SVP Paul Nolte Interviewed on WGN Radio 5.17.22

Kingsview SVP Paul Nolte discusses the best time to buy stocks, why corporations are increasing their prices, and how the increase of unit sales helps increase spending.

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5:30

SVP Paul Nolte Interviewed on WGN Radio 5.11.22

Kingsview SVP Paul Nolte discusses declining stocks, the pace of inflation, and how much more interest rates could increase.

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5:27

SVP Paul Nolte Interviewed on WGN Radio 5.3.22

Kingsview SVP Paul Nolte discusses what is driving the markets and the economy’s current state. He also talks about earning season and the state of the market.

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4:00

SVP Paul Nolte Interviewed on WGN Radio 4.26.22

Kingsview SVP Paul Nolte discusses the underperformance of the Twitter stock as the company is purchased by Elon Musk. He also addresses the Fed’s increase in rates and numbers being released next week including, unemployment, manufacturing indexes and service indexes.

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4:00

SVP Paul Nolte Interviewed on WGN Radio 4.19.22

Kingsview SVP Paul Nolte discusses bond-buying program, commodity prices, and the earning season. Paul also talks about the alternating markets that have been a boom for traders, but not so much for long-term investors.

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6:24

Nolte Notes 4.18.22

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April 18, 2022

Like the Easter Bunny jumping around the yard, the markets have been hopping back and forth for much of the past few months. There are many reasons to be skittish, from the continuing conflict in Ukraine to a still uncertain withdrawal of liquidity by the Fed. Following the pandemic, the Fed was forceful and quick to flood the market with liquidity. Now that inflation is running well over their 2% target, they are measured and careful about pulling back on the surfeit of money floating around. In fact, many of the indicators of “financial stress” still show the markets very stress free. The inflation numbers last week were in line with expectations. However, the core rates (excluding food and energy) were lower than expected, giving rise to the thought that “peak inflation” is here and the rate will begin dropping in the months ahead. Retail sales were up last month, but unit sales were roughly flat, with higher prices making up the “gains”. The coming week is relatively light, but earnings will get into full swing. There will (always!) be something to watch in the markets. Expect the unexpected in the weeks ahead.

The alternating excited and depressed markets have been a boon for traders, but not so much for long-term investors. Sentiment is getting very bearish, as evidenced by the Amer. Assoc. of Individual Investors (AAII) weekly data. The widest spread between bulls and bears since 2013, ahead of a seven-year run for stocks. Volume has been expanding on market declines, indicating investors are turning tail anytime there is a sniff of bad news. Interest rates drop a bit one day, and it charges stocks, especially the growth style. The daily market moves are relatively easy to determine a reason why, but that reason is exclusive to that day and does not carry forward to the next as investors focus on something new. When will the back-and-forth end and a new trend begin? The trillion-dollar question without (as of yet) an answer.

The inverted yield curve has not only re-inverted but has gotten relatively steep quickly over the past few weeks. So too, the difference between high yield bonds and treasuries has also declined from their recent peaks. Does that mean the recession call is off the table? Maybe. However, it will depend upon how aggressive the Fed is over the coming months and whether they stick to their inflation fighting mantra or revert to making sure the equity markets stay elevated. One component of the bond model is commodity prices, which remain near all-time highs and have been up over 40% on a year over year basis for more than a year. If we are indeed close to “peak inflation”, keep an eye on commodity prices to lend some additional credence to that claim. Hard to see inflation rolling over soon.

Year to date, there is at least a nine-percentage point difference between growth and value, whether looking at large, mid or small stocks. The divergence is a big change from the past few years, when growth was king of the market. Familiar names like Apple, Microsoft and Nvidia have all declined this year, while rather uncommon names like Abbvie, Duke Energy and pick an energy stock have all seen gains year to date. Investors have not given up on the familiar and embraced the “unusual”, but if the trends continue through the summer months, those smaller gains in the big cap names may come under pressure as investors lock in “any kind” of gain. The defensive nature of the market is not unusual given the turmoil of the past six months in stocks in general. Volatility is up, worries abound, so investors are looking at companies and sectors that can still do well no matter the outlook. If inflation continues to be one of those worries, look for commodity companies to continue their run higher as well.

Earnings season will be interesting as companies discuss employment, input costs and whether they can pass them along to their consumers. Inflation and the Fed are likely to be key themes well into the summer. Will interest rates ever come back down again? If the Fed can not contain or rein in inflation, look for higher still interest rates this year.

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.

2:30

SVP Paul Nolte Interviewed on WGN Radio 4.12.22

Kingsview SVP Paul Nolte discusses the impact of China’s lockdown on the economy, tax season, and recent inflation and interest rates.

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6:24

Nolte Notes 4.4.22

Download the PDF here.

April 4, 2022

The first quarter was a tale of two periods. The first two months, when the markets fell over 10% and then late February when stocks rallied back to within 5% of their all-time highs. With everything that has been tossed at this market, it is a wonder that stocks have done so well. Higher inflation, the invasion of Ukraine, a Fed hiking rates and some discussion of Covid have all cycled through the headlines during the quarter. The employment report on Friday was indicative of the shift in the economic landscape. Last year spending focused upon “stuff”, as consumers remained in some semblance of “stay at home”. Today, with most all mask mandates gone, people are looking to get out and about. The shift in spending has moved to “experiences” as people realize that life is indeed short. Employment gains were in hospitality, restaurants, and retail. The amount of time people are unemployed has fallen to just under eight weeks, a low not seen (outside of the pandemic) since 2000. There remains plenty of folks on the sidelines, judging from the very low participation rate. What comes next? Could be anything from a ripping rally or a decline to retest those February lows.

The economic data over the quarter has been overshadowed by the geo-political environment and the market reaction to all the news. The quarter ended with two-year yields above ten-year treasury yields for the first time since 2018. What happens next, within the equity markets, could be a rally. Historically, stocks do trade lower, but have finished higher over the ensuing year save for the year following the 2000 inversion. The volatility within the market was among the top 15 quarters since 1945. Here too, history would argue that stocks should be bought following these bouts of volatility, as they have generally finished higher a year later. Even after a big rise in interest rates, stocks finished higher a year later. Monetary policy is not yet tight, and rates have barely moved from the zero level and remain very low from a historical perspective. Will Fed Chair Powell be more focused on fighting inflation, or will he keep an eye on the financial markets reaction to higher rates? The answer could provide the road map for equities in the months ahead.

The bond market suffered worse losses than the stock market. Unusual to be sure, and the worst quarter for bonds in over 40 years. The Fed has signaled they will continue to raise rates through the year and want to see rates above 2% (now 0.50%) on short-term bonds. The long-term implications will be interesting if rates are able to get to those levels and stay there for a while. Interest payments on the huge amount of debt will begin to squeeze out other forms of spending. The “inversion” of the yield curve discussed above does start the clock on a recession countdown. The timing of any recession is less than certain, as it could be anytime over the next three years. The bond market is already expecting a recession AND a Fed that will begin cutting rates by 2024. If the market is to be believed, interest rates will not get too high and ultimately will reverse lower over time.

The “two-part” market, falling, then rising during the quarter, was also reflective of overall sector performance. Growth was under pressure from late in 2021 until the market bottom in February. From there, it led the market higher during March. This was in the face of higher rates, which are supposed to hurt the technology sector. A flatter yield curve is supposed to hurt financials, as banks usually make money on the difference between short and long-term rates. Financial were among the better performing sectors in the quarter. Energy, of course, led the way as prices rose dramatically. Can it continue or will consumers shift spending away from gas? Historically, higher energy prices do not last long as additional supply comes onto the markets at high prices. The other “odd” sector were utilities. As interest rates rise, utilities tend to perform poorly as investors flip over to the safety of bonds to get income. Typical relationships over the past quarter did not seem to hold given the economic backdrop.

Historically, stocks can continue their March rally into the remainder of the year, even as the economic headwinds build. Higher rates and rich valuations could temper those gains, so expect more back and forth in the markets in the months ahead.

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.

2:30

Nolte Notes 3.14.22

Download the PDF here.

March 14, 2022

“The Bitch Is Back” was a top song in 1974 by Elton John. Why bring it back now? That bitch could be inflation, that is back and has politicians grabbing for the “WIN” (Whip Inflation Now) buttons. Buttons that President Ford used to acknowledge the high rates of inflation. Today the administration is pointing toward Russia as the cause of the inflationary problems that are staring everyone in the face. The seeds for inflation today were planted a couple of years ago, by cutting rates to zero and flooding the financial market and economy with money. Core inflation rates were at multi-decade highs beginning in April of ’21 and have been rising ever since. Russia has only exacerbated an already rough situation that the Fed is finally beginning to acknowledge. Their meeting this week will finally start the process of “normalizing” interest rates. Given the current rate of inflation, that level could be much higher than many are expecting. Complicating the situation, the economy is already showing signs of slowing. Additionally the Fed has never hiked rates with a yield curve this flat since the bad old days of Paul Volker, when he slayed inflation with rates well north of 10%. Yep, the bitch is back, and it will be difficult to get rid of this time.

Much of the economic data took a back seat to the news from Ukraine and the geopolitical news surrounding the war. Consumer prices came in just shy of 8% and may go higher still as the impact from higher commodity prices works its way into the economy. Not surprisingly, consumer sentiment fell last month as prices began to spike. Slowly there is a shift in psychology from “when will I get this delivered” to “how much am I going to pay for it”? Within the inflation data too has been a slight shift toward the services and away from goods. Used car prices dipped ever so slightly, while airfare and live entertainment are showing signs of rising as mandates are being generally lifted. Wednesday will be a big day, as the Fed will announce a hike in rates and the news conference following by Chair Powell will likely set expectations for future increases. Along-side the economic news and Fed announcement will be the ongoing war in Ukraine. For as long as that continues, commodity prices will likely continue to rise, albeit at a bit slower pace than the parabolic rise of the past month.

The bond index has fallen nearly 5% so far this year as interest rates rise. Even last week, as stocks fell, bond prices also fell. Is there safety anymore in bonds? Are they still an alternative to stocks? Yes, and yes are the short answers. Individual bonds have a certain maturity when face value will get paid out, so in those cases, the losses are temporary. For bond mutual funds and ETFs that do not have maturities, their losses continue to pale compared to stocks. Short-term bonds and those that are “inflation protected” have done well in this environment. The rougher part of the market has been those tied to corporate and high yield bonds which act more like stocks than bonds. Bonds are still a good stock market offset, if not always providing positive returns.

The themes of this year continue to play out. Technology related issues have struggled as investors shift toward more “value” parts of the market. Surprisingly too, small US stocks have performed well, likely due to their being sheltered from international trade issues. Companies that are providing improving cash flows, dividends and are valued near their long-term valuation ranges are also doing well. Of course, basic materials and commodities continue to rise at a crazy pace, as the energy sector within the SP500 has already jumped 35+% this year. Given the significant rise in a short time, it may be a good opportunity to begin taking some of those gains off the table. By selling some of the winning positions, it will provide some cash to take advantage of other parts of the market that have been beaten down to the point of providing good long-term value. Unfortunately, the geopolitical news will continue to dominate sentiment on Wall Street for the foreseeable future.

There are still some good hiding places to be invested while the storms of war and higher interest rates blow over. Some extra cash is not a bad thing, however selling everything and waiting until a “better time” may keep investors from recognizing the beginning of the next inevitable leg higher for stocks.

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.

2:30

CIO Scott Martin Interviewed on Fox News 2.16.22

Kingsview CIO Scott Martin discusses increasing inflation and whether numbers will go to double digits. He also talks about the stimulus’s effect on the labor market and what that has meant for the economy.

Program: Cavuto Coast to Coast
Date: 2/16/2022
Station: Fox Business News
Time: 12:00PM
DAVID ASMAN: Well, a tired of paying higher prices for groceries, don’t expect your weekly bill to get any cheaper thanks to what’s happening with Russia. John Catsimatidis weighing in earlier this morning on this subject. Listen.

JOHN CASTSIMATIDIS: The prices you see on your shelves and the prices you see at the gas tank right now are the prices when oil was seventy five dollars a barrel. It has not reflected when President Putin has started to pot. He stirred the pot and pushed the price up to 93, 94 95. You’re going to see massive increases in late February and early March. And like I said, to friends, fasten your seatbelt. That’s going to happen because this is part of an international threat.

ASMAN: He not only knows about grocery markets, he also knows about the oil business. He’s in that as well. Reaction now from Kingsview Asset Management CIO Scott Martin and Chavez CEO Rob Luna. Good to see you both, gentlemen. Thank you for being here, Scott. Where do you see inflation going from here?

SCOTT MARTIN: Higher, David, but at a slowing rate, and that’s something to keep in mind is that I think a lot of the initial shock from inflation is probably past. That doesn’t mean it’s not going higher, but it is slowing at an increasing rate. I guess if that makes any sense, the rate is slowing, in fact, as of the increase. But here’s the one thing that is concerning. I mean, we heard from Brian Deese earlier in the hour here, and it’s just, you know, Joe Biden doesn’t even know how much a pound of ground beef costs. Obviously, he still may not know. I mean, he does talk to friends to obviously figure that out. But with regards to some of the support that Biden is receiving from his economic advisers, I don’t think they’re helping him out very much. And it’s not just ground beef, it’s sugar, it’s grains, it’s wheat. It’s all the things that go into the processing of food. And we also have transportation issues, too, among all the other things that we’re concerned about. So the government is way behind on this. It’s not a fed problem, it’s a policy problem, and it’s probably going to get worse before it gets.

ASMAN: Before I go to Rob, Scott, I want to. I didn’t get a specific answer. I just want to focus in on how much it might go up. You say it’s still going up. We had the wholesale prices up almost 10 percent, nine point seven percent. Wholesale prices eventually reached the retail level and US consumers. Do you think we’re going to go to double digits?

MARTIN: Yeah, we will. But what will happen, David, is we’ll get to double digits and things will start piling up because let’s face it, some of the rates of inflation that we’ve seen up until now, especially in the early months when it really started popping, were unsustainable. So it will get better, but it will get worse before it gets better.

ASMAN: Double digits. We haven’t seen that a long time. Rob, a lot of investors are looking at the stock market, even though it’s down today. Right now, they’re thinking their trades to be made, and I’m sure there are trades. But Warren Buffett, back in the days of high inflation 1977, said the following If we can put that Warren Buffett quote up if you feel you can dance in and out of securities in a way that defeats the inflation tax, I’d like to be your broker, but not your partner. Did he get it right and is does that still hold true?

ROB LUNA: Yeah, I think so. Look, inflation hurts everything, right? You’re seeing rising labor costs. I mean, you know, Scotty’s Captain Crunch diets really in a lot of trouble right here. If you look at corn prices, what’s going on? Things are not going to get any better any time soon. If you take a look at what’s going on to Scotty’s point, though, look, a lot of people are blaming the Fed. We heard that before the Biden administration has done just about everything wrong to ignite this bubble that we’re seeing right now, starting with the nomination of Powell. Traditionally, that’s done June July. He waited all the way to November. So the Fed really didn’t want to move ahead of that. We saw that he’s out there yelling at reporters now because the fact that he got it wrong, they’ve done everything incorrectly, but you’re already starting to see cracks. David, if you look at the higher end of the high income, sorry, home prices, those things are starting to come down. Things are slowing down across the board. The supply chain will reopen. So to Scotty’s point. Yes, it’s going to be transitory, but that’s already after the, you know, the cattle is out of

ASMAN: I want to stick with. I just want to say, I just want to push back a little bit on Iran because they did wait too long. Isn’t it fair to say that the Fed waited, too? Sometimes there’s a momentum that has built up with inflation that becomes almost unstoppable. I’ve seen it happen not only here in the United States, but all over the world. I’ve seen it happen in dozens of countries in Latin America and Eastern Europe, et cetera. They they did get behind the curve in terms of raising rates. And now there’s still I mean, let’s face it, they’re still monetizing the debt, they’re still buying treasuries and printing money to do that.

LUNA: Yeah, I completely agree with that. But that being said, I really think that a lot of this would have started in the fourth quarter of last year versus what they’re doing right now. And really, what they’re doing, David, is they’re just following the tape. You know, they’ve already priced in 75 basis points, at least 50 basis points into this market, so they’re well beyond where they need to be. But I think to let the Biden administration off the hook and try to say that there’s not any pressure that’s being put on this spending

ASMAN: Yeah, no. And Scott, obviously that’s the point. Spending money you don’t have is the cause they’re always talking about. Causes the root cause of inflation is spending money you don’t have and therefore printing it, and that causes more inflation, that is the beginning of all this, isn’t it, Scott?

MARTIN: Sure. And we never had it, David. So that goes back many years, even maybe decades. But the reality is there’s also some poisoning. As you guys know, that’s been done to the labor market here with all the government stimulus that came out and basically encouraged people not to work. So, David, they really messed up the growth trajectory of this economy because it’s OK if you borrow debt, like, that’s not a bad thing. But if you’re not going to pay back the debt, that’s something you need to be worried about.

ASMAN: But Rob, here here’s the point that my buddy Art Laffer makes, which is that in the early 80s or late 70s going into early 80s, because because Volcker was actually appointed by Carter in the late 70s, he had to put interest rates above the rate of inflation to get inflation under control. That would mean we would have a rate of of 10 percent or so if we get double digits inflation. Even more than that, I mean, we had interest rates of of over 20 percent in order to get rid of double digit inflation back in the in the early 80s. Are we going to have to go through that again?

LUNA: Yeah, I don’t think so. I mean, it’s a much different economy, obviously. I was pretty young in the 80s, but a much different economy that we were facing then. And look, the whole thing that we’re looking at right now is something brand new. We had COVID, so the complete supply chain was shut down. The type of monetary policy that we’re implementing right now has never been seen before, so we’ve never been in a situation where they’re unwinding their balance sheet at the same time that they’re raising interest rates. And like I said, I don’t think this economy is as hot as most people think. We’re in a situation where the supply chain was constrained spending the administration put tons and tons of money into the consumers. And that’s when you’re dealing with stocks

ASMAN: very quickly because we don’t here we got a jump. But when you’re talking about the economy, you have two separate private sector spending with public sector spending. I’ve never seen public sector sector spending as high as it is now. I mean, that’s the problem, right?

MARTIN: Yeah, especially because of the private sector, which private sector spending has been waffling a little bit here. We’ve seen the retail sales numbers get back and forth. But the reality is you want that private sector, David, to carry the economy, not the public sector, as the government has done or tried to do in the last two years.

ASMAN: Let’s leave on that point. I think we all agree on that one. Good to see you both, Rob. Scott, thank you very much. Well, mixed messages.

7:21