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David Nelson, CFA
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David Nelson, CFA is the Chief Strategist of Belpointe Asset Management. The members of his firm, DC Nelson Asset Management LLC (DC Nelson), recently merged into Belpointe. At Belpointe he will continue to manage his Alpha Select Portfolio. He is a Chartered Financial Analyst (CFA), a... More
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Belpointe Asset Management
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David Nelson - DavidNelsonCFA
  • Manic Depression - Jimi Hendrix 0 comments
    Sep 2, 2011 12:14 PM | about stocks: AAPL, KO, QCOM, FCFS, TU, PPL, MCD
    The only term I can use that accurately describes market action for the month of August is:
     
    Bi-Polar Disorder - A mood disorder sometimes called manic-depressive illness or manic-depression that characteristically involves cycles of depression and elation or mania.  
     
    I don’t think anyone can argue that the theme song for August should have been Jimi Hendrix’s “Manic Depression.”
     
    A downgrade of the U.S. by Standard and Poor’s triggered a massive sell-off and increase in market volatility.  It is well understood that the downgrade was focused on a paralyzed government that seems incapable of working in the best interests of the American people and more focused on re-election.  Markets and our trading partners are looking for structural changes that address the third rail of U.S. Politics.
     
    The gyrations we saw earlier in the month were unlike anything I have seen in my career.  The second week of August showed some signs of capitulation with 500 point swings in both directions.  Fortunately cooler heads prevailed and markets recovered strongly off double digit lows still leaving the S&P 500 down 5.4% for the month.  Defensive sectors held up best with Utilities leading the way.
     
    Clearly our economy is cruising at stall speed and efforts to stimulate growth have been ineffective.  Earlier this month I penned an article for Seeking Alpha, This Is Not 2008.  Pointing out that while many pockets of our economy are struggling and unemployment remains stubbornly high I doubt business for Apple (NASDAQ:AAPL) and Coca Cola (NYSE:KO) have fallen off a cliff.  Program trading has increased the magnitude of daily market movements and 3% moves up and down will continue to be commonplace.

    Housing

    Housing continues to be a drag on the economy and is an issue that concerns the Fed’s chairman Ben Bernanke.  We need to move away from ineffective politically motivated programs like loan modification which creates a moral hazard. Already defaults on these loans are coming in well above previous estimates.
     
    Admittedly investors currently have more to focus on then the health of individual companies.  However, equity investment provides participation in the earnings stream and dividends of each company owned hence at the company level our focus is on the fundamentals.  
     
    At the macro level our biggest concern is Washington and its ability to come up with meaningful solutions that will address some of these legacy issues.  
     
    Currently higher quality stocks with dividends are outperforming which makes sense given the economic slowdown.  Alpha Select is positioned in a Barbell strategy focused on **high growth** companies like Apple (AAPL), Qualcom (NASDAQ:QCOM) and First Cash (NASDAQ:FCFS) on one side of the Barbell and **high dividend** stocks like Telus (NYSE:TU), PPL Corp (NYSE:PPL) and McDonalds (NYSE:MCD) on the other.  The portfolio dividend yield is currently about 19% above the yield of the S&P 500 at 2.3%. 
     
    Our blogs and news letters are the best way to tap into our views on the markets and economy.  Please feel free to contact us with any questions.  
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