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Second Wave

"We are now having 40-plus thousand new cases a day; I would not be surprised if we go up to 100,000 a day if this does not turn around” Anthony Fauci, director of the National Institute for Allergy and Infectious Diseases The global financial markets continue to defy the rising number of coronavirus cases, causing investors with cash on the sidelines to question, if they have missed the boat. Although an election year, at Samra Wealth Management we believe there is a heightened probability of a pull-back in Q3. In our March issue of The Samra Report, “Black Swan Event: Coronavirus (Covid-19)”, we presented our view “it will likely get worse, before it gets better, then slightly worse again.” Our consensus remains unchanged, as select economic data may have investors viewing the markets through rose-colored glasses. This month’s issue of The Samra Report aims to provide investors with a look through our lens, in layman terms. As a consumer thinking of making a big-ticket purchase this year, whether it be trading-in your car for a newer model, taking a vacation, or upgrading home appliances (these purchases fall into the consumption spending portion of our nations GDP, at 68%). Given the current economic climate, financial uncertainty, and barriers to transact you’re likely thinking of putting these purchases off until you have reassurances of stable income, safety, and freedom to utilize your purchases. Now, think of a corporation or government agency through the same lens. Corporations such as PSE&G or government agencies such as the United States Forest Service are likely to delay such purchases. These purchases referred to as capital expenditure fall into the investment spending portion of our nations GDP, at 20.3%. Although the economy and the financial markets have little correlation, investors should consider the impact lower consumption and lower investment spending has on employment. Under normal circumstances, without government intervention in terms of stimulus measures, a decrease in employment would correlate to a decrease in Gross Domestic Income, or income per capita. This past Friday, investors once again appeared optimistic as household spending on goods and services rose a record 8.2% in May, more than double the prior all-time high on records dating back to 1959. Record household spending in May, while first quarter Real Gross Domestic Income decreased 4.4%, should have investors cautious. Furthermore, the areas of tourism, entertainment, retail, food & beverage, and automobiles have come to a near halt, suggesting a fundamental flaw in how data is perceived. What many may fail to understand is Household Spending reported by the Bureau of Labor Statistics is survey based, and not accurately data driven. This week the Dallas Fed Manufacturing Index painted another positive picture, suggesting a V-shaped recovery in manufacturing. However, a closer look into the underlying (survey) data shows how businesses are doing in comparison to the prior month, and not an absolute level. U.S. Manufacturing is getting worse, with only 29% of survey respondents seeing a better economic future than they saw the previous month. As the coronavirus continues to plague Texas, Arizona, California and Florida, we expect manufacturers to lower output and to continue with employee lay-offs. The U.S. Bureau of Labor Statistics reported “total non-farm payroll employment rose by 2.5 million in May, and the unemployment rate declined to 13.3%”. At Samra Wealth Management we believe payroll numbers were artificially inflated due to government stimulus measures, specifically the Paycheck Protection Program (PPP), that provided a loan with a requirement funds had to be paid out as wages within 8-weeks of receipt. At the close of 2019, we believe there were few hurdles in the path of President Trump securing a second term in office. However, a perfect storm scenario with the coronavirus impact on national health and the economy, combined with a Black Lives Matter movement with little signs of slowing down, now has political pundits and investment firms factoring in the potential for a Biden win. A Democratic win, in the near term would likely shock financial markets, essentially hitting the reset button on trade deals and capital expenditure, however, in the intermediate and long-term a move away from trickle-down economics could prove for a sustainably healthier financial market. Finally, June’s issue of The Samra Report: Where’s Warren, should have caused investors to ask why Warren Buffett and Berkshire Hathaway is holding $137B in cash, that could have been used for stock repurchases or new acquisitions. Is it possible Mr. Buffett does not believe this is a great time to buy? At Samra Wealth Management, our consensus remains unchanged, and the economic climate is likely to get worse before it gets better. As the media highlights a potential second wave of the coronavirus, we would argue the data suggest we are still in the midst of the first wave. As of June 23rd, the Financial Times reported California, Arizona, Texas and Florida were 85 days behind New York and New Jersey, in terms of new cases on a seven-day rolling average, suggesting a first-in, first out scenario. With California ranking first in GDP by State, Texas second, and Florida fourth, the economic impact could be catastrophic. "Analysts are flying blind, since many companies have stopped providing earnings guidance, citing the uncertainties of the pandemic. Nearly 200 companies in the S&P 500 have withdrawn their customary forecasts for the year" Andrew Ross Sorkin, CNBC co-anchor, founder & editor of DealBook, author of Too Big to Fail. Disclosure: All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. The information contained here does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. References Bea.gov. 2020. Gross Domestic Product, 1St Quarter 2020 (Third Estimate); Corporate Profits, 1St Quarter 2020 (Revised Estimate) | U.S. Bureau Of Economic Analysis (BEA). [online] Available at: <https://www.bea.gov/news/2020/gross-domestic-product-1st-quarter-2020-third-estimate-corporate-profits-1st-quarter-2020> [Accessed 30 June 2020]. Bls.gov. 2020. Employment Situation Summary. [online] Available at: <https://www.bls.gov/news.release/empsit.nr0.htm> [Accessed 30 June 2020]. Ceicdata.com. 2020. United States Investment: % Of GDP [1947 - 2020] [Data & Charts]. [online] Available at: <https://www.ceicdata.com/en/indicator/united-states/investment--nominal-gdp> [Accessed 30 June 2020]. Desjardins, J., 2020. The 20 Largest State Economies By GDP In The Last 50 Years. [online] Visual Capitalist. Available at: <https://www.visualcapitalist.com/animation-the-20-largest-state-economies-by-gdp-in-the-last-50-years/> [Accessed 30 June 2020]. DeSpirito, T., 2020. Taking Stock: Q3 Equity Market Outlook | Blackrock. [online] BlackRock. Available at: <https://www.blackrock.com/us/financial-professionals/insights/taking-stock-quarterly-outlook?cid=emc%3AMIATJune29%3AFA%3AENL%3AUS%3ANA&elq_mid=46326&elq_cid=786293&elq_cmp=14971> [Accessed 30 June 2020]. Fox, B., 2020. Coronavirus Tracked: Has The Epidemic Peaked Near You?. [online] Ig.ft.com. Available at: <https://ig.ft.com/coronavirus-chart/?areas=usa&areas=gbr&areas=bra&areasRegional=usny&areasRegional=usca&areasRegional=usfl&areasRegional=ustx&areasRegional=usaz&areasRegional=usnj&cumulative=0&logScale=1&perMillion=1&values=deaths> [Accessed 30 June 2020]. Fred.stlouisfed.org. 2020. Business Tendency Surveys For Manufacturing: Confidence Indicators: Composite Indicators: OECD Indicator For The United States. [online] Available at: <https://fred.stlouisfed.org/series/BSCICP03USM665S> [Accessed 30 June 2020]. Home.treasury.gov. 2020. PPP Factsheet. [online] Available at: <https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf> [Accessed 30 June 2020]. Kelly, L., 2020. Bloomberg - Are You A Robot?. [online] Bloomberg.com. Available at: <https://www.bloomberg.com/news/newsletters/2020-06-30/five-things-you-need-to-know-to-start-your-day> [Accessed 30 June 2020]. Mitchell, J., 2020. U.S. Consumer Spending Rebounded In May, But Virus Surge Poses Economic Threat. [online] WSJ. Available at: <https://www.wsj.com/articles/consumer-spending-personal-income-coronavirus-may-2020-11593131872> [Accessed 30 June 2020]. Nathan, A., 2020. Top Of Mind: Daunting Debt Dynamics. [online] Goldmansachs.com. Available at: <https://www.goldmansachs.com/insights/pages/daunting-debt-dynamics-f/report.pdf> [Accessed 30 June 2020]. Prnewswire.com. 2020. The U.S. Economy & COVID-19: Deviation & Trends In Automobile, Energy, Food & Beverage, Electrical & Electronics, Aviation, Healthcare, Retail & E-Commerce, Travel & Tourism, And Other Verticals. [online] Available at: <https://www.prnewswire.com/news-releases/the-us-economy--covid-19-deviation--trends-in-automobile-energy-food--beverage-electrical--electronics-aviation-healthcare-retail--e-commerce-travel--tourism-and-other-verticals-301043503.html> [Accessed 30 June 2020]. Samra, I., 2020. The Samra Report: Black Swan Event. [online] Samrawealthmanagement.com. Available at: <https://www.samrawealthmanagement.com/post/black-swan-event-coronavirus-covid-19> [Accessed 30 June 2020]. Samra, I., 2020. The Samra Report: Where's Warren. [online] Samrawealthmanagement.com. Available at: <https://www.samrawealthmanagement.com/post/where-s-warren> [Accessed 30 June 2020]. Woodard, J., Devery, J. and Young, J., 2020. The RIC Report: The Build America Boom. [online] Merrill Lynch. Available at: <https://olui2.fs.ml.com/MDWSODUtility/PdfLoader.aspx?src=%2Fnet%2Futil%2FGetPdfFile%3Fdockey%3D6208-12151745-1%26segment%3DDIRECT> [Accessed 30 June 2020].

Where’s Warren…

March saw the stock market (S&P 500) decline over 30% year-to-date, and although many investors found this as an opportunity to buy at prices not seen since February 2017, the message from the ‘Oracle of Omaha’ seems to carry confusion. In his annual letter to shareholders, Buffett said “it is almost certain that equities will over time perform far better than long-term, fixed-rate” bonds, given the attractive corporate tax environment. Mr. Buffett’s guidance, however, appears to conflict with the asset allocation of Berkshire Hathaway (BRK.A), amassing $137B in cash, of which $1.8B has been used for stock repurchases. This month’s issue of The Samra Report provides our consensus for June and beyond. According to the Global Macro Outlook from Alliance Bernstein “early indications confirm that the hit to the global economy from measures to contain the coronavirus is likely to be unprecedented.” Leading to the company lowering their global growth forecast to -4.6%, almost twice as large as the decline seen in 2009. At Samra Wealth Management, we believe investors have reason to be concerned as the forward 12-month P/E Ratio for the S&P 500 is above 20.0, reaching levels not seen since 2002, in the midst of falling earnings per share. In our May issue of The Samra Report, we stated “investors would be wise to understand the economic make-up of our nations GDP. 68% of U.S. GDP is derived from consumption spending, with an economy on the brink of shut down, a minimal decrease in Gross Domestic Income will likely lead to a downshift in consumer confidence, proving demand is a function of income. In the near term, the case for economic expansion is correlated to population growth and productivity. With the nation on lockdown, the script for economic expansion is flawed.” Investors are now placing too great of an emphasis on a vaccine, investors would be wise to understand that a vaccine may work to prevent further outbreaks, unless the virus evolves, however a vaccine will not replace household income per capita. Furthermore, consumption spending is not only a function of household consumption; however, investors should understand that similarly corporation are likely to limit capital expenditures throughout the remainder of 2020. With the latest unemployment numbers showing 40.8 million workers out of work, representing 26% of the civilian workforce. Investors should be asking themselves the same question that prompted an on-air heated exchange between Andrew Ross Sorkin and Joe Kernan on CNBC’s Squawk Box: “How can stocks be where they are right now based on: oil prices, interest rates, economic indicators, and earnings?” The below chart from Bank of America shows the market blindly appreciating as the number of unemployed continue to grow. As the Federal Government assists with numbing the pain through stimulus measures, placing a further strain on the public-sector balance sheet, investors should be prepared for the interest rate environment to stay lower, for longer. A case for potential weakening of the trade weighted dollar, currently at a historic high, creating an environment for an increasing trade deficit. At Samra Wealth Management, we are sitting in the most conservative position since our inception. We are choosing to hold higher levels of cash over short-duration bonds. Similarly, to Warren Buffett (Berkshire Hathaway) and Bill Ackman of Pershing Square Capital Management, the liquidation orders significantly outweigh the purchase orders. Suggesting some of the names most synonymous with Wall St, do not believe it is a great time to buy stocks or bonds. Furthermore, it is our belief that conservative investors, pension funds and endowments are at the most (opportunity) risk, in an environment with low interest rates, uncertain commercial real estate returns, questionable dividends and mandates to limit risk exposure. At Samra Wealth Management, we believe an active management strategy is likely to out-perform passive investments as we venture into uncharted territory. Disclosure: All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. The information contained here does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. References Armenta, A., Bruten, G. and Butt, K., 2020. GLOBAL MACRO OUTLOOK MAY 2020. [online] Alliancebernstein.com. Available at: <http://www.alliancebernstein.com/abcom/email/internal/2020/documents/may-2020-global-outlook-monthly.pdf> [Accessed 28 May 2020]. Butters, J., 2020. Highest Forward 12-Month P/E Ratio For S&P 500 Since 2002. [online] Insight.factset.com. Available at: <https://insight.factset.com/highest-forward-12-month-p/e-ratio-for-sp-500-since-2002> [Accessed 28 May 2020]. Butters, J., 2020. S&P 500 Forward P/E Ratio Rises Above 20.0 As EPS Estimates Continue To Fall. [online] Insight.factset.com. Available at: <https://insight.factset.com/sp-500-forward-p/e-ratio-rises-above-20.0-as-eps-estimates-continue-to-fall> [Accessed 28 May 2020]. English, C., 2020. Bill Ackman Sold His Stake In Warren Buffett’S Berkshire Hathaway. Here’S Why.. [online] Barrons.com. Available at: <https://www.barrons.com/articles/roth-ira-conversions-rise-amid-covid-19-pandemic-51590527979> [Accessed 28 May 2020]. Fred.stlouisfed.org. 2020. Delinquency Rate On Consumer Loans, All Commercial Banks. [online] Available at: <https://fred.stlouisfed.org/series/DRCLACBS> [Accessed 28 May 2020]. Rocco, M., 2020. US Jobless Claims Top 40M As Economy Struggles To Reopen. [online] Ft.com. Available at: <https://www.ft.com/content/32b5d491-d38c-4f17-bec3-a7309bb6c939> [Accessed 28 May 2020]. Samra, I., 2020. What If It Returns.... [online] Samrawealthmanagement.com. Available at: <https://www.samrawealthmanagement.com/post/what-if-it-returns> [Accessed 28 May 2020]. Woodard, J., Young, J., Devery, J. and Harris, D., 2020. The RIC Report: The Gaps Of Wrath. [online] ml.com. Available at: <https://olui2.fs.ml.com/MDWSODUtility/PdfLoader.aspx?src=%2Fnet%2Futil%2FGetPdfFile%3Fdockey%3D6208-12137625-1%26segment%3DDIRECT> [Accessed 28 May 2020]. Zimmerman, C., 2020. The Many Flavors Of Unemployment | FRED Blog. [online] Fredblog.stlouisfed.org. Available at: <https://fredblog.stlouisfed.org/2015/05/the-many-flavors-of-unemployment/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog> [Accessed 28 May 2020].

What if it Returns…

Although the spread of the coronavirus may have slowed, with hopes of eradication by summer. What if it, “it” being the coronavirus, returns? Experts, including John Hopkins University Professor of Nursing Jason Farley believes a second wave is not only possible, however may be exacerbated later this year with the onslaught of a heightened cold and flu season. We believe the first quarter has shown that conservative investors have few places to hide, as investments in real estate, commodities, and fixed income, typically known for low volatility and uncorrelated to the broad market, witnessed record volatility. In this month’s issue of The Samra Report we discuss our views for the remainder of 2020. In an interview at the Economic Club of Washington, D.C., Federal Reserve Chair Jerome Powell stated that he does not see a recession. A statement echoed by Treasury Secretary Steven Mnuchin, who “sees the stock market riding a wave of demand once the outbreak is contained”. We believe the term forced recession has been used to help alleviate the pain of losses and reassure investors that a recovery will be swift. Investors would be wise to understand that a forced recession is still a recession, regardless of how we arrived here. The federal government has acted swiftly in creating a stimulus packages, dubbed as the kitchen sink, although the effectiveness of the execution remains questionable. The U.S. response is plagued with complexity and has resulted in banks creating a funding bias towards the largest loans, leaving many smaller businesses in limbo. In comparison, Denmark has put a plan into place to cover 75-90% of all compensation over a 3-month period, under the clause that employers do not lay off their employees, resulting in a nepotism free economic environment. At Samra Wealth Management, we believe the U.S. stimulus package will need to allocate an additional $3.6 trillion to 157 million, working class Americans. Online retailers have benefited through increased sales; however, investors would be wise to understand the economic make-up of our nations GDP. 68% of U.S. GDP is derived from consumption spending, with an economy on the brink of shut down, a minimal decrease in Gross Domestic Income will likely lead to a downshift in consumer confidence, proving demand is a function of income. In the near term, the case for economic expansion is correlated to population growth and productivity. With the nation on lockdown, the script for economic expansion is flawed. Consumption spending is not only a function of household consumption; however, investors should understand that similarly corporation are likely to limit capital expenditures throughout the remainder of 2020. We expect a drastic shift in supply-chain, with less reliance on China and institutional buyers to diversify supplier dependency. The guidance script of most wall street firms is likely to be rewritten for the remainder of 2020. At Samra Wealth Management, our guidance remains unchanged, and our sector rotational philosophy stands to benefit. As of March 31st, Technology as a sector of the S&P 500 witnessed the lowest declines, we expect to see industry consolidation and shifts in supply chain, however an increased dependence on technology suggest this sector will outperform. Healthcare declined 12.7% in Q1, much less than the S&P 500 with a loss of 19.6% during the same time. Although elective surgeries have been delayed, healthcare is one of the least expensive sectors, and is an area that has outperformed in prior bear markets. We expect a shift in supply chain to benefit U.S. manufacturing, an area of strong balance sheets and plenty of defensive names. Financials in the intermediate term are likely to benefit as domestic debt per capita increases, trading volumes are likely to increase, and SBA loan products shielding them from negative exposure. However, the handling of the SBA Paycheck Protection Program may come under scrutiny, resulting in larger banks losing out to community banks. The question investors should be asking is, can your portfolio sustain a similar shock, and what are you doing to mitigate portfolio risk. Disclosure: All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. The information contained here does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index. *Amended May 3rd, 2020. References Fred.stlouisfed.org. 2020. Gross Domestic Income. [online] Available at: <https://fred.stlouisfed.org/series/GDI> [Accessed 3 May 2020]. Fred.stlouisfed.org. 2020. Household Debt Service Payments As A Percent Of Disposable Personal Income. [online] Available at: <https://fred.stlouisfed.org/series/TDSP> [Accessed 3 May 2020]. Kennedy, S., 2020. Wall Street Agrees The World Is In Recession, Disagrees On Depth. [online] Bloomberg.com. Available at: <https://www.bloomberg.com/news/articles/2020-03-19/wall-street-agrees-the-world-is-in-recession-disagrees-on-depth> [Accessed 3 May 2020]. Long, H., 2020. Fed Chair Powell Predicts No Recession In 2019. [online] The Washington Post. Available at: <https://www.washingtonpost.com/business/2019/01/10/fed-chair-powell-predicts-no-recession/> [Accessed 3 May 2020]. Winck, B., 2020. Treasury Secretary Mnuchin Doesn't See The US Falling Into Recession - And Says 'Pent-Up Demand' Will Boost The Post-Coronavirus Economy | Markets Insider. [online] markets.businessinsider.com. Available at: <https://markets.businessinsider.com/news/stocks/economic-outlook-us-avoid-coronavirus-recession-stock-market-recovery-mnuchin-2020-3-1029000758> [Accessed 3 May 2020]. Woodard, J., Young, J. and Devery, J., 2020. The RIC Report: A Recovery Made In The USA. [online] ml.com. Available at: <https://olui2.fs.ml.com/MDWSODUtility/PdfLoader.aspx?src=$/net$/util$/GetPdfFile$?dockey$=6208-12124255-1$&segment$=DIRECT> [Accessed 3 May 2020].

Should You Buy the Dip?

The first quarter of 2020 has been one for the record books, as investors witnessed the fastest bear market in history, the price of oil (WTI) falling over 66% to a 17-year low, US Treasuries considered a safe haven experienced volatility not seen since 2008, leading to $257bn in bond redemptions. With a recession imminent, a perfect-storm scenario has played-out resulting in non-correlated assets sustaining the most damage in investor portfolios. In this month’s issue of The Samra Report we address Fed intervention, and how to position your portfolio in Q2, as well as the likely outcome in the aftermath of the coronavirus. The Fed’s stimulus package, although provides a proverbial steroid to the nation’s largest corporations, does little to provide assistance to approximately 157 million working, tax paying, Americans. “Coronavirus has pushed the global economy into a recession of historic proportions and halted the longest-lasting equity bull market on record.” The global pandemic has caused an adjustment in consumer behavior, a drastic decline in corporate spending and hiring, and unemployment claims surging 3 million to 4%. The White House believes we are likely to see unemployment by year-end reach 7.4%, while Goldman Sachs predicts unemployment soaring to 15% by mid-year, up from a previous forecast of 9%. Although Wall Street’s finest were ill prepared for a systemic shock of this nature, Mike Wilson, Chief Investment Officer at Morgan Stanley believes the worst is likely behind us, as markets have likely priced-in fears of a recession, recommending investors look towards equities, a sentiment we do not share. At Samra Wealth Management, we believe it is important to outline the correlation between a portfolio managers compensation with the net assets they manage. Furthermore, we believe there exist two factors undermined by economist: The Fed’s stimulus package, although provides a proverbial steroid to the nation’s largest corporations, does little to provide assistance to approximately 157 million working, tax paying, Americans. The Government has in the past used similar measures of trickle-down economics to stimulate the economy, to a smaller scale, back in 2008. Although financial markets thrived on cheap money, the benefit to working Americans was less uniform geographically. According to the Center for Disease Control (CDC), the peak spread of the virus forecasts mid-April, suggesting measures to restrict commerce continue until the end of April. Unfortunately, the governments “Big Bazooka” does not provide enough income to sustain the nation’s Gross Domestic Income (GDI), and in an economy where consumption equates for 68% of the nation’s GDP, this is a problem. Goldman Sachs believes we could see GDP slump as much as 34% in 2020. Provisions of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) provide for investors to withdraw funds from retirement accounts without a 10% penalty. Although additional provisions allow for investors to delay their 2020 RMD’s, we believe investors are likely to tap into their retirement accounts as their “emergency funds” or reserves deplete. Selling securities at a low, to create liquidity is something hedge funds and highly leveraged portfolio managers have been required to do as their clients attempt to mitigate downside exposure. In reality, this methodology of selling low allows clients to lock-in their losses. Modern Portfolio Theory and the efficient frontier by Dr. Harry Markowitz “demonstrated that a diversified portfolio is less volatile than the total sum of its individual parts, while each asset itself might be quite volatile, the volatility of the entire portfolio can actually be quite low.” Investment firms have utilized this model by blindly adding to their client’s portfolios non-correlating assets, such as real estate, commodities and hedge funds. In our July 2016 edition of The Samra Report, we stated “Investors should be cautious, specifically those with a flawed understanding of Modern Portfolio Theory.” It is not just the inclusion of Alternative Assets; however, assets must be selected at the best attainable prices. Q1 2020 witnessed real estate, credit and commodities including oil and gold, known as safe havens, punished, falling as much as 66% from recent highs. These firms include some of Wall Street’s best-known private equity and private real estate firms such as Blackstone, KKR and Apollo Global Management. Investors able to stomach the rollercoaster ride may stand to generate the greatest tax-efficient returns, utilizing income optimization strategies such as Roth conversions. At Samra Wealth Management, we continue to manage assets in-line with our sector rotational philosophy with regards to strategy, and although our clients are sitting in the highest cash positions since our inception, tactical investing has played a larger role, helping to mitigate downside exposure. “Only the history books provide insight into when a bull market ends,” or in this case when the market bottoms-out. Our tactical philosophy has evolved to searching for fundamentally strong corporations, as well as firms essential to our nation’s defense and longevity. Recent declines in market value caused by recessionary fears and fund outflows, caused companies such as Boeing to rebound over 50% within a few days, allowing our clients to capitalize while mitigating risk due to less time exposure in the market. It is our belief equities will remain volatile over the coming months, and we expect to allocate cash back into equities and into private real estate and private credit opportunities’ as a rush to liquidation has in some cases caused these assets to be sold while greatly discounted, in mid-May. In addition, we expect to see a rising number of companies downgraded this year, companies that are fundamentally strong with a rich history, these downgrades are likely to present a buying opportunity in the fixed-income space. For those holding cash, we believe structured notes and market-linked CD’s provide the greatest level of protection while allowing investors exposure to the market. Investors questioning how to allocate their portfolios amongst this near perfect storm, our guidance is to be cautiously optimistic. The Fed’s stimulus bill is likely to provide an ideal environment for equities to thrive in, however, amongst the collateral damage we expect to see consolidation in the energy and tourism industries. We further expect Q2 to be plagued with volatility, however, those investors able to stomach the rollercoaster ride may stand to generate the greatest tax-efficient returns, utilizing income optimization strategies such as Roth conversions. Disclosure: Investment Advisory Services are offered through Samra Wealth Management, a Member of Advisory Services Network, LLC. All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. The information contained here does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. Structured Products are sold only by prospectus. A Market Linked Trust is complex and is not suitable for all investors. Investors should read the prospectus and pricing supplement carefully before investing which contains a detailed explanation of the risks, tax treatment, and other relevant information about the investment. Investors should consult their accounting, legal, or tax advisor. Market-Linked CDs are made available through an offering document, or disclosure statement. These documents contain a detailed explanation of the risks, tax treatment, and other relevant information about the investment. Before investing, you should read the disclosure statement and other supporting documents carefully. Additionally, investors should consult their accounting, legal or tax advisors before investing. Market-Linked CDs are sold through financial professionals and are not suitable for all investors. It is important to highlight that Market-Linked CDs only guarantee principal back at maturity (subject to the credit risk of the issuer) and thus if an investor sells or redeems his/her investment prior to maturity, the investor may receive an amount less than his/her original investment. There may be substantial penalties for an early withdrawal. Typically, the issuer of the MLCD maintains a secondary market; however, they are not obligated to do so. References Bertha Coombs, Emma Newburger. "Coronavirus Updates: Trump Extends National Social Distancing Guidelines Through April 30, Field Hospital Set Up Inside Central Park." CNBC. N.p., 2020. Web. 31 Mar. 2020. "Daily Treasury Yield Curve Rates." Treasury.gov. N.p., 2020. Web. 31 Mar. 2020. Delevingne, Lawrence. "U.S. Stimulus Package Is Biggest Ever, But May Not Be Big Enough." U.S.. N.p., 2020. Web. 31 Mar. 2020. Forsyth, Randall. "Treasury Bonds Protected You From Big Stock Market Plunges. Maybe Not The Next One.." Barrons.com. N.p., 2020. Web. 31 Mar. 2020. Furman, Jason, Howard Marks, and Jan Hatzius. "Top Of Mind: ROARING INTO RECESSION." Goldmansachs.com. N.p., 2020. Web. 31 Mar. 2020. "Gross Domestic Income." Fred.stlouisfed.org. N.p., 2020. Web. 31 Mar. 2020. Harris, Derek, and Thomas Hopkins. "Merrill Lynch" Olui2.fs.ml.com. N.p., 2020. Web. 31 Mar. 2020. Ma, Linlin, Yuehua Tang, and Juan-Pedro Gomez. "Portfolio Manager Compensation In The U.S. Mutual Fund Industry." Corpgov.law.harvard.edu. N.p., 2020. Web. 31 Mar. 2020. Oppenheimer, Peter et al. "Global Macroscope: Bear Essentials: A Guide To Navigating A Bear Market." Goldmansachs.com. N.p., 2020. Web. 31 Mar. 2020. Samra, Indy. "The Samra Report: WHAT HAPPENED IN FEBRUARY." Samrawealthmanagement.com. N.p., 2020. Web. 31 Mar. 2020. Samra, Indy. "The Samra Report: When To Take Your Gains Off The Table." Samrawealthmanagement.com. N.p., 2020. Web. 31 Mar. 2020. Shahine, Alaa. "Goldman Sachs Sees 34% Plunge In U.S. GDP And 15% Unemployment." Bloomberg.com. N.p., 2020. Web. 31 Mar. 2020. "United States Unemployment Rate | 1948-2020 Data | 2021-2022 Forecast | Calendar." Tradingeconomics.com. N.p., 2020. Web. 31 Mar. 2020. Wilson, Mike. "U.S. Equities: Is The Worst Behind Us? | Morgan Stanley." morganstanley.com. N.p., 2020. Web. 31 Mar. 2020. Woodard, Jared, and Jordan Young. "Merrill Lynch" Olui2.fs.ml.com. N.p., 2020. Web. 31 Mar. 2020.

Black Swan Event: Coronavirus (COVID-19)

A black swan event, a phrase commonly used in the world of finance, is an extremely negative event or occurrence that is impossibly difficult to predict. In other words, black swan events are events that are unexpected and unknowable. The term was popularized by former Wall Street trader Nassim Nicholas Taleb, who wrote about the concept in his 2001 book Fooled by Randomness. Concerns of the coronavirus have led to global panic, resulting in select metropolitan areas on a complete lockdown, with factory closures and short-term layoffs. In recent days, news of mass cancellation of events from tech developers’ conferences to the Islamic Hajj pilgrimage to Mecca have been cancelled, while Disney shuts down it’s Tokyo theme park until Mid-March. The coronavirus-driven market sell-off has wiped out $6 trillion in value from the global markets in the past six days, according to S&P Dow Jones Indices. At Samra Wealth Management, we believe it will likely get worse, before it gets better, then slightly worse again. In this month’s issue of The Samra Report we focus on how to dampen the volatility in your portfolio and discuss what to expect in the coming months, addressing if investors should be concerned.

Most of the recent sell off is technical in nature, caused by trading volume, as markets appear to be pricing in future declines in sales, as opposed to fundamental analysis.  In our December issue of The Samra Report, we highlighted the following: “we believe there is heightened probability for a pull-back, a correction of 5% to 10% between December 12th to March 4th” “we reaffirmed our risk-on consensus through year-end, however, our tax-loss harvesting strategies went into effect November 27th, reducing exposure to equities by 15% to 35% in client portfolios.” At Samra Wealth Management, we reiterate our consensus in our sector rotational strategy, and believe mid-March through May could provide an entry point to invest in fundamentally strong companies with a history of paying a dividend. What has been a great decade for growth, is providing an opportunity to enter value stocks at prices discounted from recent highs. Although this correction has been the fastest in the history of the stock market, the road to recovery will be bumpy. As we head into the final stretch of Q1, we expect a late stage recovery in Q2, but warn investors that this recovery may be short-lived as Q1 earnings are released. At Samra Wealth Management, it is our belief that the transition from growth to value, will allow investors to position themselves into dividend paying equities, providing an opportunity for income and growth during the recovery.

In an effort to dampen volatility, our long-term view has been to steer clear of fixed-income in favor of real estate and pooled investment vehicles with high sharpe ratios (return earned in excess of the risk-free rate). With treasuries paying near record lows and talks of further interest rate cuts, we recommend investors look elsewhere for income. “Traders are pricing in a 72% chance of a quarter-point rate cut at the Fed's March meeting, according to CME Group's FedWatch.” With Goldman Sachs predicting the “Federal Reserve to cut U.S. interest rates by 75bps by June”, while expecting a lower GDP of 2%, missing President Trump’s 3% target. Although the 0.75% interest rate cut would stimulate domestic markets, the action would likely be seen as irresponsible, effective in the short-term however placing the United States economy at risk, with little tools left in the box as recessionary fears heighten. In the near term, these actions are more likely to have investors moving into cash than propping-up the equity markets.

At Samra Wealth Management, we understand many investors depend on the news media for information, as opposed to research. Investors should be concerned with the effects of the coronavirus on the global and domestic economy, although not correlated to the financial markets, the impact is likely to continue through Q2 2020. The charts below show: (1) The number of passengers carried after the Chinese New Year travel season remain a fraction of past years (Ministry of Transportation); (2) Daily coal consumption of major electricity producers remains well below normal (Goldman Sachs); (3) Daily Property sales volume in 30 major cities (Goldman Sachs); (4) China Steel Demand (Goldman Sachs).

Although sustained damage has been done, we expect the road to recovery to be swift but rough, suggesting investors are likely to see heightened volatility throughout the remainder of 2020. Novice investors would be wise to remember, risk is a measure of volatility, and as we see the coronavirus peak in mid-March as predicted by the World Health Organization and CDC, we expect much of the volatility to be on the positive side, returning markets to their recent highs. Furthermore, investors would be wise to be patient, and we recommend no additional exposure to equities until after Super Tuesday, March 3rd 2020. The World Health Organization has raised the Global Risk for coronavirus to very high, “as several countries are struggling with containment”. The WHO said this week, “it may be 18 months before a vaccine against the coronavirus is publicly available.” This should not be surprising, as vaccines “historically have taken two to five years to develop.”

At Samra Wealth Management, it is our consensus that investors should be concerned, especially those investors with conservative, or moderately conservative portfolio’s. These portfolios typically have greater exposure to fixed-income and energy. Energy has been the poorest performing sector of the S&P 500 over the last decade, and research shows energy could take a further hit, should oil drop closer to $41/barrel. Furthermore, with financial markets in their current status in an election year, could result in an unexpected outcome in the general election this November. Concerned investors should consider increased exposure to cash and understand they may not be reallocating at recent highs, however, 2019 was a great year for global markets.

Do not be mistaken, the United States is not prepared to deal with the coronavirus. “Dr. Barry Bloom is the Joan L. and Julius H. Jacobson Research Professor of Public Health at the Harvard T.H. Chan School of Public Health.” When Dr. Bloom was asked if the United States was prepared to deal with the coronavirus he responded with the response:

During the Obama Administration, all 17 agencies involved in emergency preparedness, including the White House’s Office of Emergency Preparedness and the Department of Homeland Security, had regular conference calls to discuss how to tackle scenarios such as a viral outbreak or a bioterrorism attack. There were plans in cities to prepare for either of those eventualities, and there was a legislative fund created for emergency preparedness that could be released by CDC very rapidly if need be. Such emergency preparedness offices do not exist today, and the emergency fund has disappeared.

Dr. Bloom went on to praise China, stating “China’s success has taught us that stringent control measures like restricting mobility, prohibiting large gatherings, closing schools etc., can reduce the spread of a major localized outbreak. These measures won’t stop an epidemic, but they will slow it down and can ultimately reduce the total number of cases.”










Disclosure: All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. The information contained here does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal.


The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.








References
Adinarayan, T. (2020). Goldman expects 75 bps of Fed rate cuts by June | MarketScreener. [online] Marketscreener.com. Available at: https://www.marketscreener.com/GOLDMAN-SACHS-GROUP-INC-12831/news/Goldman-expects-75-bps-of-Fed-rate-cuts-by-June-30083384/ [Accessed 28 Feb. 2020].

Grenfell, R. and Drew, T. (2020). Here's Why It's Taking So Long to Develop a Vaccine For The New Coronavirus. [online] ScienceAlert. Available at: https://www.sciencealert.com/who-says-a-coronavirus-vaccine-is-18-months-away [Accessed 28 Feb. 2020].

Haefele, M. (2020). Opportunities amid COVID-19 sell-off. [online] Coronavirus and market volatility. Available at: https://www.ubs.com/global/en/wealth-management/marketnews/home/article.1482041.html [Accessed 28 Feb. 2020].

Mulier, T. (2020). WHO Raises Global Risk for Coronavirus to Very High. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2020-02-28/who-raises-global-risk-for-coronavirus-to-very-high-from-high [Accessed 28 Feb. 2020].

Mutikani, L. (2020). U.S. economy misses Trump's 3% target in 2018. [online] Reuters.com. Available at: https://www.reuters.com/article/us-usa-economy-growth/u-s-economy-misses-trumps-3-target-in-2018-idUSKCN1UL1KP [Accessed 28 Feb. 2020].

Nathan, A., Lipton Galbraith, G. and Grimberg, J. (2020). Top of Mind: 2020’S BLACK SWAN: CORONAVIRUS. 86th ed. Goldman Sachs: Global Macro Research, pp.1-25.
Samra, I. (2020). The Samra Report: That Time of Year.... [online] https://www.samrawealthmanagement.com/post/that-time-of-year. Available at: https://www.samrawealthmanagement.com/post/that-time-of-year [Accessed 28 Feb. 2020].

Woordard, J. and Deverey, J. (2020). THE RIC REPORT: What to expect when you’re expecting a rebound. [online] ml.com. Available at: https://olui2.fs.ml.com/MDWSODUtility/PdfLoader.aspx?src=%2Fnet%2Futil%2FGetPdfFile%3Fdockey%3D6208-12091449-1%26segment%3DDIRECT [Accessed 28 Feb. 2020].

The Secular Bull-Market

January may have presented the buying opportunity many investors have been waiting for, as global stocks were impacted with the story out of China, regarding the coronavirus. The impact so far, appears to be blown out of proportion, thanks to the media, ranging from Reuters to the Washington Post as coverage painted unnecessary apocalyptic scenarios. It should be noted that these journalist/opinionist are not held to the standards of any financial regulator or governing body. Novice investors would be wise to understand news outlets such as the Wall Street Journal, Bloomberg News or CNBC are not in the business of providing research, and alternatively derive their income from advertising revenue. In this month’s issue of The Samra Report, we focus on the factors we believe to be the driving forces early in 2020. “In the past 5 years the top 20% of companies have repurchased $975 billion of stock, equal to $381,000 per employee” (Devulapally). Investors concerned with how much steam is left in the market, should consider if these companies would buy their own stock if they lacked conviction in their future earnings. Novice investors, the media and in our experience most financial advisors discuss the topic of Bull and Bear markets. However, few discuss secular Bull and Bear markets. Secular Bull Market: A prolonged period of above-average total returns where drawdowns are relatively shallow and recoveries from pullbacks are relatively rapid, and Secular Bear Markets: a prolonged period of below-average total returns where drawdowns are relatively severe and recoveries from pullbacks can take a long time. According to J. P. Morgan’s Giri Devulapally, Portfolio Manager of U.S. Equity Group, a secular Bull market for equities began in February 2016. Devulapally further believes “annualized total returns should average in the double-digits until 2033 to 2035” In November, Fed Chairman Jerome Powell warned Congress that “the new normal now is lower interest rates, lower inflation, probably lower growth…all over the world.” A great story for equities, as corporations continue to borrow at historically low rates, a strategy synonymous with financial recovery. However, with rates hovering around 2%, the Fed has one less tool in its arsenal should recessionary fears become reality, as the Fed would be unable to cut short-term interest rates by 5%, which has been typical of Fed behavior during a recession. A similar hurdle faced by the majority of central banks, as “a third of global bond yields fall to below 0%”. Although a red flag, we believe investors of bonds and cash are likely to move into equities, unwilling to accept low returns for what has become a prolonged period. With U.S. equities expressing strong fundamentals, and a P/E ratio of 18x, we believe investors with a risk-on mentality are likely to benefit in 2020. The deadly coronavirus that has many Chinese employees working from home, has sent shockwaves across global markets, allowing oil to slide into Bear market territory as travel demand falls rapidly throughout Asia. Although the Supply and Demand equation appears as though oil may fall lower, investors should understand that storing oil is no easy task. Though demand may have fallen, supply of oil is problematic, that is until storage capacity depletes. Risk averse investors may consider the benefits of investing in the energy sector, a sector that has underperformed its peers over the past 5 years, consisting of companies with trends of consistently paying strong dividends. Furthermore, it is unlikely the effects of the Coronavirus will be as severe as the 2003 SARS virus, that cost the global economy $40 B, as China has acted swiftly in containing, and communicating. Impact of this scale is likely to give the United States greater leverage in the signing of a Phase 2 trade deal. Disclosure: All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. The information contained here does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index. Returns are shown without deductions of advisory fees, trading fees or internal management fund expenses. The deduction of such fees and expenses, and the compounding effect of such fees over time, will reduce returns over time. *Amended February 4th, 2020. References Jpmorgan.com. (2020). Important Moments in Market History - J.P. Morgan Asset Management. [online] Available at: https://am.jpmorgan.com/us/en/asset-management/gim/adv/important-moments-in-market-history##tab_1383621583337-4 [Accessed 31 Jan. 2020]. Banjo, S., Yap, L. and Murphy, C. (2020). Chinese businesses turn to remote work as coronavirus spreads. [online] Los Angeles Times. Available at: https://www.latimes.com/business/story/2020-02-03/chinese-businesses-turn-to-remote-work-coronavirus [Accessed 3 Feb. 2020]. Bloomberg.com. (2020). Bloomberg - Stocks. [online] Available at: https://www.bloomberg.com/markets/stocks [Accessed 31 Jan. 2020]. Dempsey, H. and Sheppard, D. (2020). Oil slides into bear market as coronavirus fears intensify | Financial Times. [online] Ft.com. Available at: https://www.ft.com/content/9854a72c-4694-11ea-aee2-9ddbdc86190d [Accessed 3 Feb. 2020]. Devulapally, G. (2020). Why we’re in the early innings of a secular bull market. [online] Am.jpmorgan.com. Available at: https://am.jpmorgan.com/gi/getdoc/1383636191833 [Accessed 31 Jan. 2020]. Dividend.com. (2020). Dividend.com. [online] Available at: https://www.dividend.com/dividend-stocks/#tm=3-top-100&r=Webpage%231282 [Accessed 31 Jan. 2020]. Ip, G. (2020). The Era of Fed Power Is Over. Prepare for a More Perilous Road Ahead.. [online] WSJ. Available at: https://www.wsj.com/articles/shrinking-influence-of-central-banks-ends-decades-of-business-as-usual-11579103829 [Accessed 31 Jan. 2020]. Multpl.com. (2020). S&P 500 PE Ratio. [online] Available at: https://www.multpl.com/s-p-500-pe-ratio [Accessed 31 Jan. 2020]. O'Brian, B. (2020). 'I'm in an apocalypse:' American student trapped in coronavirus-hit Chinese city. [online] Reuters.com. Available at: https://www.reuters.com/article/us-china-health-usa-student/im-in-an-apocalypse-american-student-trapped-in-coronavirus-hit-chinese-city-idUSKBN1ZS2RI [Accessed 31 Jan. 2020]. Quinsee, P. (2020). Global Equity Views 1Q 2020 - J.P. Morgan Asset Management. [online] Am.jpmorgan.com. Available at: https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/portfolio-insights/global-equity-views [Accessed 31 Jan. 2020]. Samra, I. (2020). 2020: The Year Ahead. [online] Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/2020-the-year-ahead [Accessed 31 Jan. 2020]. Summers, L. and Stansbury, A. (2020). Summers explains why cutting interest rates isn’t the way out of our economic stagnation. [online] MarketWatch. Available at: https://www.marketwatch.com/story/cutting-interest-rates-isnt-the-way-out-of-our-economic-stagnation-2019-08-23 [Accessed 31 Jan. 2020]. Tharoor, I. (2020). Coronavirus outbreak sparks a wave of global uncertainty. [online] Washingtonpost.com. Available at: https://www.washingtonpost.com/world/2020/02/04/coronavirus-outbreak-sparks-an-epidemic-global-uncertainty/ [Accessed 4 Feb. 2020]. Woodard, J., Devery, J., Young, J. and Harris, D. (2020). The RIC Report: 2020 Client Reviews: Everything You Need to Know. [online] ml.com. Available at: https://olui2.fs.ml.com/MDWSODUtility/PdfLoader.aspx?src=%2Fnet%2Futil%2FGetPdfFile%3Fdockey%3D6208-12079519-1%26segment%3DDIRECT [Accessed 31 Jan. 2020].

2020: The Year Ahead

With 2019 in the history books, financial analysts are “cautiously optimistic”. Translation: fundamental and economic data show no immediate signs of a recession on the horizon, however, how long can we go without a correction, times when the S&P 500 falls at least 10% from a prior high.  In the past decade, investors have endured only six corrections, a fact that may have some investors spooked, waiting on the sidelines for the so-called right time to invest. This month’s issue of The Samra Report highlights our firm’s strategy and tactical opportunities for 2020.

In January 2017, Samra Wealth Management released a Global Investment Outlook: “The Year Ahead 2017”, identifying four select sectors for double-digit growth: Technology, Healthcare, Financials and Industrials. Our recommendation avoided investing in the consumer discretionary and consumer staples sectors, in favor of direct investments in Amazon, Alibaba, Walmart, and later adding MecardoLibre and Rakutan in 2019. In 2019 these recommendations performed as follows: Technology 50.3 % Healthcare 20.8% Industrials 29.4% Financials 32.5% Amazon 23.17 Alibaba 54.74 Walmart 29.75% MercardoLibre 95.30% Rakutan 27.89% ** In addition to the above, we believe it prudent to mention the returns of the following, that were moved out of the Information Technology Sector: Alphabet (29.10% & 28.18%), Facebook (52.58%), Baidu (-20.30%) that were moved into the new Communications Sector in November 2018, and Ebay (28.64%) that was moved into the Consumer Discretionary Sector as part of the Global Industry Classification Standard (GICS). There is no doubt 2019 proved to be a stellar year, however, at Samra Wealth Management we find our clients are more risk averse and have less of an appetite for the rollercoaster ride of the market. With 2019 in the bag, our “2020: The Year Ahead” global investment outlook aims to provide investors with research-based insight. As a Chinese delegation heads to Washington for the signing of a planned Phase 1 trade deal, consumer sentiment ticks-up with a similar trajectory to the financial markets, a sentiment shared across global markets. Presidential Tweets have estimated the trade deal will result in the Chinese buying $50 Billion worth of farm products as part of the Phase 1 deal. However, investors should be cautious, as it is unclear the toll the trade war has taken on U.S. Farmers as the Trump administrations allocated $24.5 Billion to compensate farmers for trade war losses. In summarizing, the United States may not be in a better position than prior to the administration’s tariffs, with regards to trade. However, investors who have stayed in cash on the sidelines, may have an increased appetite for risk, heading into equities as bonds payout near record lows. A substantial move from cash and fixed-income into equities could find stocks moving to new highs in 2020. Furthermore, the graph below strengthens the argument that recessions rarely follow a year of great returns, as it is more likely we will expect to see a year of good returns in 2020. At Samra Wealth Management, we believe the market will return 13% in 2020, with heightened probability of a 10% or greater pull-back. Our Sector Rotational Strategy continues to promote Technology, Healthcare, Industrials (ex. Manufacturing) and Financials. We will continue to stay away from Consumer Staples and Consumer Discretionary Sectors in favor of: Amazon, Alibaba, Walmart, Rakutan and MecardoLibre. In addition, we are adding Energy. As companies continue to buy back their own stock, led by financials in the amount of $48 billion in Q3 2019, we believe it is unlikely that we will see a recession until after the Presidential Election.

Globally, we remain bullish on China and developed Europe, however, now have nearly zero exposure to India, given the violence following the nationalist movement. Although we believe the Modi government will be able to keep this contained, censorship will likely slow the flow of direct foreign investment to India. With Brexit nearing reality, the UK could present a good investment opportunity in dollar terms, as we seek low equity prices with a weaker sterling, pushed down due to lower consumption. As the UK moves a step closer to divorce, we believe The Netherlands will be the primary beneficiary of job relocation, a diverse country where the majority of people speak English.

Tactically, we recommend hedging portfolio risk with exposure to Net Lease Commercial Real Estate and following social migration patterns for multifamily residential real estate, specifically around metro areas of D.C., Charlotte, Atlanta and Tampa. In addition, we have been shifting away from growth towards value, in search of quality dividend paying stocks with strong balance sheets.


Disclosure: All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. The information contained here does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal.


The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index. 


Returns are shown without deductions of advisory fees, trading fees or internal management fund expenses. The deduction of such fees and expenses, and the compounding effect of such fees over time, will reduce returns over time.






*Amended January 14th, 2019.








References
DQYDJ. (2020). 2019 S&P 500 Return, Dividends Reinvested - Don't Quit Your Day Job.... [online] Available at: https://dqydj.com/2019-sp-500-return/ [Accessed 14 Jan. 2020].
Finance.yahoo.com. (2020). SNP - SNP Real Time Price. Currency in USD. [online] Available at: https://finance.yahoo.com/chart/%5EGSPC?p=^GSPC [Accessed 14 Jan. 2020].

Lewis, A. (2020). The stock market boomed in 2019. Here's how it happened. [online] CNBC. Available at: https://www.cnbc.com/2019/12/31/the-stock-market-boomed-in-2019-heres-how-it-happened.html [Accessed 14 Jan. 2020].

MSCI.com. (2020). CONSULTATION ON IMPLEMENTATION OF 2018 GICS CHANGES IN THE MSCI EQUITY INDEXES. [online] Available at: https://www.msci.com/documents/1296102/8328554/GICS2018Consultation.pdf/0f246611-27f7-4126-b7f0-02a9255724d5 [Accessed 14 Jan. 2020].

Novel Investor. (2020). Annual S&P Sector Performance • Novel Investor. [online] Available at: https://novelinvestor.com/sector-performance/ [Accessed 14 Jan. 2020].

Plume, K. and Huffstutter, P. (2020). U.S. farmers see another bleak year despite Phase 1 trade deal. [online] Reuters. Available at: https://www.reuters.com/article/us-usa-trade-china-agriculture-insight/u-s-farmers-see-another-bleak-year-despite-phase-1-trade-deal-idUSKBN1Z20CK [Accessed 14 Jan. 2020].


Reuters. (2020). Trump's hailing of $50 billion in Chinese farm purchases seen as 'meaningless'. [online] Available at: https://www.reuters.com/article/us-usa-trade-china-agriculture/trumps-hailing-of-50-billion-in-chinese-farm-purchases-seen-as-meaningless-idUSKBN1WT0TG [Accessed 14 Jan. 2020].


Ryan, CFA, M. and Draho, J. (2020). UBS House View. [online] Ubs.com. Available at: https://www.ubs.com/content/dam/assets/wma/us/shared/documents/investment-strategy-guide-november.pdf [Accessed 14 Jan. 2020].

Samra, I. (2020). When to Take Your Gains Off The Table. [online] Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/when-to-take-your-gains-off-the-table [Accessed 14 Jan. 2020].

Samra, I. (2020). 2018: The Year Ahead. [online] Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/2018-the-year-ahead [Accessed 14 Jan. 2020].

Us.spindices.com. (2020). S&P 500 Health Care - S&P Dow Jones Indices. [online] Available at: https://us.spindices.com/indices/equity/sp-500-health-care-sector [Accessed 14 Jan. 2020].

That Time of Year…

It’s the most wonderful time of the year, when investors snub research and data in favor of taking recommendations, while sipping spiced eggnog, at office holiday parties and family gatherings. As November closes out with a year-to-date gain in the S&P 500 of 25.14%, readers can expect this holiday season to be filled with recessionary predictions and apocalyptic market scenarios. In preparation, this month’s issue of The Samra Report focuses on the most relevant issues in December.

The financial markets are as polarized as the U.S. political system, with the S&P Technology sector returning 41.78% YTD in comparison to the Energy sector returning 1.72% during the same time frame. Taking a deeper dive into the numbers, the heaviest weighted stock in the Tech Sector is Apple, with a year-to-date return of 69.42% in comparison to Chesapeake Energy losing 71.43%. With 21 trading days remaining in the year, at Samra Wealth Management we believe there is heightened probability for a pull-back, a correction of 5% to 10% between December 12th to March 4th, as investors consider reallocating their portfolios moving some of their gains off the table. In a polarized market, as described above, tax loss harvesting prior to year-end could send investors into a selling frenzy, dependent on a Stage-1 China deal, and outcome of the British General Election. No correction in December could lead to a heightened sell-off for Super Tuesday as U.S. voters head to primary polls.

In our November issue of The Samra Report: Winter is coming, we reaffirmed our risk-on consensus through year-end, however, our tax-loss harvesting strategies went into effect November 27th, reducing exposure to equities by 15% to 35% in client portfolios. We are shifting our investment philosophy heading into the new year, with increased allocations away from the strategy side of client portfolios, to positions more tactical in nature, specifically quality dividend paying value stocks. Although Growth has beaten out Value over the past decade, increasing allocations towards strong dividend paying companies, we expect this strategy to allow portfolios to grow through compounding, while reducing risk exposure to growth companies in the event of a correction, or economic downturn.

As the United States and China move closer to a Stage 1 deal, markets are seeing the markets move more on headlines than economic and fundamental data. Investors should be cautious that a Stage-1 deal is exactly that, one part of a complex negotiation. In a Bloomberg TV interview, Savita Subramanian of Bank of America Merrill Lynch shared her views, that “the trade war would not be quickly resolved and will morph into a tech/national security war.” Furthermore, “looking at the dividend yield of the S&P 500, it is higher than the 10YR treasury” which rarely happens. Historically, in such scenarios “94% of the time stocks outperform bonds”, suggesting equities are the best place for investors to be.

Should Washington and Beijing be unable to come together and strike a trade deal prior to the end of the year, nervous investors could find themselves moving into cash, fixed-income and commodities. Although gold could become a tactical play, investors should move funds towards ultra-short duration fixed-income as an alternative. With extremely low volatility, and a year-to-date return of over 2%, we prefer ultra-short duration as a hedge against inflation over gold, given recent volatility in the commodities space. In the United States, we continue to favor a sector rotational investment strategy, favoring Technology, Healthcare, Industrials and Financials, with exposure to select areas of Consumer Discretionary/Staples. With regards to tactical investing, given the current investment landscape, we are recommending our clients allocate a larger portion of their strategy towards short-term tactical, with a flight towards quality dividend paying companies. On a global level, we are staying away from sector ETF’s and looking directly at listed companies, we believe may out-perform their peers.

In the alternative space, specifically real estate, we believe diversifying broadly over the real estate sector carries unnecessary risks. Alternatively, we recommend investors looking towards real estate look toward 2 specific areas: Pooled rental real estate in secondary and tertiary areas of the United States, following social migration trends. Pooled net lease corporate real estate, staying away from retail. Disclosure: All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.  All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. The information contained here does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal.


*Amended December 5th, 2019.










References
Bloomberg.com. (2019). Bloomberg Market: Stocks. [online] Available at: https://www.bloomberg.com/markets/stocks [Accessed 1 Dec. 2019].


Eresearch.fidelity.com. (2019). Sectors & Industries Overview - U.S. Sectors- Fidelity. [online] Available at: https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_market.jhtml [Accessed 1 Dec. 2019].


Mason, J. and Lawder, D. (2019). U.S. outlines 'Phase 1' trade deal with China, suspends October tariff hike. [online] Reuters.com. Available at: https://www.reuters.com/article/us-usa-trade-china/u-s-outlines-phase-1-trade-deal-with-china-suspends-october-tariff-hike-idUSKBN1WQ10X [Accessed 28 Nov. 2019].


Msci.com. (2019). MSCI ACWI Index - MSCI. [online] Available at: https://www.msci.com/acwi [Accessed 1 Dec. 2019].


Nazareth, R. and Hajric, V. (2019). Stocks Advance on Fresh Hopes for U.S.-China Deal: Markets Wrap. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2019-12-03/asia-stock-futures-drop-bonds-jump-on-trade-worry-markets-wrap?srnd=premium [Accessed 4 Dec. 2019].


Quotes.wsj.com. (2019). TMUBMUSD10Y | U.S. 10 Year Treasury Note Price & News - WSJ. [online] Available at: https://quotes.wsj.com/bond/BX/TMUBMUSD10Y [Accessed 1 Dec. 2019].


Samra, I. (2019). When To Take Your Gains Off The Table. [online]
Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/when-to-take-your-gains-off-the-table [Accessed 28 Nov. 2019].


Samra, I. (2019). Winter is Coming…. [online] Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/winter-is-coming [Accessed 28 Nov. 2019].


Woodard, J., Devery, J. and Harris, D. (2019). The RIC Report: The Irrelevant Election. [online]
Merrill Lynch. Available at: https://olui2.fs.ml.com/MDWSODUtility/PdfLoader.aspx?src=%2Fnet%2Futil%2FGetPdfFile%3Fdockey%3D6208-12062439-1%26segment%3DDIRECT [Accessed 16 Nov. 2019].

Winter is Coming…

With almost 200 companies in the S&P 500 reporting earnings, and affirmation from Beijing that a partial trade deal could be completed in the coming weeks, the narrative continues to push the market to new highs in October. According to Goldman Sachs “the outflow from US equity funds this year has been the biggest since 2008, relative to the flood of money into cash and bonds”. Painting a clear picture: investors are ignoring fundamental and technical data, and cashing out early, due to recessionary fears. At Samra Wealth Management, our 2019 consensus remains unchanged, with a bullish stance in the short-term, with portfolio adjustments expected to take affect sometime in Q2 2020. This month’s issue of The Samra Report, focuses on political risk in 2020 and beyond, the weather and your portfolio, and slowing revenue growth. With the technology sector leading the S&P 500 with a year-to-date return of 33.71%, tech continues to be our heaviest weighted sector. In an age of innovation, there are few hurdles between technology and a continued trajectory, with the exception of political and legislative risk. As Elizabeth Warren leads the Democratic polls, as well as the charge against technology giants with her recently published piece “Here’s How We Can Break Up Big Tech Giants”. At Samra Wealth Management, we believe investors should consider the near-term impact, and the longer-term outlook. Should Warren continue to lead the polls, we believe mid 2020 will see increased volatility, resulting in investors moving from equities to cash, based on the threat of breaking up domestic corporations. A position we believe to be un-American, as the United States has long been a mecca for innovation, where companies can thrive with access to financial and intellectual capital, in a business climate not found outside of the United States. Should Warren win the White House, the near-term market impact would be detrimental. However, investors should differentiate between campaign promises and the ability to create legislative change of such scale, rendering the longer-term outlook unaffected. The September 2017 issue of The Samra Report, entitled “The Weather and your Portfolio” highlighted how strong winds from Southern California to Texas cause wind turbines to create more electricity, scaling back the demand for natural gas, pushing down LNG prices. The devastating fires in much of California are likely to cause a déjà vu scenario in the 2019-2020 winter season. Furthermore, “the National Oceanic and Atmospheric Administration (NOAA) predicts that much of the "Northern Plains," including Minnesota, Wisconsin and the Dakotas, will see above-average precipitation for the winter of 2019-2020.” The Farmer’s Almanac predicts an “extended forecast of a freezing, frigid and frosty winter for two thirds of the United States.” At Samra Wealth Management, we recommend reducing allocations towards energy, and being selective with tourism, while increasing allocations towards retail as demand for winter clothing increases. As earnings continue to come in as mainly positive, a closer look shows a similar trend across the market: Revenue growth is slowing. The Federal Reserve Bank of St. Louis shows consumer sentiment reaching a low in August 2019, trending up in September, against increasing CPI. Investors should understand there is little correlation between the financial markets and the economy. However, as technology helps spawn innovation, it also places an additional strain on the nation’s financial health. As corporations invest more in technology over labor, there will come a time where wage flow into the economy slows. Currently, consumption spending makes up 68% of the United States GDP equation, insinuating a reduction in wages translates to a reduction in economic output. Although economic data does little to support our view, we remind investors that economic data did little to predict the last financial crisis. References Bloomberg.com. (2019). Bloomberg - Are you a robot?. [online] Available at: https://www.bloomberg.com/markets/stocks [Accessed 30 Oct. 2019]. Eresearch.fidelity.com. (2019). Sectors & Industries Overview - U.S. Sectors- Fidelity. [online] Available at: https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_market.jhtml#chart-overlay [Accessed 30 Oct. 2019]. Farmers’ Almanac. (2019). Farmers' Almanac Weather | Forecasts, Weather History, Folklore. [online] Available at: https://www.farmersalmanac.com/weather [Accessed 30 Oct. 2019]. Fred.stlouisfed.org. (2019). Consumer Price Index for All Urban Consumers: All Items in U.S. City Average. [online] Available at: https://fred.stlouisfed.org/series/CPIAUCSL [Accessed 30 Oct. 2019]. Fred.stlouisfed.org. (2019). Consumer Price Index for All Urban Consumers: All Items in U.S. City Average. [online] Available at: https://fred.stlouisfed.org/series/CPIAUCSL [Accessed 30 Oct. 2019]. Fred.stlouisfed.org. (2019). University of Michigan: Consumer Sentiment. [online] Available at: https://fred.stlouisfed.org/series/UMCSENT [Accessed 30 Oct. 2019]. Samra, I. (2019). The Samra Report: Not on my Watch. [online] Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/no-on-my-watch [Accessed 30 Oct. 2019]. Samra, I. (2019). The Samra Report: The Weather and your Portfolio. [online] Available at: http://www.samrawealthmanagement.com/market-commentary/2017/10/2/the-weather-your-portfolio [Accessed 30 Oct. 2019]. All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only. This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. No investment strategy, such as rebalancing, can guarantee a profit or protect against loss. Rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.

Not On My Watch...

As investors find themselves in the most defensive positioning since the financial crisis, global markets continue to defy economic data. Volatility aside, September saw a gain of 1.05%, in a month plagued with political uncertainty, led by talks of impeachment. This month’s issue of The Samra Report focuses on the likelihood of a recession and how investors should position their portfolios going into 2020. During the later stages of a bull market, investors tend to pay less attention to fundamentals, and focus on market sentiment and technical analysis. The August issue of The Samra Report: “When to take your gains off the table”, highlighted year-to-date performance of 18%. As September closes out at 18.74%, investors are easily spooked, with talks of impeachment, creating volatility. At Samra Wealth Management, we expect the volatility to continue throughout the remainder of the year, however, find it unlikely that the United States will fall into a recession due to two factors: Fundamentals continue to hold strong, while the President has been able to move markets via Twitter. Fundamentally, things look good: “for Q3 2019, of the fourteen S&P 500 companies that have reported earnings, twelve have reported a positive EPS surprise”. Furthermore, the forward 12-month P/E ratio for the S&P 500 is 16.8, only slightly above the 5-year average of 16.6. Regardless of the political divide, President Trump has shown his ability to lead; rounding-up house and senate republicans, with few rouge factions questioning his leadership. Ironically, with no plan details, fragmented responses and an inflated ego has led to the President taking a dynamic approach on most issues. An approach, in our opinion, that is likely to stimulate the U.S. financial markets and economic climate until the 2020 Presidential election, delaying the probability of a recession. At Samra Wealth Management, there is no change in our consensus, and we believe investors should continue to invest with a risk-on focus, utilizing a sector rotational strategy. With low interest rates continuing to drive markets, and the President showing a bias towards Wall St, it is likely we will see favorable changes towards reserve ratios, allowing monetary policy to continue to drive U.S. financial markets. Although talks of impeachment may be affecting markets in the short-term, we believe this political strategy will waiver in the coming weeks, leading to new all-time highs. By the end of Q2 2020, investors should reallocate to a defensive strategy, and a flight towards quality. Addressing the U.S/China trade war, which has impacted global trade and financial markets. This far into a bull market, investors need to understand the market does not need a resolution. Alternatively, the market needs investors to believe to a high probability that a deal is likely. References Bloomberg.com. (2019). Bloomberg. [online] Available at: https://www.bloomberg.com/markets/stocks [Accessed 30 Sep. 2019]. Butters, J. (2019). Factset. [online] Factset.com. Available at: https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_092719.pdf [Accessed 30 Sep. 2019]. Samra, I. (2019). When to Take your Gains off the Table. [online] Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/when-to-take-your-gains-off-the-table [Accessed 30 Sep. 2019]. All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only. This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. No investment strategy, such as rebalancing, can guarantee a profit or protect against loss. Rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.

Crypto & Cannabis

As the Trade War escalates, the United States and China find themselves moving further apart. Having taken a toll on global economies and financial markets, at Samra Wealth Management we are doubling-down on our August recommendation, highlighted by The Samra Report, “When to Take Your Gains Off the Table”. With fixed-income yields approaching all-time lows, investors have flocked towards alternative assets, specifically, real estate. Leading to artificially inflated prices. At Samra Wealth Management, we promote a sector-rotational strategy, however, the tactical portion of a client’s portfolio is managed to seek out areas of opportunity. This month’s issue of The Samra Report highlights areas of opportunity, and cautions investors on areas of excessive risk. Novice investors are typically guilty of using recent price declines, or percentage declines as signals to buy. Over the past month investors may have been tempted to buy an index tracking the Argentinian market, which dropped 48% in U.S. dollar terms, due to a change in regime. However, these investors would be wise to examine the country on a fundamental basis, analyzing the economic health and future of Argentina. With credit default swaps pricing in a 75% chance that Argentina will suspend debt payments in the next five years, the Argentine narrative echoes similarities seen prior to the U.S. Financial Crisis. However, according to Bloomberg journalist Matthew A. Winkler, there are “Two Homegrown Companies Defying Argentina’s Gloom”. The key to investing in distressed economies such as Argentina, is to understand that investors have the capacity to invest on a currency hedged basis, differentiate between sectors, and target companies in Argentina that have no exposure to the Argentine economy, and in some cases although physically located in Argentina may be listed on an exchange outside of its borders. The November 2017 issue of The Samra Report, “Should You Invest in Bitcoin?” Recommended against the purchase of Bitcoin for new investors, which although appreciated to over $19,000 in December 2017, is currently hovering around $10,000. However, much has changed since 2017, including the price of Bitcoin. With Wall Street’s largest firms sounding the alarm of an increased risk of recession within the next 18 months, it is our belief a recession would cause investors to further lose faith in the U.S. Government, weakening the greenback, and creating a play for cryptocurrency. As mentioned in our November 2017 edition of The Samra Report, we believe cryptocurrency is the evolutionary next step for fiat currency, however, although Bitcoin may have been the first to market, in its current form it is highly unlikely Bitcoin will ever replace fiat currency. Our guidance towards bitcoin recommends clients invest directly in bitcoin, and not through a pooled investment vehicle, up to 2% of their investable portfolio. These investors should understand the risk of loss and be able to stomach the rollercoaster volatility. As an alternative, we recommend this allocation alternatively be placed in Facebook (FB) Stock, a company with over 2 Billion active daily users, hoping to launch the next generation cryptocurrency initiative, Libra. Although the U.S. House Financial Services Committee is skeptical, Libra aims to align with U.S. Tax Regulations, monetary and fraud laws, suggesting Libra could unseat Bitcoin as the highest capitalized cryptocurrency. The global legal marijuana market size is expected to reach $66.3 billion by the end of 2025, from $11.9 billion in 2018. Although not federally legal, investors looking for exposure to cannabis are investing in companies such as Canopy Growth Corporation (CGC). At Samra Wealth Management, we will not provide guidance on stocks or pooled investment vehicles focused on cannabis. Alternatively, for investors seeking exposure into cannabis, we recommend the following: Tabacco companies, that currently possess the infrastructure and logistics would be the ideal choice, as upon legalization of cannabis these companies would be the first to move their product to market, with established brands and relationships to the retail segment. Private investment opportunities in CBD, derived from Federally legalized hemp, under the Farm Bill. Given the risk and reward trade-off, we recommend employing the help of an established accounting firm. Ancillary Service organizations, providing farming and irrigation equipment, storage, testing and specialized logistics support. As the social stigma towards cannabis turns towards medical and industrial applications, at Samra Wealth Management, we recommend investments towards this area, however, caution investors with the following factors: Quality of CBD is not currently regulated Perfect competition allows low barriers to entry, potentially compromising quality. References BEHAN, N. (2019). A Macro View - August Monthly Recap. [online] Envestnet. Available at: https://www.envestnetinstitute.com/article/macro-view-august-monthly-recap?mkt_tok=eyJpIjoiT1RBNE9URTFaakF5TUdNMCIsInQiOiJYdVRTam1ReEcxU0VaeFNZOFwvU0s2M1pcLzE2dUtKU1NwN25rYnZcL3hUSEtRR2luRExMRGpyYUdjOWRyY2xjZWhmMExGUmN3Mmpxdlh1ZTRmNXc3cTM0WXoxTGs1WFwvZjNaREtHVEVtMkRiNEszSnFnd1FuKysyMjlmd0JkdlcraEYifQ%3D%3D [Accessed 7 Sep. 2019]. Grandviewresearch.com. (2019). Legal Marijuana Market Size, Growth & Analysis | Industry Report, 2025. [online] Available at: https://www.grandviewresearch.com/industry-analysis/legal-marijuana-market [Accessed 28 Aug. 2019]. https://www.cfraresearch.com. (2019). QUANTITATIVE STOCK REPORT: Canopy Growth Corporation. Irwin, N. (2019). How the Recession of 2020 Could Happen. [online] Nytimes.com. Available at: https://www.nytimes.com/2019/08/17/upshot/how-the-recession-of-2020-could-happen.html [Accessed 28 Aug. 2019]. Maki, S. and Oyamada, A. (2019). Fears of Argentina Default Loom Large as Traders Dump Everything. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2019-08-12/markets-set-to-sell-off-in-argentina-after-macri-loses-primary [Accessed 28 Aug. 2019]. Samra, I. (2019). Should You Invest In Bitcoin. [online] Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/should-you-invest-in-bitcoin [Accessed 28 Aug. 2019]. Samra, I. (2019). When To Take Your Gains Off the Table. [online] Samrawealthmanagement.com. Available at: https://www.samrawealthmanagement.com/post/when-to-take-your-gains-off-the-table [Accessed 28 Aug. 2019]. Swanson, A. (2019). As Trump Escalates Trade War, U.S. and China Move Further Apart With No End in Sight. [online] Nytimes.com. Available at: https://www.nytimes.com/2019/09/01/world/asia/trump-trade-war-china.html [Accessed 1 Sep. 2019]. Williams, R. (2019). Congress Holds a Skeptical Eye Against Facebook’s Libra, Scrutiny Continues. [online] CryptoNewsZ. Available at: https://www.cryptonewsz.com/congress-holds-a-skeptical-eye-against-facebooks-libra-scrutiny-continues/38945/ [Accessed 28 Aug. 2019]. Winkler, M. (2019). Two Home Grown Companies are Defying Argentina's Gloom. [online] Bloomberg.com. Available at: https://www.bloomberg.com/opinion/articles/2019-08-21/two-homegrown-companies-defy-argentina-s-gloom [Accessed 28 Aug. 2019]. *Amended September 10, 2019 All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only. This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. No investment strategy, such as rebalancing, can guarantee a profit or protect against loss. Rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.

When To Take Your Gains Off The Table...

As an investor, when is enough, enough? Investors are rightfully questioning how much steam is left in the market, as the S&P 500 has returned over 18% year-to-date. Normally, investors would look to rebalance their portfolios, moving a portion of their gains to what many think of as safer more conservative assets such as bonds. 2019, has been anything but a normal year with an estimated $15 Trillion held in negative yielding global debt, investors moving towards bonds have reason for concern, and the alternative asset story is not providing reassurance. This month’s issue of The Samra Report provides insight on current market conditions and answers the question of whether there is a recession or economic contraction on the horizon, provides guidance on alternative assets such as real estate, and gives an indication on where and how to invest for the remainder of 2019.

Retail and institutional investors continue to speak of uncertainty, top economists are calling for an interest rate cut, while money managers promote inflows to their respective funds. “It should not be surprising that the most recent Fund Manager Surveyreport showed the most defensive level of positioning since the Financial Crisis.” However, this does little to answer the question, “Is there a recession on the Horizon”. This question may be appropriate for economist; however, it is less important to those investing in developed markets. Research has shown that there is little correlation between price return and GDP, when factoring in inflation.

In the later stages of a bull market, investors tend to pay less attention to fundamentals, and focus on market sentiment and technical analysis. Although only the history books provide insight into when a bull market ends, what is surprising is valuations are far below their all-time highs, based on our preferred measure: the Shiller Price/Earnings Ratio, which factors in average inflation-adjusted earnings from the prior 10 years. At Samra Wealth Management, we believe the Fed is able to delay a recession with a dynamic plan to manage interest rates, as well as openly communicating with the public. Furthermore, with the trade war underway, we believe the President needs a win, to secure another term in the White House, suggesting a market correction of 10% or greater is likely, however a recession or economic contraction is unlikely.

Financial advisors have moved past allocating their clients assets amongst stocks and bonds, with many advisors choosing to adopt some form of Markowitz’s efficient frontier, adding alternative investments to their client’s portfolios. In theory, this practice works: In reality, the right market conditions must apply, and trades must be placed at optimal levels. As central banks continue to cut interest rates, the global debt market for negative yielding bonds is estimated to be over $15 trillion. Suggesting two things: there is little value in fixed income, and an increase in key interest rates could cause havoc, spilling over into the equity markets. With these factors in mind, investors have been allocating more towards alternative assets, specifically real estate. As funds move towards the real estate sector, real estate prices have become artificially inflated, resulting in investments made at above optimal price levels, a trend similar to what was seen during the housing bubble. With the recovery still underway in some areas, money managers continue to attract funds into their portfolio’s, placing a higher emphasis on their compensation, rather than the quality and price levels of their portfolios.

With global markets reaching new all-time highs, the question investors should be asking, is where to invest. At Samra Wealth Management, over the last three years we have opted towards a risk-on sentiment, staying clear of US fixed income investments, and allocating towards emerging market debt and convertible bonds. With the market returning 18.89% year-to-date, we believe the common strategies of rebalancing or moving to cash are not well suited to today’s market. Alternatively, we recommend the following: As opposed to moving towards cash, we recommend investors move funds towards ultra-short duration fixed-income funds. With extremely low volatility, and a year-to-date return of over 2%, we prefer ultra-short duration as a hedge against inflation over gold, given recent volatility in the commodities space. With regards to real estate, we believe diversifying broadly over the real estate sector carries unnecessary risks. Alternatively, we recommend investors looking towards real estate look toward 2 specific areas: Pooled rental real estate in secondary and tertiary areas of the United States, following social migration trends. Pooled net lease corporate real estate, staying away from retail. At Samra Wealth Management, over the last 3 years we have stayed clear from investments in Latin America, the United Kingdom and Africa. However, our guidance is now evolving to the below recommendations: The United Kingdom is becoming a more attractive investment, on a currency hedged basis. As a Brexit with or without a deal will likely impact equity markets, and weaken the sterling. On a continent where Presidents have been imprisoned for corruption, and militia groups have used military helicopters to attack government buildings, Latin America has been an area we have stayed away from. However, similar to the UK, Latin America is now looking more attractive, with companies like Mercado Libre cashing in on e-commerce and digital payments. The African continent has been plagued with political corruption, and our recommendation for exposure to Africa, is to invest in those companies, specifically Chinese, working on African infrastructure projects. In the United States, we continue to favor a sector rotational investment strategy, favoring Technology, Healthcare, Industrials and Financials, with exposure to select areas of Consumer Discretionary. With regards to tactical investing, given the current investment landscape, we are recommending our clients allocate a larger portion of their strategy towards short-term tactical, with a flight towards quality. References
Bartels, M., Devery, J. and Shields, A. (2019). The RIC Report: Summer rally follows best 1H since ’97. [online] ml.com. Available at: https://olui2.fs.ml.com/MDWSODUtility/PdfLoader.aspx?src=%2Fstockresearch%2Fapi%2Fdm%2F1.0%2Fdocument%2Fwithreadership%2F6208-12015100-3%3Fsegment%3DDIRECT [Accessed 30 Jul. 2019].


Bloomberg.com. (2019). Bloomberg - Stocks. [online] Available at: https://www.bloomberg.com/markets/stocks [Accessed 30 Jul. 2019].


Fred.stlouisfed.org. (2019). Nonfarm Business Sector: Real Output Per Hour of All Persons. [online] Available at: https://fred.stlouisfed.org/series/PRS85006092 [Accessed 30 Jul. 2019].






All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only. This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. No investment strategy, such as rebalancing, can guarantee a profit or protect against loss. Rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.

© 2020 by SAMRA WEALTH MANAGEMENT, A Member of Advisory Services Network, LLC.