The Family Firm Blog

Nate Gendelman

Nate Gendelman

Recent Posts

Stagnation in American manufacturing continues

Posted by Nate Gendelman on 12/2/19 11:04 AM

Stagnation in American manufacturing continues. ISM index falls to 48.1, below the "neutral" level of 50. Despite the resolution of the UAW strike, there was no improvement in November. I suppose when Boeing resumes shipping the 737 Max, the overall numbers will improve. But nevertheless, the effects of the trade wars and poor business confidence continue to manifest themselves in data.

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Federal Reserve Cuts Interest Rates (Again)

Posted by Nate Gendelman on 11/2/19 11:21 AM

Should we be alarmed that the Fed is cutting rates at a time when core inflation has accelerated? Core = inflation excluding food and energy. Although the inflation rate for September itself was quite low, I note that core inflation has increased steadily in recent months and is now at 2.4% year over year. It appears the Fed will remain singularly focused on combating the effects of the Trump trade war. We can only hope that inflation will remain well contained even with the return of (very) easy money.

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Year in Review – 12 Months Ending September 30, 2019

Posted by Nate Gendelman on 10/14/19 11:18 AM

Year in Review – 12 Months Ended September 30th, 2019

The world endured an uncomfortable degree of political uncertainty, much revolving around US efforts to remake the world trading/economic order. After a long period of investor complacency, concerns about the impacts of this policy were clearly demonstrated by the end of 2018. Despite the apparent momentum behind populist leaders in several countries, corporate influence and profits remain at astounding levels.

Despite much turmoil, conditions favor investors and the stock market’s rebound in 2019 reflects this. The year was positive for the American economy and consumer, although growth slowed as the year wore on. Purchasing power gathered strength due to low inflation, and wages rose a bit faster than in previous years as unemployment fell to levels considered impossible just a few years ago.

The Federal Reserve began the period intending - in response to a strong economy - to continue to raise interest rates and shrink its swollen balance sheet. For years, the Federal Reserve has warned of the imminent onset of inflation, given economic growth and low unemployment. The absence of inflation has prompted a re-think at the Fed and official optimism on this front has increased. As 2019 wore on, the Fed went into a rate cutting posture to confront diminishing inflation and a global economic slowdown.

Major Economic Events

Growth in the US was above average. Employment expanded steadily, inflation remained under control, and housing prices rose. Consumer confidence remained very high, as evidenced by high spending. Profit growth waned, but margins remain at extremely high levels.

The global economy expanded but growth faded. Europe’s economic recovery stalled as several countries fell into recession and Germany’s growth ground to a halt. The British economy underperformed. Contrary to what most expected however, the interminable Brexit saga has not had a drastic effect on British and European economies. China’s growth continues apace but is far below the rate achieved during the past decade. The Chinese government has struggled to develop policies to manage the trade war’s impacts.

Oil prices plunged at the end of 2018. American supply has surged, OPEC’s efforts to contain the market sputtered, and even armed conflicts in the Gulf did not cause an enduring rise in prices.

The Equity Markets

Global stocks ended with an underwhelming gain of 2%. Stock markets endured a very sharp fall during the 4th quarter of 2018, followed by a surge in 2019. An unfortunate confluence of a Federal Reserve interest rate hike, some tepid economic news, and the proclamation by President Trump that he is a Tariff Man shook investor confidence dramatically. In 2019, some of these trends seemed to reverse, as a trade deal with China was repeatedly proclaimed imminent and the Fed dropped its plans for steady rate increases. Corporate profits remain extremely high and stock buybacks continued to support the overall market.

The American stock market performed better than its international counterparts. Overall, international markets ended with small losses, while the broad US stock market achieved a small gain (just under 3%). Within the US, several sectors (real estate, utilities, consumer staples) turned in surprisingly strong results. Technology stocks also did
relatively well, although the rate of growth tapered significantly. Despite what appear to be ideal conditions (low interest rates, supportive government policies), small cap stocks lagged significantly, and ended the year with losses. Many firms reported that the twin effects of tariffs and rising labor costs are hampering their business. Among international stocks, emerging markets fared the best, followed by Europe and then Japan. The Trump administration policy of confrontational trade stances and tariffs significantly impacted many countries, most particularly China.
Natural resource stocks tracked the price of oil and, despite gains in 2019, ended the period deeply in the red. REIT investors celebrated the cessation of Fed tightening and the fall in interest rates.

Overall, the effects of diversification from the traditional S&P 500 index were quite negative. Every major asset class fell significantly short of the S&P 500, except for REITs.

The Fixed Income Markets

It was a strong year for bonds. Prices rallied as stocks fell in October and December, and then surged in 2019 as the Fed signaled an end to tightening and interest rates for most bonds tumbled. International bonds also rose, although at a more moderate pace. Cash and similar investments have benefited from the Federal Reserve’s increases in rates and the rate of return on money market funds approximately matched the inflation rate.

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Audio from our September 19 Investment Conference Call

Posted by Nate Gendelman on 9/23/19 10:41 AM

 

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Year in Review – 12 Months Ending June 30, 2019

Posted by Nate Gendelman on 7/8/19 11:51 AM

Year in Review – 12 Months Ended June 30th, 2019

The world endured an uncomfortable degree of political uncertainty, much revolving around US efforts to remake the world trading/economic order. After a long period of investor complacency, concerns about the impacts of this policy were clearly demonstrated by the end of 2018. Despite the apparent momentum behind populist leaders in several countries, corporate influence and profits remain at astounding levels. Despite much turmoil, conditions favor investors and the stock market’s rebound in 2019 reflects this.

Most national economic statistics were relatively strong. The year was positive for the American economy and consumer, although growth slowed as the year wore on. Purchasing power gathered strength due to low inflation, and wages rose a bit faster than in previous years as unemployment fell to levels considered impossible just a few years ago.

The Federal Reserve began the period intending - in response to a strong economy - to continue to raise interest rates and shrink its swollen balance sheet. For years, the Federal Reserve has warned of the imminent onset of inflation, given economic growth and low unemployment. The absence of inflation has prompted a re-think at the Fed and official optimism on this front has increased. By mid-2019, not only had thoughts of rate increases been shelved, but the markets anticipate imminent rate cuts.

Major Economic Events

Growth in the US was slightly above average. Employment expanded at an increased clip, inflation remained under control, and housing prices rose. Consumer confidence remained very high, as evidenced by high spending. Although the rate of profit growth slowed, margins remain at extremely high levels.

The global economy expanded but growth faded. Europe’s economic recovery stalled as several countries fell into recession and even Germany’s growth waned. The British economy underperformed. Contrary to what most expected however, the interminable Brexit saga has not had a drastic effect on British and European economies. China’s growth continues apace but is far below the rate achieved during the past decade. The Chinese government has struggled to develop policies to manage the trade war’s impacts. Oil prices plunged at the end of 2018. American supply has surged, OPEC’s efforts to contain the market sputtered, and the drastic sanctions that were to be placed on Iran’s oil exports were delayed. Although energy prices rebounded very strongly in 2019, they remained below the year earlier level.

The Equity Markets

Global stocks ended with a respectable, if unspectacular, gain of 6%. Stock markets endured a very sharp fall during the 4th quarter of 2018, followed by a surge in 2019. An unfortunate confluence of a Federal Reserve interest rate hike, some tepid economic news, and the proclamation by President Trump that he is a Tariff Man shook investor confidence dramatically. In 2019, some of these trends seemed to reverse, as a trade deal with China was repeatedly proclaimed imminent and the Fed dropped its plans for steady rate increases. Corporate profits remain extremely high and stock buybacks continued to support the overall market.

The American stock market performed better than its international counterparts. Overall, international markets ended with a minuscule gain, while the broad US stock market achieved a typical gain (9%). Within the US, large cap growth (technology, health care) dominated although several other sectors (real estate, utilities) turned in  surprisingly strong results. Despite what appear to be ideal conditions (low interest rates, supportive government policies), small cap stocks lagged significantly, and ended the year with small losses. Among international stocks, emerging markets fared the best, followed by Europe and then Japan. The Trump administration policy of confrontational trade stances and tariffs significantly impacted many countries, most particularly China. Natural resource stocks tracked the price of oil and, despite gains in 2019, ended the period deeply in the red. REIT investors celebrated the cessation of Fed tightening and the fall in interest rates.

Overall, the effects of diversification from the traditional S&P 500 index were very negative. Every major asset class fell significantly short of the S&P 500, except for REITs.

The Fixed Income Markets

It was a strong year for bonds. Prices rallied as stocks fell in October and December, and then surged in 2019 as the Fed signaled an end to tightening and interest rates for most bonds tumbled. International bonds also rose, although at a more moderate pace. Cash and similar investments have benefited from the Federal Reserve’s increases in rates and the rate of return on money market funds approximately matched the inflation rate.

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Audio from our May 9, 2018 Investment Conference Call

Posted by Nate Gendelman on 5/10/19 1:42 PM

 

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Year in Review – 12 Months Ended March 31st, 2019

Posted by Nate Gendelman on 4/7/19 5:14 PM

The world endured an uncomfortable degree of political uncertainty, much revolving around US efforts to remake the world trading/economic order. After a long period of investor complacency, concerns about the impacts of this policy were clearly demonstrated by the end of 2018. Despite the apparent momentum behind populist leaders in several countries, corporate influence and profits remain at astounding levels. Despite much turmoil, conditions favor investors and the stock market rebound of early 2019 reflects this.

Most national economic statistics were relatively strong. The year was positive for the American economy and consumer, although growth slowed as the year wore on. Purchasing power gathered strength due to low inflation, and wages rose a bit faster than in previous years as unemployment fell to levels considered impossible just a few years ago.

The Federal Reserve began the period intending - in response to a strong economy - to continue to raise interest rates and shrink its swollen balance sheet. For years, the Federal Reserve has warned of the imminent onset of inflation, given economic growth and low unemployment. The absence of inflation has prompted a re-think at the Fed and official optimism on this front has increased. Tariffs have the potential to filter into inflationary pressures, although to date effects have been hard to detect.

Major Economic Events

 Growth in the US was slightly above average. Employment expanded at an increased clip, inflation remained under control, and housing prices rose. Consumer confidence remained very high, as evidenced by high spending. The corporate tax turbocharged profits, which were already at extremely high levels.

The global economy expanded but growth faded.  Europe’s economic recovery stalled as several countries fell into recession and even Germany’s growth waned.  The British economy underperformed. Contrary to what most expected however, the interminable Brexit saga has not had a drastic effect on British and European economies. China’s growth continues apace but is far below the rate achieved during the past decade. The Chinese government has struggled to develop policies to manage the trade war’s impacts.

Oil prices plunged at the end of 2018. American supply has surged, OPEC’s efforts to contain the market sputtered, and the drastic sanctions that were to be placed on Iran’s oil exports never materialized. Although energy prices rebounded very strongly in 2019, they remained below the year earlier level.

The Equity Markets

 With a few notable exceptions, it was a subpar year for global stocks, with an overall appreciation of just over 2%. Stock markets endured a very sharp fall during the 4th quarter, followed by a surge in early 2019. An unfortunate confluence of a Federal Reserve interest rate hike, some tepid economic news, and the proclamation by President Trump that he is a Tariff Man shook investor confidence dramatically. In 2019, some of these trends seemed to reverse, as a trade deal with China was repeatedly proclaimed imminent and the Fed dropped its plans for steady rate increases. Corporate profits remain extremely high and stock buybacks continued to support the overall market.

As mentioned above, certain asset classes did fare well. The American stock market held up better than its international counterparts.  Most international markets ended with losses, while the broad US stock market achieved respectable gains.  Within the US, large cap growth (technology, health care) dominated although several other sectors (real estate, utilities) turned in surprisingly strong results. Small cap stocks lagged significantly, although managed to eke out small gains.

Europe, Japan, and emerging markets ended the year with comparable losses. Europe and Japan’s economic results were unimpressive. The Trump administration policy of confrontational trade stances and tariffs exacerbated the situation and significantly impacted many countries, most particularly China.  

Natural resource stocks tracked the price of oil and ended the year down slightly. REIT investors celebrated the cessation of the Fed tightening and the fall in interest rates.    

Overall, the effects of diversification from the traditional S&P 500 index were very negative. Every major asset class fell significantly short of the S&P 500, except for REITs.

The Fixed Income Markets

Bond prices rallied as stock prices fell in October and December and then rose again in 2019 as the Fed signaled an end to tightening and interest rates for most bonds tumbled.  International bonds fell a bit as the overall trend in the dollar was upwards. Cash and similar investments have benefited from the Federal Reserve’s increases in rates and the rate of return on money market funds approximately matched the inflation rate.

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Markets Rebound In The First Two Month of 2019

Posted by Nate Gendelman on 3/7/19 4:05 PM

 

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The manufacturing sector of the economy ended 2018 on a relatively sour note.

Posted by Nate Gendelman on 3/1/19 11:30 AM

The manufacturing sector of the economy ended 2018 on a relatively sour note.

Production weakened over the last few months of the year and December over December comparisons show a growth rate of about 2%. Certainly interesting that the stock market has continued to ignore the lackluster economic reports so far in 2019 and continues to foresee happier times ahead.

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What are the major influences on the oil market right now?

Posted by Nate Gendelman on 2/26/19 11:32 AM

Factors influencing prices high: OPEC cuts, geopolitical situations involving Iran and Venezuela, slow but steady increase in demand.

Factors depressing prices: US domestic production at all-time highs; reasonably flush inventories; pressure from Trump on OPEC to keep prices low, and the global economic slowdown.

Although on balance the bears have the stronger case, for today it is the bullish side that is ascendant as oil prices are markedly higher.

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