MacNicol’s Monthly Commentary-May 2019

Trade only when the market is clearly bullish or bearish…so which is it?

Jesse Livermore famously said, “Trade only when the market is clearly bullish or bearish”. I really wish it were that simple. Although markets have for the most part performed well in 2019 the arrival of May has dumped some cold water on the market’s burning deserve to go higher. “Sell in May and go away” seems to be right on schedule in 2019.

May’s sell off would indicate that all is not exactly well with financial markets since they appear particularly prone to event risks such as the predictable tariff tweets from you-know-who along with ongoing uncertainty over global growth. Together, its made following Mr. Livermore’s advice that much more difficult.

What’s an investor to do?

The MAAM investment team feels that caution is warranted. We are not in possession of smoking gun evidence that the market was poised to sell off or is poised to sell off even more. In fact, we feel pretty good about our more conservative stance here in 2019 but we do think times-they-are-a-changing. Many investors clearly under estimate the power of President Trump’s Twitter account, the ability of the Chinese to deal with it. When we reference President Trump’s Twitter account it isn’t so much the case that his erratic comments can easily shave off hundreds of points of stock market valuations in a matter of minutes. Rather, we would surmise that it’s the longer-term implications on sector allocation that investors should focus on.

For example, our firm invests in technology names, but we do so primarily through privately held firms in our Alternative Asset program. Still we are shareholders of Microsoft because we believe that technology is an important contributor to portfolio growth, especially in a low growth low inflation environment. On the other hand, we probably wouldn’t invest in semi-conductor stocks any time soon nor in firms materially involved in the hardware space since these sorts of companies are more likely to experience sustained periods of stress in a longer running trade tiff. So point number one for investors is to take a closer look at portfolio level sector allocations: we would surmise that painting this market with broad brush strokes could hurt your bottom line.

When it comes to the Chinese and their ability to deal with a US led trade war (or the communication strategy thereon) we would suggest neither one is particularly robust and again caution investors when it comes to “blindly” taking on global portfolio exposure even though it has heretofore been sold as something “good” for you. When Chinese authorities implemented a media ban on President Trump’s Twitter comments they probably felt it was a good idea to shelter their  citizens from the crazed ideologies of populist Western Dictator. We wish we could have been in the boardroom where that decision was consummated to intercede with a dollop of data and common sense.

Statistica.com reports that as of the end of 2018 there were 257 million smart phones in the United States, which is a lot. But the problem is, Statista.com also reported that there were 713 million smart phones in China as of the same period. Oh yeah and the Global Times reports that every day (day not year) 8,000 Chinese citizens land in the United States while 6,000 Americans do the same in China. In a highly interconnected and digital world such a ridiculously pointless ban by the Chinese did more harm than good because it exposed them as not only fearful of the Americans when it comes to trade but guilty of being deceitful to their own people. Fear is one thing, lies are another but both undermine China’s global market domination ambitions. Predictably, investors voted with their wallets with Asian equities swan diving harder than a seasoned Yoga Master and certainly harder than American equities.

The MAAM investment team obviously does not know exactly what is happening in China’s economy, but as of right now, we would suggest the first quarter rebound in 2019 Chinese economic activity is likely an anomaly. So much for much for clarity.

 


 

You must be subscribed and logged in to read full commentary.

If you have not registered or logged in, click here.