We would like to extend a gracious thank you to State Street Global Advisors. Our firm attended a wonderful event hosted by their firm last evening. The topics of discussion varied from new ways to view sector investing, helping clients transfer intergenerational wealth- (a hot topic for your bloggers), to navigating the fixed income landscape, (which was presented by Jeff Gundlach’s firm Doubleline Capital), and finally a presentation from Greg Valliere on politics and the Federal Reserve. Our firm finds the information in these types of sessions to be quite valuable. For those that don’t know, SSGA, a division of State Street Bank, is the second largest asset manager in the world with over $2.4T in AUM. Their first product was a domestic index fund and their product lineup includes the “SPDR or Spider” products, the original sector ETF’s that helped usher in the ETF craze. SSGA AUM is eclipsed by only by Blackrock.
When our firm writes options, we often write them on the SPY which is a SSGA product. In fact, we did just that yesterday morning, we wrote additional call options on this index prior to the meeting. So a shout out of thanks to SSGA includes our being grateful for the products they launched which allow our firm the ability to use these to bring in income. As we have previously mentioned, the option premiums have been high to the volatility in the market and we expect this to continue as the year progresses.
Bond and equity performance for the Year is still negative. The price of gold is increasing due to uncertainty, the strong dollar and lower interest rates. Gold is an asset class that is warning of danger ahead, which will be discussed in future blogs- Gold reacts to interest rates, inflation, currency valuations and a combination of these three. The chart below from SSGA reports performance of different asset classes during the prior month, the trailing 3 months and YTD.
The SPY continues to struggle, unable to make new highs and instead is making a series of lower lows. This can be seen in this SPX chart from January of 2015 to present. The trend change, beginning mid- 2015, shows a series of four lows in the market: Aug and Oct 2014, Jan and Feb 2016. The Feb intraday low of 1810 was lower than the previous three lows. We expect the market to make a lower low than 1820 in the near term.
The highs in the market in Nov and Dec of 2015 did not exceed the May high-which appears to be the high that the market will see for the next couple of years. The current move in the market shows the market is struggling. There is no conviction in the market, low volume and no power behind it.
In economic news, the jobs number was, on the surface, strong but the types of jobs being created are the below the mean. As usual, the data does not paint a pretty picture. There was no wage growth, in fact a decline in hourly earnings, month over month; combined with a reduction in the work week. Since “Obamacare” began, the workweek has been shrinking since many small companies cannot afford to pay the increase healthcare premiums for their workers. Don’t be fooled by the media, our own firm was quoted an approx. 30% increase in premiums and then was ‘kicked off’ of Anthem Blue Cross Blue Shield. Insurers are trying to rid themselves of as many older workers as possible, pushing them to Medicare. Most of the job creation this month was low wage part time jobs- 57K in healthcare, 55K in retail sales, and 19K in construction industries.
This week would not be complete if we did not mention oil. Oil prices bounced and the broad market has been somewhat tracking that bounce. There is little hope for oil going much higher in the short term and a high likelihood for a retest of the lows. A sad and strange event occurred on Wed. with the death of Chesapeake Energy founder Aubrey McClendon. He apparently committed suicide after being indicted on charges of rigging energy bids. When we compared the Pharma and Bio-tech companies of today, to the accounting scandals in the early 2000’s- we neglected to include the fact there will be more scandals in the energy space as well. Chesapeake Energy is the tip of the iceberg- the action below the surface is usually more important that surface data.
If this volatility in the market continues, option income will be significant this year. MCS will be discussing options again in our April Investment Forum, including the positions in the portfolio this year. We still expect additional equity opportunities based on the normal market action that is occurring. Properly functioning markets do not just go up; they are aligned with the fundamentals and economic conditions. Our blogs will be lighter next week as we are working from NYC early in the week and attending a Fidelity conference at the end of the week in D.C. Tuesday is International Women’s Day and in combination with some meetings in NYC, we will be attending Bell Ringing’s at the stock exchanges. We always learn something new when we attend meetings in the financial capital of the world. Enjoy your weekend.