raising them again in 2016; but Europe and Japan remain at near-zero levels, creating a credibility issue
  • Investors now questioning why U.S. is going in one direction and Europe and Japan in another, and what that means to their investments

The combination of Chinese market manipulation and central bank credibility is surely causing fear, and perhaps some irrational investing, but it’s important to temper those voices. While the current volatility may take some time to pass, it feels more like a market correction and less of a large-scale economic issue.

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Early Concern in 2016 Yields Opportunity

Miller_HeadshotBill Miller, Chief Investment Officer

Overall global economic concerns and yesterday’s market events present a great opportunity to remind investors to stay focused on their goals. To that end, we highlight two performance metrics:

First, as illustrated below, some asset classes, including gold, U.S. Treasury bonds, TIPs and pipeline Master Limited Partnerships, finished up yesterday in the face of poor global equity performance. In some cases, this is the opposite of last year’s performance. Such a flip-flop in performance across asset classes only serves to highlight the value of Brinker Capital’s multi-asset class investment philosophy. A commitment to diversification can help calm investors on bad days and moderate enthusiasm on good days.

Performance Across Asset Classes

Source: Brinker Capital, FactSet

Second, big drops in the S&P are infrequent but certainly not an unfamiliar occurrence on an absolute basis. There have been single-day dips of 2% or greater in the S&P 500 a total of 222 times in the trailing 20 years, or just slightly under 5% of the total number of trading days.

More importantly, following these dips the median S&P return in the following month (2.44% over the subsequent 20 trading days) has been more than double that of the median 20-day S&P return over the period on a non-conditional basis (1.01%).

Over the last 20 years, a strategy that fled to cash for 20-day periods following those 2% S&P 500 declines would have fared 2% worse on an annualized basis than staying 100% invested in equity. That’s a cumulative return difference of 151%.

S&P 500 Performance

Source: Brinker Capital, FactSet

Again, yesterday’s volatility presents a great opportunity early in 2016 to remind investors that it’s not time to panic–it’s important to stay focused on their goals. While we can’t predict what specifically may happen in the future, Brinker Capital has been identifying trends and leveraging our six-asset class philosophy when positioning our portfolios to anticipate a period of increased market volatility in many of our strategic and tactical portfolios.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.