Market Update: 07-16-19

The Issachar Fund is fully invested in Muni Bonds with a small allocation in Preferreds (20%).  I sold our stock positions to lock in some short-term gains and purchased a Gold ETF that tracks the price of gold bullion.  Gold has been trending higher likely due to a potential dollar devaluation from excessive Quantitative Easing (QE) or creating money out of thin air.  Gold and Bitcoins are attracting a lot of interest and investment capital as virtually all major developing country currencies are losing purchasing power due to massive currency creations by their central banks.  I believe this “free money printing experiment” could end very badly and it may cause life-changing events for a majority of the population.  However, we are not there yet so my focus is on the potential opportunities that may lie ahead in earnings season.  At this time, I am looking for stocks that gap up in price after an earnings release.  If a company reports strong quarterly earnings and sales figures and the price opens higher than the previous day’s close (gap up) on above-average volume, then I get very interested in the company.  Most people shy away from stocks that “gap up” in price thinking that the stock “is too expensive” but I believe that it shows an overwhelming demand for shares.  The lower end of the “gap up” price could serve as a potential “floor” or support for the stock and that is usually where I set my “line in the sand” sell point.  If I am wrong, I will not hesitate to sell.  We are still very much invested in muni bonds and preferreds and I have strong conviction in this area.  I expect rates may continue declining and bond prices to rise as the world economies grind slower in economic growth.  Again, I honestly believe this market advance is driven by massive amounts of liquidity (QE) that central banks have been creating out of thin air to support their economies and stock markets.  I also believe this global unprecedented QE experiment and stock market advance is getting closer to an end than a new beginning with every passing day.  However, I plan to enjoy the ride while it lasts, but I plan to get off the bus before it crashes.  What is your “line in the sand” exit strategy?  (Portfolio holdings are subject to change at any time and should not be considered investment advice.  Past performance is no guarantee of future results.)

About 2% of the European high-yield market has negative yields!  Now that seems messed up!  I was starting to wrap my head around German government bonds with a negative yield but I believe a corporate junk bond with a negative yield is crazy and downright hard to believe.  Why would anyone pay a corporation to buy it’s negative yielding junk bond?  Well I guess one might buy these crazy junk bonds if they thought that the yield would go more negative and therefor one would potentially sell the bond at a higher price.  Regardless, negative yielding bonds do not make rational sense to me, but we do live in interesting times.

Chinese GDP growth comes in at the slowest in 27 years!  Chinese shares rose on hopes of more stimulus measures from Beijing.  The European Central Bank hinted that it may cut its already-negative policy rate in coming months or unveil a restart to its bond-buying stimulus program. Meanwhile, a shortage of high-quality government and corporate bonds has led investors to buy riskier debt to find income.  Welcome to the Age of QE.

The major indexes have made new highs but on low volume.  I would be more enthusiastic if the new highs were made with above-average volume but nevertheless price matters.  However, low volume could mean a lack of sellers and that would imply that there may be more room to run higher.  Junk bonds have been trending higher, but their accent has slowed in the last week or so maybe because treasury rates have crept higher.  A healthy junk bond market indicates to me that investors’ appetite for risk assets is still good and that should bode well for stocks.

I believe the market expects the Fed to lower rates at the July 30-31 meeting and that is already “baked” into the market.  I am fascinated that the Fed is considering lowering rates at the same time the stock market is trading near all-time highs.  This is truly a unique time to be investing.  I believe we are headed to zero percent US government bond interest rates and it is just a matter of time.  I also believe we will one day look back and say, “why did we do this to ourselves”?  I only hope and pray that it will be a very long time from now.

The U.S. dollar recently surged against the Turkish lira because the central bank governor was removed by the Turkish president for refusing to lower rates. The annual inflation rate in Turkey is above 15%, so a reduction in rates would likely just create more inflation which would likely send their economy spiraling into lower depths.  Japan has had its rates near zero for many years and they have not seen any material increase in economic activity despite their massive stimulus programs.  This proves to me that we have a serious problem and it will not be solved without a lot of financial pain.  My advice is to keep your eyes on the road and your ears to the ground and never get complacent because that is when danger lurks.

God is our refuge and strength, an ever-present help in trouble.  Psalm 46:1

Bottom line:  The stock market is near all-time highs, likely in anticipation of the Fed lowering rates at the end of July.  If the Fed does not do what the market expects, the market could come unglued and we could see a severe decline.  However, I believe the Fed learned its lesson in Q4 and they will likely do what the market expects.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Issachar Fund. This and other important information about the Fund are contained in the prospectus, which can be obtained by calling 1-866-787-8355 or visiting https://www.IssacharFund.com.  The prospectus should be read carefully before investing. The Issachar Fund is distributed by Northern Lights Distributors, LLC., member FINRA/SIPC.   Horizon Capital Management Inc, Inc is not affiliated with Northern Lights Distributors, LLC.

Important Risk Information

Mutual Funds involve risks including the possible loss of principal.

The Fund may hold cash positions when the Adviser feels that the market is not producing returns greater than the short-term cash investments in which the Fund may invest. Municipal securities backed by current or anticipated revenues from a specific project or specific assets can be negatively affected by the inability to collect revenue, for the project or from the assets. Moreover, an adverse interpretation of the tax status of municipal securities may make such securities decline in value.  There is a risk that the sections of the market in which the Fund invests will begin to rise or fall rapidly and the Fund will not be able to sell stocks quickly enough to avoid losses or reinvest its cash positions into areas of the advancing market quickly enough to capture the initial returns of changing market conditions.  The Adviser’s judgment about the attractiveness, value and potential appreciation of particular asset classes and securities in which the Fund invests may prove to be incorrect and may not produce the desired results.  Past performance is no guarantee of future results.    NLD Review Code: 3527-NLD-7/16/2019

 

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