MRA Blog

Q2 2021 is in the books. We enter the month of July with US equities trading at all-time highs, interest rates forming multi-month lows, and volatility returning to pre-pandemic levels. The current news narrative is centered around inflation and whether the Fed’s “transitory” stance is likely to be true or not. Despite this narrative, last quarter long-term US treasury bonds formed multi-month highs. All this talk about inflation and we’re seeing t-bonds print new highs? It’s always interesting when the narrative runs counter to actual price action. We’re not attempting to speculate on the direction of t-bonds - We are simply pointing out that often headlines and price action tell two very different stories. Below is a chart of US Treasury Bond futures alongside the 14-period Relative Strength Index.

We all have a story of someone in our lives who is either exceptionally good with managing money or conversely, someone who struggles to avoid common financial mistakes. There is debate in terms of whether people are inherently good or poor money managers. We believe that given the correct tools, people who struggle can vastly improve the way they handle their finances.  One of the long-time passions of our investment practice is promoting and encouraging financial literacy for the younger generation.  We’ve ramped up our efforts in this area over the past year – in part because of the tremendous efforts of Shane.

Welcome to the first edition of the Michael Roberts Associates Technical Corner bulletin. Each quarter for the remainder of 2021, we’ll review global market developments through the lens of technical analysis. Now, what is technical analysis? Technical analysis is the study of price action and trends within capital markets. This is performed by evaluating the economic forces of supply and demand (sellers & buyers). To learn more about the discipline, I suggest you check out the CMT association website.

If you are like many of us, you may have heard the acronyms “ESG” or “SRI” pertaining to investing, but have not really understood what they mean. Environmental/Social/Governance and Socially Responsible Investing has been around for 50+ years, but has changed significantly in the past few years as the trend of ESG investing continues to grow. We thought we’d share some of the features surrounding ESG investing with you. 

While ESG investing refers, in general, to measuring and screening an investment’s environmental, social and corporate governance impact, it is more complex than just “screening out the bad guys” (tobacco, firearms, gambling, alcohol, etc.) Today, ESG investing principals have grown to include the direct engagement of money management firms with the companies they own in terms of proxy voting, direct dialogue with management, shareholder resolutions and public advocacy.

The relationship between the US dollar and risk assets is quite an interesting one. The dollar is considered the world’s reserve currency as majority of globally traded commodities are priced in US dollars. During turbulent economic times it is not the South African Rand or the Australian Dollar that investor’s flock to for protection, it is US dollars. Whether or not the dollar is in a bullish or bearish regime generates vast implications across all asset classes. Today, we are going to talk about one relationship in particular, the US dollar and emerging market equities.

Now, what does it mean to be considered an emerging market (EM)? Well, typically EM nations have seen their economic activities evolve from an agricultural focus to a manufacturing and industrial focus. EM countries are not quite as developed as the United States, Germany or Japan but are considered to be “on their way” to becoming a developed nation. Naturally, their economic growth is driven by exports. The two biggest players in EM are China and India.  They make up a very big percentage (+30%) of the global labor force and have seen rapid economic growth over the past decade or more.

"Those who fail to learn from history are condemned to repeat it." - Winston Churchill

"What is done is done: and the cracked egg cannot be cured." - Howard Pyle, quote from the Merry Adventures of Robin Hood

"Don't throw the past away. You might need it some rainy day. Dreams can come true again. When everything old is new again.” - Peter Allen

I bet you can tell where I’m going with this...As I'm reviewing yesterday's stock market action an old "friend" caught my eye. Plug Power (PLUG) is at it again. Back in 1999 this fuel cell stock became one of the many poster children of what is now known as the Dot com bubble. You remember that period. The stock market exploded higher on the promise of the internet. Valuations didn't matter...It was going to be different this time. Plug went from $35 per share to over $1000! Then came the crash. Plug dropped down to $2/ share and spent most of the subsequent 20 years trading between $2 and $4.  Last year as the enthusiasm for electric vehicles bubbled Plug went from $4 to $30. This year, not quite 3 weeks old, Plug has more than doubled and now sits at $68. This price gives Plug a stock market value of just over $20 billion dollars. They have no net income. They lose about 33 cents on every dollar of revenue. The price to sales ratio is now 67 dollars for every dollar of revenue.  When the dot com bubble burst in March of 2000 the Nasdaq dropped by almost 80% and took 13 years to recover.

As we reflect on 2020 and look with optimism and hope toward 2021, here are a few thoughts to share with you this Holiday Season.  These thoughts are primarily mine, but I think a lot of us share some of these same feelings. 

"Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, where the mania runs wild and prices go parabolic." - Paul Tudor Jones.

The above quote from legendary money manager Paul Tudor Jones is applicable to today’s market. I’m not saying today is a mirror image of the dot com bubble, but the environment is certainly similar. Bank of America's September fund manager survey highlighted a consensus conviction on US technology stocks. 80% of survey participants cited being long U.S. Tech, up from 59% in August. At the same time, concerns about a bubble in technology jumped to #2 in the survey’s ranking of tail risks. This comes after a week of rotation out of technology and into sectors such as materials and financials. The rotation we’ve seen since September 2^nd has aided the dividend growth strategy, which favors financials, utilities and consumer defensive stocks. All 3 sectors are outperforming both technology and the broad market since the September 2^nd high.

On any given day when Michelle steps into the office, she’s already tended to 40+ chickens, 30+ pigs, 20+ ducks, 10+ turkeys, twin teen-agers, Richard and Grace, her husband Dan, a multi acre vegetable garden, 3 cats and a dog! It’s that “get it done” attitude that allows her to juggle the multiple balls in the air in terms of taking care of our clients’ service needs.

Several years ago, I observed a friend as he sat down at Turning Stone Casino to play Blackjack. I am not a gambler myself (I’ll get into that later) but we were there for dinner, and he decided to play a few hands before we were seated. He was an avid player and more than familiar with basic strategy, however luck was not his friend that night. I enjoy watching Blackjack because it is a dynamic game of shifting percentages. Every card dealt changes the odds of success for the player. Ed Thorp, the “Father of Blackjack strategy” as well as a highly successful money manager wrote the seminal book on Blackjack betting, Beat the Dealer back in 1962 in which he gave readers the odds for how to bet depending on what their starting hand was and what the dealer was holding. My friend followed this strategy perfectly. He held at 16 when the dealer was showing a 4, only to have the dealer uncover a King and drop a 5 on it. He held at 20 and watched the dealer draw a 21. On and on this went until eventually my friend threw in the towel and left the table.