Jan 23, 2015
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The Chairman lays out Congressional actions unfolding over the next 100 days! Confirming the historic sequence of events unfolding in Washington, Networth Radio brings you an exclusive, extended interview with Congressman Pete Sessions, THE CHAIRMAN of House of House Ways and Means Committee. This week’s powerful interview dives deep into the impact of the new structure and agenda of both legislative branches. Shocking insights into bi-partisan opposition to the executive agenda set the stage for this week’s program to triangulate investment strategy based upon unique Washington intelligence.
A conservative community leader, United States
Congressman Pete Sessions has combined hard work, innovative
thinking, and common-sense principles to successfully represent the
32nd Congressional District of Texas. Congressman Sessions was born
on March 22, 1955 and grew up in Waco, Texas. He graduated from
Churchill High School in San Antonio and went on to graduate from
Southwestern University in 1978, where he now serves on the Board
of Trustees. He worked for then-Southwestern Bell Telephone Company
for 16 years, retiring as District Manager for Marketing in Dallas.
As a businessman, he served as Chairman of the Northeast Dallas
Chamber of Commerce. Thanks to this private sector experience,
Congressman Sessions understands the need to fight bureaucracy and
to utilize market-driven solutions to effectively solve problems in
our communities and in government. In 1996, the people of Dallas
and the 5th Congressional District sent Congressman Sessions to
Washington, DC to represent them in the United States House of
Representatives. In 2002, Congressman Sessions began representing
the 32nd Congressional District, created from redistricting. In
2012, the people of the 32nd Congressional District called him back
to Congress for his ninth term. Congressman Sessions is a stalwart
defender of U.S. homeland and national security interests, as well
as the men and women who defend them. As the parent of a child with
Down syndrome, he is a passionate advocate for people with
disabilities. Congressman Sessions also believes that taxpayers
deserve results from their government, and he has pursued
common-sense, market-based reforms to help government operate more
efficiently. Congressman Sessions pursues his goals on these and
other issues through his work on various Congressional committees
and caucuses. He serves as the Chairman of the powerful House
Committee on Rules, which is best known for its role as the
legislative gatekeeper. In 2008 and 2010, he was elected by the
House Republican Conference as Chairman of the National Republican
Congressional Committee. Congressman Sessions is an Eagle Scout and
a former Scout Master for 13 Eagle Scouts. He is a recipient of the
National Distinguished Eagle Scout Award and is a member of both
the National Eagle Scout Association’s national committee and the
Executive Board of the Circle Ten Council of the Boy Scouts of
America. Congressman Sessions is married to Karen Sessions. He is
the proud father of two sons, Bill and Alex, and three stepsons,
Conor, Liam and Nicholas. Congressman Sessions resides in Dallas,
Texas and continues to be active in his community where he is an
Adopt-A-Shoreline Team Leader in the effort to maintain White Rock
Lake in Dallas and an Advisor to the President of Special Olympics
Texas.
Call to Action: Sign up for Congressman Sessions Weekly Newsletter
Click here to sign up today!
Energy Based Lenders: Smack Down!
Texas Capital Bancshares (TCBI US) - 1 Year
- Graph courtesy of Bloomberg L.P.
Cullen/Frost Bankers (CFR US) - 1 Year
- Graph courtesy of Bloomberg L.P.
MGAM 2015 Client Strategy Briefing
This week one of our McGowan Group clients forwarded to me an email that included the 2015 forecasts of a friendly competitor. Most of the forecast was a catalogue of how past forecasts had been correct. The repeated implication was that this macro forecasting ability corresponded to the ability to deliver great results. The forecast was almost completely absent of actual investment strategy to capture forward returns. In fact, results were completely excluded from the discussion. MGAM clients received their actual results for 2014 on Thursday this week. With the arrival of 2015, a new year, many of friendly competitors feel compelled to issue a forecast. I believe that the most valuable forecasts for delivering investment results include several factors:
- A format that is productive in asset selection including pricing models based upon delivering a forward return target (not assured)
- Acknowledgement that the outcomes are to be decided and not yet known
- By definition, financial assets will usually trade in ranges.
These ground rules highlight the fact that most forecasts grapple with end point price speculation that will be rendered wrong for a variety of reasons. While price speculation can award the crystal ball owner with a self aggrandizing ability to claim the future was predicted, successful portfolio construction and adaptation is a completely different exercise in asset selection as well as harvesting. A careful exploration of each potential asset class and category including current trends, factors, and trading ranges sets the stage for a successful 2015. While not an assurance, our return objectives include total returns exceeding a net cash flow of 6% plus potential capital gains exceeding inflation. Now that our forecast has a clear purpose other than trying to convince you that I know the future, we can begin.
Deflation, Fixed Income, and Municipal Bonds
Currently, the 30 year US Treasury is dancing near a 2.5% yield to maturity. Deflation in commodity prices is certainly a key trend for 2015. First, this establishes that much of the fixed income world is below our return target, and in our view overpriced. Compression of forward returns is a key factor. Advisory firms have, according to competitor statements, allocated to fixed income without regard to the forward income expectations. This sets the stage for the “Great Unwinding” which began with Bill Gross’ departure from PIMCO this year with net redemptions forcing a downsizing of the world’s largest bond fund. 2013 taught us again that future interest rate spikes can provide the opportunity for higher coupons at discount prices. This unwinding is likely to provide several opportunities for discounts in future interest rate spikes. We have been net liquidators of municipal bonds at premium prices during the second half of 2014 and will continue to harvest bonds whose forward exit yield is below our return target. This has reduced forward duration risk proactively while booking capital gains. iShares Nat'l Amt-Free Muni Bond Fund (MUB US Equity)
- Graph courtesy of Bloomberg L.P.
Still, we expect new issues of senior lien charter school bonds and continuing care retirement communities to provide attractive coupons at discount prices for our portfolios during 2015. In fact, CLI Capital, a charter school lender, predicts that charter school attendance will double in less than 10 years. Opportunities in fixed income require research and dedication to discount pricing. Our dedication includes direct access to the fixed income markets without the costs of a bond desk middle man. Our fixed income weighting will vary from 25% to 75% depending on market conditions and client customizations. Great information trends in Charter School Finance: www.clicapital.com Corporate bonds appear overpriced compared to municipal bonds and preferred income securities. Corporate spreads have started to increase. Next: contributing factors to widening debt spreads and our strategy.
Global High Yield, Energy Markets, and Oil Prices
The deflationary trend led by the oil markets is a most remarkable trend for 2015. Still, the consequences are already being triangulated at the highest levels of institutional asset management. Why would Russia, likely in a deep recession as we speak, make their bond payments with capital that is needed at home? That sets the stage for likely defaults, both government and corporate, from Venezuela, Nigeria, Argentina (serial defaulter), Russia, and debt heavy energy companies. Already, based upon Exchange Traded Fund (ETF) pricing, global high yield bonds have declined in price. Defaults and news of insolvency are likely through then end of 2015. This could provide an attractive opportunity for us later in the year once discount prices are low enough to address credit risk going forward. Emerging market equity, based upon ETF indexes, during the first few days of 2015 is also under dangerous selling pressure. iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB US) - 90 day
- Graph courtesy of Bloomberg L.P.
iShare MSCI Emerging Market ETF (EEM US) - 90 Day
- Graph courtesy of Bloomberg L.P.
Our model portfolio direct exposure to oil is under 3%. Royalty trusts present an attractive opportunity at the right prices. Natural gas infrastructure and pipelines: our current model weighting is about 11%. This category represents an attractive opportunity based upon dividends and fundamentals. Reduction in MLP weightings, selling, has spilled over into the infrastructure category as well. By the end of the year, the MLP space could merit a larger allocation. The reason that we have not entered the major oil companies is illustrated by the current situation. Huge capital expenditure commitments have consumed the funds that could have gone to shareholders. Which takes us to the subject of the overall market:
The Stock Market and Dividend Companies
Subtracting the profit reductions of energy companies, the benchmark S&P 500 is likely trading at about 20X earnings. This is a forward return projection of 5% earnings yield plus or minus growth. The dividend yield of 2% is below our target. Business development companies that have a structure dedicated to paying us directly 90% of profits appear to be an attractive opportunity longer term and have been increased to about 10% of the model portfolio. Real estate investment trusts with a structure that pays us 80% of estimated free cash flow appear poised to continue benefitting from rental and appraisal increases. Our working model for the Dow Jones Industrial Average is 16,000 to 20,000 based upon current trends. At 16,000 we would likely find more attractive pricing on dividend companies. At 20,000, we would be looking to increase fixed income and other weightings that match our return targets outside of the equity markets. Dow Jones Industrial Average (INDU) - 1 Year
- Graph courtesy of Bloomberg L.P.
Thank you for your support and patience in the recent graduation to direct clearing with Pershing Bank of New York. The resulting reduction in clearing costs improves our ability to deliver shared efficiencies. Good news: Our trademarks for our next 3 MGAM separately managed account disciplines have initial FTC approval: Allocation UnitsLong Term Income UnitsGrowth UnitsCash Flow Units
- , the initial dividend discipline was previously approved for a
trademark.
For more complete information on the MGAM disciplines, please visit the website: http://themcgowangroup.com/cashflow-units/. This update was initially drafted during the wee hours of January 7, 2015; sources include www.morningstar.com, Bloomberg, The Wall Street Journal, and 28 years of experience. My apologies, in advance, for any errors and omissions. Investing will always involve risks as well as disappointments. In fact, I often tell clients, “you will live to regret almost every investment decision at least twice. Success and perfection are often completely different.” There will always be trouble ahead, but we have a clear plan. We look forward to serving you in 2015.
Feature Research
GET THE J.P. Morgan 2015 1Q Guide to the Markets
MGAM Clients Only Updates
- 2015 Equity Markets Trading Model Ranges?
- 2015 Interest Rate Trading Model Ranges?
- Biggest Dangers to Current Economic Growth?
- Asset Classes and Security Categories Potentially Exceeding Our Return Targets 2015-2017?
- Potentially Underperforming Asset Classes and Security Categories 2015- 2017?
Update your plan for 2015:
- Come down to the Crescent and meet the team that cares.
- Set your legacy planning appointment today: here