Go Back

Added Noise to an Already Very Loud Room: Weekly Commentary from Cabana’s CEO – September 16, 2019

5 years ago

  • Share this:

We’ve seen remarkable volatility across all markets (stock, bond, commodities etc.) since the end of July. This volatility stems from investors’ search for clarity and stability within the ongoing trade war with China, and the resulting impacts on GDP here at home and abroad. Additionally, our central bank and interest rates are very much in play.

The overall gist is that we have interrelated markets across the world. The trade issues between the U.S. and China not only impact those two countries but bleed over into other economies as well. Disruptions in the worldwide supply chain can have negative effects on other markets who rely on or are a part of that supply chain. However, it can also be positive in that other markets can pick up market share. We have begun seeing data here and in China that suggests economic activity is quickly deteriorating. U.S. manufacturing activity is in a recession and inventories are rising. China’s exports have dropped 16% per their latest report. Thus, both ends of the world’s largest conveyor belt of goods are hurting. If companies are unable to access key components of their products, or do not have a downstream market for their goods, they can’t make money. If businesses can’t make money, they can’t pay wages and hire workers. You see how this can be a very slippery slope. Compound this with the fact that all the world’s other major trading partners are in or near recessionary economic conditions.

The U.S. government is aware of everything I have described and has turned to our Federal Reserve for help. It is the expectation that the central bank will drop rates precipitously to offset the loss in earnings, which has caused bond yields to plummet over the past six weeks. This, along with the fact that we are just about the only developed country left with positive interest rates, has led to the recent inversion of our yield curve (international investors are buying our longer-dated bonds and causing rates to fall). All in all, we have precarious economic situation at hand.

We recently talked about the importance of our labor market remaining strong and real estate holding up. These important data points have allowed us all to hang on to the bull’s tail, while the rest plays out.

The past two weeks have seen hints of improvement in the trade situation and a bounce in interest rates, reflecting optimism that some type of good news is in the offering. There has been a technical shift from risk-off positions into risk-on positions as this has unfolded. Whether this is a meaningful shift in sentiment related to improving data, or simply more of the same news-driven market remains to be seen.

Just to add a little noise to an already loud room, Saudi Arabia experienced a drone attack on two of its production facilities, thereby cutting 5% of world oil supply. The U.S. has indicated that Iran is responsible, and we are “locked and loaded” for a military response. This will undoubtedly impact markets further.

A PDF of this week’s commentary is available at the following link:

Cabana-Weekly-Market-Commentary-September-16-2019Download
Disclaimers

January 17, 2024

This material is prepared by Cabana LLC, dba Cabana Asset Management and/or its affiliates (together “Cabana”) for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. This material may only be distributed in its original format and may not be altered or reproduced without the prior written consent of Cabana. The opinions expressed reflect the judgement of the author, are as of the date of its publication and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cabana to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cabana, its officers, employees or agents.  

“CARA” is Cabana’s Cyclical Asset Reallocation Algorithm. Scenes assigned as per the judgment of The Cabana Group. Scene names and number of scenes have changed over time in an effort to obtain efficiencies and provide clarity of investment objective. 

This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. All investment strategies have the potential for profit or loss. All strategies have different degrees of risk. There is no guarantee that any specific investment or strategy will be suitable or profitable for a particular client. The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal.  

Cabana LLC, dba Cabana Asset Management (“Cabana”), is an SEC registered investment adviser with offices in Fayetteville, AR and Plano, TX. The firm only transacts business in states where it is properly registered or is exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. Additional information regarding Cabana, including its fees, can be found in Cabana’s Form ADV Part 2A or Form CRS. A copy of which is available upon request or online at www.adviserinfo.sec.gov/. 

Past performance is no guarantee of future results. All investment strategies have different degrees of risk and the corresponding potential for profit or loss. Asset allocation and diversification will not necessarily improve returns and cannot eliminate the risk of investment losses. “Target Drawdown” is merely a descriptive term used to describe the general strategy and objective of the portfolio, it is not a guarantee, nor should it be construed to suggest safety or protection from loss. There is no guarantee that portfolio performance will remain consistent with the targeted drawdown parameter. While risk tolerance and targeted “drawdown” are identified on the front end for each portfolio, Cabana’s algorithm does not take any one client’s situation into account and there is no guarantee that Cabana’s strategies will be suitable for any investor. Investors and advisors should not simply rely on the name of any portfolio to determine what is suitable. It is the responsibility of investment advisors to determine what is suitable for their clients. Cabana manages assets on multiple custodial platforms. Performance results for specific investors will vary based upon differences in associated costs and asset availability.  

Cabana claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a trademark of the CFA Institute. The CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To receive a GIPS Report and/or a firm’s list of composite/pooled fund descriptions please email your request to info@thecabanagroup.com.

All recommendations made in the prior 12 months are available upon request. Cabana’s allocation history is available here. For additional information regarding our services, including performance disclosures and award methodology, please visit https://thecabanagroup.com/disclaimers/. 

Commonly used index/benchmark definitions:  

All indices and categories are unmanaged and an individual cannot invest directly in an index or category. Index returns do not include fees or expenses. Benchmark indices will likely materially differ from Cabana’s portfolio strategies. Detailed information as to how the returns are calculated can be obtained online from the following link: https://thecabanagroup.com/disclaimers/performance-reporting-methodology/. 

Morningstar’s Moderate Target Risk index  follows a moderate equity risk preference and is based on well-established asset allocation methodology from Ibbotson Associates, a Morningstar company.  

Morningstar’s Tactical Allocation category includes portfolios that seek to provide capital appreciation and income by actively shifting allocations across investments. These portfolios have material shifts across equity regions, and bond sectors on a frequent basis. 

The S&P 500 Index is a market-capitalization weighted stock market index of 500 widely held large-cap stocks often used as a proxy for the U.S. stock market.  

The Russell 2000 and 3000 indices are market-capitalization weighted stock market indices that include, respectively, 2000 and 3000 of the most widely-held stocks and are often used as proxies for the U.S. stock market. 

The Nasdaq Composite Index is a market-weight capitalization index that covers more than 3,000 stocks listed on the Nasdaq Stock Market. What is the Nasdaq Composite, and What Companies are in It? | Nasdaq