What Should be Done to Prepare Your 401(K) for Retirement – Rusty Pierce – Oxbow Advisors
What Should be Done to Prepare Your 401(K) for Retirement – Rusty Pierce & Ted Oakley – Oxbow Advisors
Ted Oakley Video:
It’s Time to Sell Your Company (Take Two)
April 29th, 2019
Ted Oakley Video: “It’s Time to Sell Your Company (Take Two)”
Ted Oakley on Yahoo Finance April 4th 2019
Ted Oakley on Yahoo Finance April 4th 2019
Going Nowhere! The first quarter market movement of 2019 was a near mirror image of the fourth quarter of 2018. Almost every major market index moved in the opposite direction of what occurred in the last quarter of 2018. Exhibit 1 shows the performance of various major market measurements for the first three months of the new year through March 31, 2019.
If the past two quarters were placed side by side, it would look nearly like a zero score game. That said, we are pleased to report that the majority of Oxbow Advisors stock holdings are higher now than they were when the market peaked in early October 2018. Among most investors’ confusion and disappointment are that the net market value of their portfolios has changed little the past 15 months. This is readily apparent in Exhibit 2.
Basically, the benchmark S&P 500 Composite or its ETF (Exchange Traded Fund) equivalent has not made any net upward progress the past 15 months as these measurements have “Gone Nowhere.”
There have been numerous up-and-down price changes but no net increase. Investors have been in an extended complacent mode while likely not realizing that their investments are making virtually no real net gains. For the vast majority of “newcomers” who have invested for the first time over the past 10 years, the market’s primary trend has been up. The past 15 months, however, sizable rewards have basically stopped as the rate of change has materially slowed. Fortunately, we at Oxbow Advisors have several “seasoned” portfolio managers who have been through many previous extended periods of generally flat markets-for example, 1966 to 1983 and 2000 to 2010. This present phenomenon may undo passive Index Fund cheerleaders.
One Investment Has Gone Up in Price
In the Oxbow October 2018 Market Comments, we stated, “We believe that the rate of change for increasing interest rates has peaked and that we would not be surprised if rates move lower by the first quarter of 2019.” This view, at that time, was received with a great deal of skepticism by the majority of the investment community, but it was and remains beneficial to the fixed-income portion of Oxbow-managed portfolios as bond prices move in the opposite direction of yields. Exhibit 3 traces the movement of the 10-year U.S. Treasury yield through the end of the first quarter of this new year as the trend is lower.
Federal Reserve Policy Actions
Members of the Federal Reserve’s FOMC (Federal Open Market Committee) did exactly what we thought they would and ran scared as soon as stocks crumbled in the fourth quarter of 2018. Publicly they talk about inflation, but in reality their past actions suggest they were worried only about asset inflation. (Amazing what a dinner at the White House and some Wall Street phone calls can do to lead to a shift in monetary policy.) Now the big question is What happens next in this economic and interest scenario?
Why Bond Yields Go Lower
Why Bond Yields Go Lower At Oxbow, we believe that interest rates are moving lower sooner than most investors thought they would-for a couple of reasons. First, the facts are that worldwide economic growth is noticeably slowing, and China is a much bigger problem than the majority of investors currently think. With U.S./China deficits growing by the year, and Europe/China business declining, this is probably where the surprise of a greater slowdown will come from. Second, notice in Exhibit 4 how debt in the United States continues to accum
We believe that the U.S. is not in a position to absorb higher interest rates without pushing the economy into recession. This is why our Oxbow High Income Strategy is concentrated in the 20-year U.S. Treasury bond, as it is our largest holding. Subsequently, we look for the FOMC to start lowering interest rates by the second or third quarter of 2019. The vast majority of the Wall Street community, however, currently is forecasting that interest rates will not be lowered until sometime in 2020 or 2021.
At Oxbow, we have been saying in both TV interviews and written publications for almost a year that profit margins for companies can be expected to come down. Why? First, labor costs are rising, and the Federal Reserve cannot control that. Second, the negative impact from trade and tariffs is being felt throughout most foreign countries. Third, the weakness in China’s economy is affecting almost every other nation, especially Japan and throughout Europe. Future profit margins are likely to decline as the strong dollar and labor costs continue to move higher. Notice Exhibit 5 showing the gap between corporate profits and employee compensation. Income inequality is real, and it will impact profit margins. Most pundits seem to think everything will be on reasonably solid footing for the next 12 months. We doubt that.
We at Oxbow expect the rest of this year to be marked by a series of choppy,
up-and-down moves in the stock market. This kind of price movement can have real benefits for investors who understand which sectors to be invested in and when to invest. In the Oxbow High Income Strategy, we have significant holdings in U.S. Treasury bonds, as well as in MLPs (Master Limited Partnerships) and quality preferred stocks. We believe that all of these areas will continue to perform well.
In the Oxbow Long-Term Growth Strategy, we have taken profits in stocks that were overvalued and are maintaining high cash reserves. We deployed funds in December 2018 when prices were low, and we fully expect to do that again when appropriate sometime this year. Important things to watch going forward will be (a) China’s slow-growth economy as it affects the rest of the world and (b) interest rates as the Federal Reserve likely becomes increasingly worried about inflation and the whole economy.
We wish all of you the best this spring into early summer. If you want more information pertaining to our investment outlook, please email us at