Cumberland Advisors Week in Review (Oct 21, 2019 – Oct 25, 2019)

The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team.

Week In Review

These are not revised assessments, and circumstances may have changed in the market from the time of original publication. We also include older commentaries that our editors have determined may be of interest to our audience. Your feedback is always welcome.

MATT MCALEER’S WEEKLY RECAP

As part of Cumberland Advisors’ continuous effort to maintain strong customer relationships, we offer this week’s short video discussing current market conditions and how we are positioning portfolios.



In this week’s review, we talk about:
– Current markets
– If you are long on markets, what you like today is what we saw out of our cross-market indicators
– Defensives are where people put money when they are concerned or nervous about the market
– It’s difficult for the broad market to rally when defensives have a bid
– Is all the bad news priced into the developed market?
– What helps our domestic markets?
– A mini-battle is on the horizon. Will the market break out of where it’s been?
– A little review on some of our strategies
– John Mousseau will be joining us next week!

-Email us at info@cumber.com or give us a call at (800) 257-7013

Enjoy your weekend and please send us your questions and comments. We thank you for joining us!

Watch in the video player or at this link: https://youtu.be/-kbdjMzp76g

Matt enjoys your feedback. You can reach him at:
-Link to Matt’s Email: Matthew.McAleer@Cumber.com
-Link to Matt’s Twitter: https://twitter.com/MattMcAleer4
-Link to Matt’s LinkedIn: https://www.linkedin.com/in/matthew-mcaleer-9415b16/


Brexit Uncertainty for Investors Persists


Author: William Witherell, Ph.D., Post Date: October 21, 2019

The exceptional Saturday session of the United Kingdom’s Parliament, the first in 37 years, was expected to produce a decisive yes or no vote on the new Brexit deal Prime Minister Boris Johnson had negotiated with the European Union (EU).

BREXIT

October 19 was the final day for Parliament to agree to a deal before the Prime Minister would be required to request an extension from the EU beyond the current date of October 31. To the government’s apparent surprise, an amendment was proposed and passed (322 to 306) stipulating that Johnson’s deal could be approved only when all the legislation implementing the withdrawal is passed. So no vote on the deal was possible.

Johnson reiterated his position: “I will not negotiate a delay.” But as he was required by law, he sent a letter to the EU requesting a three-month delay. He did not sign the letter and sent an additional letter recommending that the EU not grant the requested extension. This maneuver will certainly be reviewed by one or more courts. In any event, the EU considered the request made and is very likely to grant the extension to limit the possibility of a no-deal hard exit of the UK from the EU.

Continued: https://www.cumber.com/cumberland-advisors-market-commentary-brexit-uncertainty-for-investors-persists/


Q3 2019 Municipal Credit: Bond Market Dynamics, Natural Disasters, Green Bonds, State Rating Changes, & an Update on Single Ratings


Author: Patricia Healy, CFA, Post Date: October 24, 2019

Municipal bond credit quality remains relatively strong, as indications are still that upgrades are outpacing downgrades. S&P and Moody’s have both recently issued comments that corporate credit quality is weakening.

Per S&P, credits rated AAA to B- with negative outlooks or CreditWatch-negative assignments have been increasing, indicating a negative bias. Similarly, Moody’s estimates that the third-quarter downgrade-per-upgrade ratio for all US high-yield credit-rating revisions increased to over 2.25:1 from January to September 2019; and this is excluding downgrades that were for special events rather than fundamental weaknesses such as in financial operations or business position. The ratio is up from 1.09:1 for 2018.

Interest rates have been low and declining, and corporate and municipal issuers are taking advantage of the positive market conditions. Increased issuance sometimes indicates that market players think rates are attractive and are going to go higher. Municipal volume this year is expected to reach $400 billion, much higher than beginning-of-the-year estimates of $340 billion. The increase has occurred because municipal issuers are rushing to market with taxable municipal bonds to refund outstanding tax-exempt bonds.

Continued: https://www.cumber.com/q3-2019-municipal-credit-bond-market-dynamics-natural-disasters-green-bonds-state-rating-changes-an-update-on-single-ratings/


Puerto Rico House votes to resist pension cuts


The Puerto Rico House voted unanimously to not collaborate with pension cuts found in Puerto Rico’s proposed plan of adjustment.

 

Cumberland-Advisors-Shaun-Burgess-In-The-News
Shaun Burgess of Cumberland Advisors

Shaun Burgess, portfolio analyst at Cumberland Advisors, said, “My understanding is that advancement of the plan depends on Judge Swain’s approval and not legislative action.

“Whether [the House’s action] could be road block at some point in the future remains to be seen,” Burgess continued, cautioning that he is not a lawyer.

Continued: https://www.cumber.com/puerto-rico-house-votes-to-resist-pension-cuts/


The Kiplinger Tax Map: Guide to State Income Taxes, State Sales Taxes, Gas Taxes, Sin Taxes


Author: David R. Kotok, Post Date: October 25, 2019

We’re again returning to the complex subject of wealth taxation. Why? A number of readers have asked us for further details about it.

Market Commentary - Cumberland Advisors - The Kiplinger Tax Map

For example: isn’t real estate taxation a form of a wealth tax? And if the tax on your house is limited in deductions because of SALT, isn’t that a federal form of a hidden wealth tax? As readers can quickly see, this becomes complex quickly.

The following link takes you to a Kiplinger interactive breakdown of taxation in all 50 states. It is not just an income-tax-rate comparison. For example, you can see just how devastating the real estate property tax burden is in New Jersey. Readers may set up their own comparisons. We thank Kiplinger for offering this public service.

Continued: https://www.cumber.com/cumberland-advisors-market-commentary-the-kiplinger-tax-map-guide-to-state-income-taxes-state-sales-taxes-gas-taxes-sin-taxes/


Philly pension board drops Ken Fisher as money manager after derogatory comments about women


Philadelphia’s city pension fund has dropped money manager Ken Fisher as a portfolio manager, after the high-profile Wall Street mainstay was reported to have made sexist comments at an industry event earlier this month.

“The trustees and staff of the Philadelphia Board of Pensions find Ken Fisher’s comments, as reported by multiple media, to be sexist, offensive, and wholly incompatible with the board’s values,” spokesman Michael Dunn said in a statement.

Cumberland-Advisors-David-Kotok-In-The-News

In the professional world of Fisher’s asset management peers, “his behavior was viewed as appalling and offensive. He subsequently apologized. Most of the shocked professionals I spoke with said, ‘too little, too late,’ ” said David Kotok, chief investment officer with Cumberland Advisors, which manages bond portfolios for pension funds and other clients.

Continued: https://www.cumber.com/philly-pension-board-drops-ken-fisher-as-money-manager-after-derogatory-comments-about-women/


Turkey & Trump

Author: David R. Kotok, Post Date: October 19, 2019

Here is an updated report from Al Jazeera on the Turkey ceasefire and related developments. While it reflects network leanings, they are much different from the CNN-Fox distortions, and more facts may often be gleaned.

Market Commentary - Cumberland Advisors - Turkey & Trump
https://www.aljazeera.com/news/2019/10/turkey-military-operation-syria-latest-updates-191017051518215.html

Dear readers, there is no rational way to seek an investor path through the bewildering twists and turns of present American foreign policy, if policy it be. It changes continually; and its disruptiveness, accompanied by constant, corrosive hyperbole, makes macro-dependent investing a high-risk adventure.

Here’s our position. We don’t own the Turkey ETF. We see the entire Middle East as a risky place. Think about it. Saudi gets attacked, and drones disable 5% of global oil production. Then nothing happens. Next, two missiles hit an Iranian tanker. Still nothing happens. Now, hundreds of ISIS fighters have escaped, and the lives of hundreds of thousands of Syrian Kurds are at risk. What will happen next?

Continued: https://www.cumber.com/cumberland-advisors-market-commentary-turkey-trump/


 


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Market Commentary – The Kiplinger Tax Map: Guide to State Income Taxes, State Sales Taxes, Gas Taxes, Sin Taxes

We’re again returning to the complex subject of wealth taxation. Why? A number of readers have asked us for further details about it.

Market Commentary - Cumberland Advisors - The Kiplinger Tax Map

For example: isn’t real estate taxation a form of a wealth tax? And if the tax on your house is limited in deductions because of SALT, isn’t that a federal form of a hidden wealth tax? As readers can quickly see, this becomes complex quickly.

The following link takes you to a Kiplinger interactive breakdown of taxation in all 50 states. It is not just an income-tax-rate comparison. For example, you can see just how devastating the real estate property tax burden is in New Jersey. Readers may set up their own comparisons. We thank Kiplinger for offering this public service.

“State-by-State Guide to Taxes”
https://www.kiplinger.com/tool/taxes/T055-S001-kiplinger-tax-map/index.php

We are stressing this taxation issue for good reason. We believe a major change in American taxation may be coming soon if the next national election outcome alters the landscape.

Political forces suggest that the Democrats will retain their majority in the House. The Senate has become less certain and could flip to a Democratic, Schumer-led chamber if a backlash election places the White House in Democratic control.

The leading Democratic contenders have all outlined taxation plans, and every one raises income or wealth or capital gains or other forms of taxation. The political rhetoric attacks billionaires, but the actual proposed changes reach far below that threshold. Even socialist Bernie Sanders has a public wealth tax proposal that starts at $16 million.

As has been the case in previous American historical instances, tax rhetoric targets the very wealthy few while policy ends up taxing many. Remember, the Alternative Minimum Tax was initially aimed at just 200 taxpayers. By the time it was finally rolled out, it had grown into a distorted tax policy that impacted millions of middle-class working households.

The issue for investors is complex, since elections are hard to forecast a year in advance. A Trump re-election implies a continued McConnell-led Senate. Taxes are not likely to rise under that scenario, and wealth taxation would have little chance of passage.

A Warren- or Harris- or Sanders- or Biden-led White House, with Schumer replacing McConnell, is an almost certain recipe for higher income and cap-gains taxation, plus an attempt to repeal the SALT provision. Wealth and estate and trust taxation are more difficult to forecast now. One thing is sure: In a Schumer-led Senate with a Warren presidency, no likely tax changes will be pro-investor.

Markets are always trying to be forward-looking as they reprice risk. We have already seen that with investor aversion to the healthcare sector of the stock market, a reaction that we now believe is overdone. We like that sector and are overweight healthcare in our US stock market ETF accounts.

As for politics and taxation strategy, all of the candidates’ proposals need more detailed research and analysis as to their likely effects and possible unintended consequences. Remember that the tax policy of a specific candidate can survive even if the candidate doesn’t.

A trillion-dollar Trump Administration federal deficit, in combination with many states being in various degrees of financial trouble, warns of much higher taxation, with complex new forms of taxation piled on top of the existing ones.

The implications for markets are many, and some markets are showing nervousness. We advise all readers to commence early planning with their lawyers or accountants or tax advisers. We could be facing huge changes or no changes or something in between. The time to flee a tsunami is before it hits. Then hope a washout doesn’t occur.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Here are links to our recent writings on the subject of Wealth Taxation.

Market Commentary - Cumberland Advisors - Wealth Taxation Series

Wealth Tax,” David Kotok, October 9, 2019
https://www.cumber.com/cumberland-advisors-market-commentary-wealth-tax/

Taxing Wealth Instead of Income?” Bob Eisenbeis, February 13, 2019
https://www.cumber.com/taxing-wealth-instead-of-income/

Taxing Wealth Instead of Income, Part 2,” Bob Eisenbeis, October 15, 2019
https://www.cumber.com/taxing-wealth-instead-of-income-2/

The Kiplinger Tax Map: Guide to State Income Taxes, State Sales Taxes, Gas Taxes, Sin Taxes,” David Kotok, October 25, 2019
https:/www.cumber.com/cumberland-advisors-market-commentary-the-kiplinger-tax-map-guide-to-state-income-taxes-state-sales-taxes-gas-taxes-sin-taxes/


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Q3 2019 Municipal Credit: Bond Market Dynamics, Natural Disasters, Green Bonds, State Rating Changes, & an Update on Single Ratings

Municipal bond credit quality remains relatively strong, as indications are still that upgrades are outpacing downgrades. S&P and Moody’s have both recently issued comments that corporate credit quality is weakening.

Per S&P, credits rated AAA to B- with negative outlooks or CreditWatch-negative assignments have been increasing, indicating a negative bias. Similarly, Moody’s estimates that the third-quarter downgrade-per-upgrade ratio for all US high-yield credit-rating revisions increased to over 2.25:1 from January to September 2019; and this is excluding downgrades that were for special events rather than fundamental weaknesses such as in financial operations or business position. The ratio is up from 1.09:1 for 2018.

Interest rates have been low and declining, and corporate and municipal issuers are taking advantage of the positive market conditions. Increased issuance sometimes indicates that market players think rates are attractive and are going to go higher. Municipal volume this year is expected to reach $400 billion, much higher than beginning-of-the-year estimates of $340 billion. The increase has occurred because municipal issuers are rushing to market with taxable municipal bonds to refund outstanding tax-exempt bonds. Remember, the Tax Cuts and Jobs Act eliminated municipalities’ ability to issue tax-exempt bonds to advance-refund outstanding municipal bonds. Continued economic growth here in the US; low unemployment, with employers having a hard time finding the workers they need; and inflation creeping up may all indicate higher rates going forward, notwithstanding the drag on the economy from tariffs and slowing European growth.

Is this the bottom for interest rates, despite low worldwide rates? See John Mousseau’s video, https://youtu.be/en4MJQiShzk, and his quick synopsis of third-quarter municipal market activity, https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-total-return-tax-free-municipal-bond/.

Natural Disasters

The 2019 hurricane season will be with us till the end of November, and the trend of storms moving slowly and causing major flooding has continued. Dorian soaked the Carolinas after battering the Bahamas and caused major damage and lost lives. Imelda soaked parts of Texas and Louisiana with estimates of over 40 inches of rain in South Texas in 72 hours. Damage estimates are still coming in. A presidential federal disaster was declared for the six affected counties in Texas. This declaration entitles those with losses to FEMA funds and other aid. FEMA aid is important in the recovery of areas affected by natural disasters. FEMA aid, receipt of insurance proceeds, and the pick-up in economic activity that occurs with rebuilding have been instrumental in maintaining credit quality in many municipalities that have experienced natural disasters.

Hurricanes are just one of the categories of disasters affecting the US. There was the extreme flooding that caused the failure of levees and crops in the Midwest, and then extreme heat. Wildfires in California have flared up again, this time in the San Fernando Valley, while PG&E has cut off power to many in Northern California to avoid high winds sparking a wildfire. Mudslides, earthquakes, surging seas, and sea level rise are some of the natural disasters that municipalities and investors need to be concerned with.

The Midwest is being affected by tariffs and strikes in addition to natural disasters. The ongoing GM strike has cost the company over $1 billion by some estimates and could be a drag on the economy of Michigan, which is home to numerous GM plants. Much depends on the length of the strike and the result of contract negotiations.

Elevated heat levels are affecting the nation, too. Moody’s recently produced a map of areas of the country where local government debt has been affected by extreme heat events, showing that the greatest exposure is in the Midwest, although Arizona, Florida, and Texas also have some hot spots.

Moody's Map of where local government debt has been affected by extreme heat events
Moody’s map of areas of USA where local government debt has been affected by extreme heat events, showing that the greatest exposure is in the Midwest, although Arizona, Florida, and Texas also have some hot spots.

 

Rating agencies continue to include climate resiliency in their rating considerations.

New Orleans was upgraded by Moody’s in September 2019, in part because of its increased resilience: “Investments of over $14 billion by the federal and state governments along with the city have boosted the city’s resilience to environmental risks, as well as continued strategic planning for further capital improvements to mitigate the impact of environmental events. These initiatives on top of the city’s improved financial profile positions the city as better prepared to manage future challenges associated with its significant exposure to environmental risks.”
State and local governments sold $1.9 billion of so-called green bonds during the third quarter. We have mentioned in the past that issuers are not seeing a reduction in yield for selling green bonds and that this may be partially attributable to the low level of interest rates and minimal spread differential between credits. However there is growing awareness by issuers that many investors want their investments to be impactful, and thus the designation could help investors desiring to have socially meaningful investments decide among bond offerings and eventually help the trading value of issuers’ green bonds.

State rating changes

State of Washington upgraded by Moody’s to Aaa from Aa1 (S&P AA+, Fitch AA+)
The upgrade by Moody’s to the highest of ratings reflects a significant increase in financial reserves; the exceptional growth of the state’s economy, driven largely by the technology sector in the Seattle metro area; and the consequent diversification of the state’s economy, with lessened dependence on Boeing. Above-average wealth and income levels and the state’s strong fiscal governance practices are also important considerations. Debt levels are above average but have been declining relative to the 50-state median, and the state’s combined debt and pension liabilities and its fixed costs are comparable to national medians.

State of California upgraded by Fitch to AA from AA- & Moody’s to Aa from Aa3 (S&P AA-)
California has one of the most cyclical ratings, and its ratings change often. Looking at only Moody’s ratings, since 1980 the state’s rating has changed 18 times. The range has been wide, from Aaa to Baa1. The last time the rating was Aaa was in 1992, when it was downgraded to Aa1. The rating was first downgraded to Baa1 in 2003. It crept up to A1 by 2006 but headed back to Baa1 in 2009.

The upgrades of California’s GO bond ratings reflect the improved fiscal management that has become institutionalized across administrations, which may allow the state to better withstand economic and revenue cyclicality by using temporary tax increases and a disciplined approach to limiting ongoing spending growth. The state eliminated the overhang of budgetary borrowing that had accumulated through two recessions and continues to set aside funds in its budget stabilization account (BSA). And of course, both rating agencies point to California’s large and diverse economy, which supports strong, though cyclical, revenue growth prospects and a moderate level of liabilities.

Louisiana outlook on Aa3 rating changed to positive by Moody’s (S&P AA-, Fitch AA-)
The positive rating outlook on the state’s bonds reflects significant improvement in Louisiana’s financial position, its recent record of closing budget gaps with recurring solutions, and the relative stabilization of its economy. Moody’s expects the state to continue to balance its budget, but also expects reserves to continue to fall short of a cushion commensurate with a volatile economic base. The state has a large and diverse tax base and moderate combined debt and pension burden. The rating is lower than the average state rating because it also reflects the state’s vulnerability to volatility in the energy sector and its below-average socioeconomic profile, including slow population growth, low per capita personal income, and low labor force participation rate.

Alaska downgraded by Fitch to AA- from AA, & Moody’s assigns a negative outlook to its Aa3 rating (S&P AA)
The downgrade of Alaska’s GO rating is based on deterioration in the state’s advancement of financial policies that ensure stable performance and continued resiliency through future economic downturns, following an almost six-year recession and attendant revenue weakness. Alaska stands in contrast to the states of Louisiana and California, which have put big efforts into bettering their budgeting and fiscal management.

In Alaska, revenue and economic weakness began in 2013 and was exacerbated by the extended effects of sharply lower crude oil prices beginning in 2014. Operating revenue remains anemic, and the administration’s commitment to funding a full permanent fund (PF) dividend payment despite projected revenue loss has contributed to the enactment of a fiscal 2020 budget that includes deep cuts to core state services. We mentioned this situation in our 2Q credit commentary (https://www.cumber.com/cumberland-advisors-market-commentary-q2-2019-credit-commentary/), when the state pulled funding from its university system, causing downgrades in the system’s rating. The state does have substantial reserves from past oil royalties and can draw on a reserve fund to address large revenue shortfalls. Moody’s notes in its assignment of a negative outlook that the new focus on distributing increased shares of permanent fund earnings to residents, combined with political paralysis and other factors that prevent a return to a balanced budget, may make the current fiscal approach unsustainable over time, particularly in the event of financial market downturns or an inability to sufficiently contain spending growth. Moody’s further comments that Alaska’s credit position benefits from an ability to fund operations partly from earnings derived from the Alaska Permanent Fund. Credit challenges, such as a narrow economic base, comparatively large net pension liability, elevated exposure to climate change, and high reliance on the state’s oil production industry, have been largely offset by sizable budgetary reserves.

Single Ratings

Municipal Market Analytics (MMA) estimates that the percentage of bonds selling with only one rating continues to increase, up from 21.6% in 2017 to 23.6% in 2019. MMA further notes that about 8.3% of bonds have no ratings at all. This trend is reflective of the strong demand for bonds and reduced supply, as well as the small difference in interest rates for bonds of different ratings. This difference is referred to as the “spread” among differently rated quality credits. We suspect that when interest rates rise and spreads widen, the single-rated bonds could widen even more. We try to avoid single-rated bonds because they are not reviewed as often; and if the single rating agency changes criteria, the bond rating could be subject to larger changes than bonds that have more than one rating.

At Cumberland Advisors the majority of our municipal bond holdings, both taxable and tax-exempt, have AA ratings, which generally imply a diverse economic base and strong financial performance. The high credit quality of our portfolios allows us to practice active bond management, as high-quality bonds are generally more liquid. (See https://www.cumber.com/cumberland-advisors-market-commentary-the-rise-of-separately-managed-accounts-2019-update/.) We evaluate markets and trends, follow credit developments and related news items, incorporate them according to our experience, and employ those factors in our buy and sell decisions.

Patricia Healy, CFA
Senior Vice President of Research & Portfolio Manager
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Market Commentary – Brexit Uncertainty for Investors Persists

The exceptional Saturday session of the United Kingdom’s Parliament, the first in 37 years, was expected to produce a decisive yes or no vote on the new Brexit deal Prime Minister Boris Johnson had negotiated with the European Union (EU).

BREXIT

October 19 was the final day for Parliament to agree to a deal before the Prime Minister would be required to request an extension from the EU beyond the current date of October 31. To the government’s apparent surprise, an amendment was proposed and passed (322 to 306) stipulating that Johnson’s deal could be approved only when all the legislation implementing the withdrawal is passed. So no vote on the deal was possible.

Johnson reiterated his position: “I will not negotiate a delay.” But as he was required by law, he sent a letter to the EU requesting a three-month delay. He did not sign the letter and sent an additional letter recommending that the EU not grant the requested extension. This maneuver will certainly be reviewed by one or more courts. In any event, the EU considered the request made and is very likely to grant the extension to limit the possibility of a no-deal hard exit of the UK from the EU.

As this is being written, there remain a number of possible Brexit outcomes. Johnson is expected to be able to have the deal voted on in the next several days, unless Commons Speaker John Bercow does not allow a rerun of the vote. A vote on the deal would likely be close, but it could pass. If so, Brexit could occur on October 31, and there would be no need for an extension. Or if some limited further time is needed, a brief extension would surely be granted. However, even if the deal is passed, the Labour opposition has indicated it would offer an amendment that would require the deal to be put to another referendum. Organizing a referendum would take at least 22 weeks, it is estimated. The hundreds of thousands of “Remain” demonstrators on the streets in London Saturday would welcome such a development, but the outcome of a choice between the current deal and remaining in the EU is highly uncertain. Another expected proposed amendment will call for a UK-wide customs union with the EU and single market alignment.

Should there be no positive vote on the deal, a three-month delay is very likely to be granted by the EU, even though both France and Ireland have threatened to oppose this. Johnson’s failure to obtain approval of his deal is expected to lead to a confidence motion by the opposition, the downfall of his government, and a new election, which in turn could lead to either another Conservative government or an opposition government committed to a second referendum.

Finally, the risk of a hard, no-deal Brexit is still possible. This would happen if there is no agreement on a deal by October 31 and the EU fails to agree to an extension. It also is a possible outcome if there is a three-month extension but no agreement on a deal has been reached by the end of that extension.

The uncertainty about the United Kingdom’s planned exit from the European Union in 2019 has been a headwind for the UK economy since the referendum in June 2016 started affecting business decisions. Economic growth had been solid until the end of 2016 and then during the first half of 2017 eased to the slowest rate among the G7 countries. In the last two and a half years, Brexit uncertainties have led to deteriorating business confidence and have held back investment decisions. In 2018, gross fixed capital formation slowed to just 0.2% for the year. Pressures to relocate some financial activities abroad have increased, threatening the leading role of the City of London. The OECD is projecting economic growth for the UK of only 1% this year and 0.9% for 2020, assuming an orderly Brexit in 2019.

Investors generally do not like uncertainty, yet over the period since the referendum the FTSE 100 has gained 13%, despite wide swings in Brexit expectations and the slowing economy. The swings in market sentiment due to Brexit developments and the political turmoil in Parliament have been impressive. The range over the past 52 weeks for the iShares MSCI United Kingdom ETF, EWU, is 28.4–34.02, but the one-year gain as of October 18 is just 0.19%. More market volatility looks likely ahead. Should agreement on a deal be reached this month, the probable resulting boost to market sentiment could prove to be short-lived, as an election still would be likely towards the end of this year or early in 2020.

Bill Witherell, PH.D
Chief Global Economist
Email | Bio

Sources: Financial Times, bbc.com, cnbc.com, oecd.org


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Market Commentary – Turkey & Trump

Here is an updated report from Al Jazeera on the Turkey ceasefire and related developments. While it reflects network leanings, they are much different from the CNN-Fox distortions, and more facts may often be gleaned.

Market Commentary - Cumberland Advisors - Turkey & Trump
https://www.aljazeera.com/news/2019/10/turkey-military-operation-syria-latest-updates-191017051518215.html

Next we have the presidential tweeter’s self-proclaimed brilliance, hard on the heels of Pence and Pompeo’s trip to Ankara to meet with President Erdogan. He tweeted this at 2:17 PM on Thursday:

“This is a great day for civilization. I am proud of the United States for sticking by me in following a necessary, but somewhat unconventional, path. People have been trying to make this ‘Deal’ for many years. Millions of lives will be saved. Congratulations to ALL!” (https://twitter.com/realDonaldTrump/status/1184895160871571456)

President Trump also remarked that the Kurds “didn’t help us in the Second World War. They didn’t help us in Normandy.” Actually, the Kurds were our allies in both World War I (http://www.kaiserscross.com/304501/407043.html) and World War II (https://www.dailykos.com/stories/2019/10/9/1891413/-The-Kurds-did-help-the-Allies-in-WWII). In both conflicts they fought with distinction in the Iraq Levies, which were troops recruited by the British to fight on the soil of Iraq, Palestine, Cyprus, the Persian Gulf, Albania, Greece, and Italy.

And here’s a personal statement from and report about a 100-year-old Kurd who fought with the allies in WWII: https://www.rudaw.net/english/kurdistan/13102019. Ahman Mustafa Delzar responded to the ill-informed tweet: “Trump was not born then – that is why he does not know that the Kurds participated in the war.” He explained, “The Levies were mainly Assyrians and Kurds and a smaller number of Arabs. I was the 8,000th Kurd who joined the Levies during the Second World War.”

The bottom line is well-summarized by this Washington Post article: “Trump’s retreat in Syria turns into a mess” (https://www.washingtonpost.com/world/2019/10/14/trumps-retreat-syria-turns-into-mess/).

The following Atlantic piece by Joseph Votel and Elizabeth Dent provides additional trenchant detail on the negative effects of Trump’s decision to withdraw: “The Danger of Abandoning Our Partners,” https://www.theatlantic.com/politics/archive/2019/10/danger-abandoning-our-partners/599632/. (General Votel is currently a nonresident Senior Fellow on National Security with the Middle East Institute (MEI). As commander of CENTCOM, General Joseph Votel oversaw U.S. military operations across the Middle East, including the campaign against the Islamic State in Iraq and Syria, from March 2016 to March 2019. Elizabeth Dent is likewise a non-resident fellow at MEI, focused on counterterrorism, and worked in various capacities at the State Department for the US Global Coalition to Defeat ISIS from 2014 to 2019.) The authors conclude that Trump’s Syria policy reversal “threatens to undo five years’ worth of fighting against ISIS and will severely damage American credibility and reliability in any future fights where we need strong allies.”

Nevertheless, the president declared on Saturday, Oct. 19 that “We’ve had tremendous success I think over the last couple of days,” adding, “We’ve taken control of the oil in the Middle East” – a claim that observers had difficulty in connecting with the situation in Syria.

Dear readers, there is no rational way to seek an investor path through the bewildering twists and turns of present American foreign policy, if policy it be. It changes continually; and its disruptiveness, accompanied by constant, corrosive hyperbole, makes macro-dependent investing a high-risk adventure.

Here’s our position. We don’t own the Turkey ETF. We see the entire Middle East as a risky place. Think about it. Saudi gets attacked, and drones disable 5% of global oil production. Then nothing happens. Next, two missiles hit an Iranian tanker. Still nothing happens. Now, hundreds of ISIS fighters have escaped, and the lives of hundreds of thousands of Syrian Kurds are at risk. What will happen next?

US policy seems to be lurching toward isolationism in fits and starts, in deadly counterpoint to domestic political turmoil. Remember, Senators McConnell and Graham have both strongly repudiated Trump, as did over two thirds of House Republicans when they joined all the Democrats in an anti-Trump vote on Wednesday, Oct. 16.

On Oct. 14 McConnell said, in part, “For years, the United States and our Syrian Kurdish partners have fought heroically to corner ISIS and destroy its physical caliphate. Abandoning this fight now and withdrawing U.S. forces from Syria would re-create the very conditions that we have worked hard to destroy and invite the resurgence of ISIS. And such a withdrawal would also create a broader power vacuum in Syria that will be exploited by Iran and Russia, a catastrophic outcome for the United States’ strategic interests.” (https://www.courier-journal.com/story/news/politics/2019/10/14/mitch-mcconnell-issues-second-major-statement-syria-crisis/3977983002/). McConnell followed that statement with further remarks on Oct. 16. They can be viewed here: https://www.courier-journal.com/story/news/politics/2019/10/14/mitch-mcconnell-issues-second-major-statement-syria-crisis/3977983002/.

Senator Graham expressed his views in a series of tweets on Oct. 16 tweets, at https://twitter.com/LindseyGrahamSC. He minced no words: “The worst thing any Commander in Chief can do is to give land back to the enemy that was taken through blood and sacrifice. I fear those are the consequences of the actions being taken right now.”

We remain overweight domestic US oil production, exploration, and natural gas. We remain fully invested in our domestic US ETF strategy and in our quantitative strategies (three of them).

Now a personal note.

My family members served in one branch of the military or another for several generations and during multiple wars. I personally attended a special NATO multi-country officers’ course in the 1960s. The British were the hosts. My task partner happened to be a Dutch colonel. I met and worked with WWII veterans in uniform and worked with others who served in their countries’ underground networks, fighting the Nazis.

Alliances matter. Long-term, tested alliances matter a lot.

Experienced leaders know that trustworthy allies are hard to develop and easy to lose. You don’t throw them under the bus. And you certainly don’t brazenly recite insults based on a false understanding of history, offending your friends and emboldening your enemies.

David Kotok, US Army. In memory: Leslie Kotok, US Navy. In memory: Sam Serata, US Air Force. In memory: Oscar Hacker, US Army. I’ll stop there. There are several more.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Week in Review (Oct 14, 2019 – Oct 18, 2019)

The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team.

Week In Review

These are not revised assessments, and circumstances may have changed in the market from the time of original publication. We also include older commentaries that our editors have determined may be of interest to our audience. Your feedback is always welcome.

MATT MCALEER’S WEEKLY RECAP

As part of Cumberland Advisors’ continuous effort to maintain strong customer relationships, we offer this week’s short video discussing current market conditions and how we are positioning portfolios.



In this week’s review, we focus on the SHOCKING performance comparison between large, mid and small cap asset sizes over the last twenty years, and how we are positioning ourselves in preparation for the next decade.

How do we use this information to AVOID recency bias?

-Email us at info@cumber.com or give us a call at (800) 257-7013

Enjoy your weekend and please send us your questions and comments. We thank you for joining us!

Watch in the video player or at this link: https://youtu.be/EOE10NLW-3E

Matt enjoys your feedback. You can reach him at:
-Link to Matt’s Email: Matthew.McAleer@Cumber.com
-Link to Matt’s Twitter: https://twitter.com/MattMcAleer4
-Link to Matt’s LinkedIn: https://www.linkedin.com/in/matthew-c-mcaleer/


Tiburon’s Open Letter to the Industry

Author: David R. Kotok, Post Date: October 15, 2019

On Tuesday, Oct. 8, at the Tiburon CEO Summit XXXVII, sponsored by Tiburon Strategic Advisors, Ken Fisher, a well-known money manager and billionaire, made remarks that many in attendance found to be misogynistic (see one reaction at https://www.wealthmanagement.com/people/ken-fisher-s-sexual-comments-roil-tiburon-conference); and Fisher was informed that he will no longer be welcome at Tiburon events.

So why does a man of Fisher’s status place himself this way in front of such a prominent audience? Did he think the NDA that participants signed would protect him? Was he trying to be cute or cool? His motivation is a subject for others. The outcomes are the subject of this commentary.

In the professional world of his asset management peers, his behavior was viewed as appalling and offensive. He subsequently apologized. Most of the shocked professionals I spoke with said, “Too little, too late.”

I started to write a longer discussion about my last 50 years and how the previous all-boys club of finance has changed. For us, that evolution happened a long time ago. Women have owned parts of Cumberland and held prominent officers’ positions for three decades plus.

Then Chip Roame, managing partner of prestigious Tiburon, spoke out publicly about the incident. His words are eloquent, and they are totally consistent with Cumberland’s view. Chip agreed to letting me quote him. We thank him for that permission. Readers are invited to read and consider Chip’s message.

Here’s Chip Roame’s unabridged public response:

OFFENSIVE COMMENTS
Some offensive comments were made by one fireside chat participant in a session late Tuesday afternoon. There remain disagreements as to exactly what was said, how it was intended, and how it was interpreted. I was on stage and have my own understanding of the situation which I have discussed with many long time Tiburon members. I further reached out specifically to several additional female Tiburon members who were present when the comments were made to solicit their views. I will not share these members’ views but I welcome them to share their own views if they so wish. They helped me to act, and act firmly. Some though told me they thought this deserved no response. I respectfully disagree.

I will speak only for myself today. I was extremely disappointed by the comments that I heard in the way that I understood them. I can, in no way, condone or find acceptable what I heard in the way that I understood its intent.

CONTINUED: https://www.cumber.com/tiburons-open-letter-to-the-industry/


Cumberland Advisors Market Commentary – Warren?

Author: David R. Kotok, Post Date: October 14, 2019Elizabeth Warren (@ewarren)

“On my first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands. And I will ban fracking—everywhere.” (Twitter, 4:26 PM, Sep 6, 2019)

Elizabeth Warren’s increasing political strength relative to Joe Biden’s is leading market agents to become serious about policy changes under a Warren presidency. The tweet above is an example of a proposed policy.

Meanwhile, Trump’s growing impeachment problems and his Navarro-advised failing trade policy have weakened the US Manufacturing sector and changed some of the granular polling data. It is now impossible to confidently forecast the 2020 election outcomes. While the Democrats are still favored to keep their majority in the House and the Republicans to keep their majority in the Senate, the best guesses today are made with high uncertainty.

Meanwhile, market agents are repricing risk, and that risk includes possible changes in health care and banks/financial and, given the above tweet, the domestic US Energy sector.

Let’s use an example.

Natural gas is a terrific American production success. We have a lot. It’s a clean fuel. The world wants to buy it. America is a safe source and has reliable long-term contract law.

Warren’s tweet puts energy capex on notice. Does she encourage investment in energy or discourage it? You know the answer.

CONTINUED: https://www.cumber.com/cumberland-advisors-market-commentary-warren/

Taxing Wealth Instead of Income, Part 2

Author: Robert Eisenbeis, Ph.D., Post Date: October 15, 2019As a follow-up to David Kotok’s piece last week on taxing wealth (https://www.cumber.com/cumberland-advisors-market-commentary-wealth-tax/), it may be useful to remind readers what the potential incentive effects might be when it comes to the implications of wealth tax proposals to tax wealth may have on entrepreneurs and business structures. Proponents of a wealth tax are motivated by the need to finance what is now a growing federal deficit as well as to address what is perceived to be a problem with growing wealth inequality in today’s economy.

Two of the proposals that are more easy to understand and calibrate are those put forward by Senators Bernie Sanders (https://berniesanders.com/issues/tax-extreme-wealth/) and Elizabeth Warren (https://elizabethwarren.com/plans/ultra-millionaire-tax). The Sanders proposal contains a progressive tax with a maximum of 8% on net worth over $10 billion, declining gradually to 2% for families with net worth between $50 and $250 million. The Warren proposal is less progressive, with a 2% tax for households with net worth between $50 million and $1 billion and a 3% tax on net worth above $1 billion. While the plans seem quite different, we can plot what might happen over time to the net worth of households that started with $10 billion of net worth. The chart below shows the path for net worth under both plans over the most relevant range.[1]

The Sanders’ plan would halve net worth in about 11 years while the Warren plan would halve net worth in about 23 years. It is important to recognize that these are maximum-impact cases, since the analysis ignores any investment returns or other sources of growth in the value of wealth.

CONTINUED: https://www.cumber.com/taxing-wealth-instead-of-income-2/


Bloomberg-Expect Markets to go Higher – Kotok (Radio)

Author: David R. Kotok, Post Date: October 13, 2019Cumberland Advisors’ David R. Kotok says the moves we have heard on trade are lacking in substance, but the market has still been given some comfort.

 

He goes on to his expectations for a strengthening energy sector.

 

Running time 07:07 – Play Episode: https://www.bloomberg.com/news/audio/2019-10-14/expect-markets-to-go-higher-kotok-radio


It’s that time of year when the Team at Cumberland Advisors provide their Q3 Reviews. We may discuss what we favor, cash positions, warning signs, and what we see as opportunities. Read to learn more about the thinking behind our positioning of portfolios and how we execute strategies. https://www.cumber.com/2019-q3-reviews
Reviews cover the strategies that follow.

US ETF/Markets by David R. Kotok, Chairman of the Board & Chief Investment Officer:
https://www.cumber.com/cumberland-advisors-market-commentary-3q19-review-us-equity-etf/

Market Volatility by Leo Chen, Ph.D., Portfolio Manager & Quantitative Strategist:
https://www.cumber.com/cumberland-advisors-market-commentary-3q2019-review-market-volatility-etf/

International ETF by William Witherell, Ph.D., Chief Global Economist:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-international-equity-etf/

Taxable Fixed Income by Dan Himelberger, Portfolio Manager & Fixed Income Analyst:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-total-return-taxable-fixed-income/

Puerto Rico by Shaun Burgess, Portfolio Manager & Fixed Income Analyst:
https://www.cumber.com/3q2019-review-puerto-rico/

Tactical Trend by Matthew C. McAleer – Executive Vice President & Director of Equity Strategies
https://www.cumber.com/cumberland-advisors-market-commentary-3q2019-review-tactical-trend/

Tax-Free Muni by John R. Mousseau, CFA – President, Chief Executive Officer & Director of Fixed Income:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-total-return-tax-free-municipal-bond/

Read the rest here: https://mailchi.mp/cumber.com/cumberland-advisors-week-in-review-sept-30-2019-oct-04-2019


 


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Tiburon’s Open Letter to the Industry

On Tuesday, Oct. 8, at the Tiburon CEO Summit XXXVII, sponsored by Tiburon Strategic Advisors, Ken Fisher, a well-known money manager and billionaire, made remarks that many in attendance found to be misogynistic (see one reaction at https://www.wealthmanagement.com/people/ken-fisher-s-sexual-comments-roil-tiburon-conference); and Fisher was informed that he will no longer be welcome at Tiburon events.

Market Commentary - Cumberland Advisors - Tiburon's Open Letter to the Industry

So why does a man of Fisher’s status place himself this way in front of such a prominent audience? Did he think the NDA that participants signed would protect him? Was he trying to be cute or cool? His motivation is a subject for others. The outcomes are the subject of this commentary.

In the professional world of his asset management peers, his behavior was viewed as appalling and offensive. He subsequently apologized. Most of the shocked professionals I spoke with said, “Too little, too late.”

I started to write a longer discussion about my last 50 years and how the previous all-boys club of finance has changed. For us, that evolution happened a long time ago. Women have owned parts of Cumberland and held prominent officers’ positions for three decades plus.

Then Chip Roame, managing partner of prestigious Tiburon, spoke out publicly about the incident. His words are eloquent, and they are totally consistent with Cumberland’s view. Chip agreed to letting me quote him. We thank him for that permission. Readers are invited to read and consider Chip’s message.

Here’s Chip Roame’s unabridged public response:

OFFENSIVE COMMENTS
Some offensive comments were made by one fireside chat participant in a session late Tuesday afternoon. There remain disagreements as to exactly what was said, how it was intended, and how it was interpreted. I was on stage and have my own understanding of the situation which I have discussed with many long time Tiburon members. I further reached out specifically to several additional female Tiburon members who were present when the comments were made to solicit their views. I will not share these members’ views but I welcome them to share their own views if they so wish. They helped me to act, and act firmly. Some though told me they thought this deserved no response. I respectfully disagree.

I will speak only for myself today. I was extremely disappointed by the comments that I heard in the way that I understood them. I can, in no way, condone or find acceptable what I heard in the way that I understood its intent. These comments lacked the dignity & respect that should be expected by any Tiburon CEO Summit speaker or attendee. These were unacceptable words at Tiburon, in the wealth & investments industry, and in society generally. Furthermore, these comments further the inclusion problem in the wealth & investment management industry. And on a related note, I am disgusted to be included in phrases referring to old boys’ clubs. Tiburon is the opposite. I have worked tirelessly to try to find women speakers and encourage women attendees at the Tiburon CEO Summits. Given that we target CEO attendees, finding title-qualified women (and minorities by the way) is a tremendous challenge in the wealth & investment management industry. We work endless hours every six months on this same issue. We have held 37 Tiburon CEO Summits semi-annually so we have been fighting this battle for 18½ years.

On Wednesday morning 7:45am, before the start of the second day of Tiburon CEO Summit XXXVII, I took the stage and announced that the speaker who made these remarks will not ever be invited back to a Tiburon CEO Summit. One attendee is quoted in one of the many articles as saying that my response was only “a passing reference”. This attendee must be referring to my comments at a social gathering the prior evening. In my opinion, that was not the setting to address such a serious issue. I addressed the issue from the stage at 7:45am the following morning. Criticize that timing if you must, but that is an aside to the issue folks.

Laura Varas (Hearts & Wallets) is a Tiburon member and was present for the comments. Laura’s email to me afterwards included these words, “I would like to say, on the record, that Tiburon, through the Tiburon CEO Summits, has been one of the few shining beacons of support for me as a female CEO. The willingness of the other CEOs, mostly male, to welcome, encourage and advise me has been a great support. Many people give lip service to supporting female CEOs. You and the people you assemble at Tiburon, as well as my investors (all of whom are male), are some of the very few who actually do support me. In contrast, I have heard venture capitalists, often female, admit they invest in female-led companies because the valuations are lower. I refuse to accept capital at lower valuations simply because I am female. I just want to be treated like everyone else, and that is what I find at the Tiburon CEO Summits. In the Tiburon CEO Summits, I have found support from kindred spirits whose shared drive to innovate matters much more than gender. It is ironic that people who pay lip service to supporting female CEOs are criticizing people who actually do support them, so I would like to correct that.” Thank you, Laura.

TIBURON CEO SUMMITS MEDIA POLICY
Tiburon has tried various media strategies over the years for its Tiburon CEO Summits. Over the past few years, Tiburon has settled on a no media policy, like many similar CEO-level events. Many Tiburon member CEOs run public companies and need to adhere to SEC rules around their communications. Other Tiburon member CEOs express their desire to have candid conversations and try to jointly address industry issues. Nearly all members believe that media would inhibit candid discussion. Social media posts by attendees are welcome but Tiburon asks that attendees not quote speakers without their approval. This entire media policy is reviewed by the moderator at the start of each Tiburon CEO Summit.

The point of the Tiburon CEO Summit media policy is to adhere to SEC rules, encourage open dialog, and protect proprietary insights, not hide offensive behaviors. Tiburon seeks candid exchanges of views, not to hide inappropriate, offensive, and/or crude remarks. Tiburon has an inclusive culture and I will personally defend that at all costs. Tiburon has removed dozens of prior Tiburon CEO Summit attendees from the Tiburon CEO Summit invitee list for a variety of reasons, including insulting comments, disrespectful remarks, sales efforts, and lack of discretion.

I will always support a participant who calls out inappropriate behavior and even does so publicly. Alex Chalekian, who I do not know well, should be commended for having the strength to go public Tuesday night with his views of offensive behavior. I have not spoken to Alex since his controversial Tweet so this letter will be the first he knows that I support his efforts. While Alex did technically violate the Tiburon CEO Summit media policy, he recognized that the issues of dignity, respect, and inclusion are more important than the Tiburon CEO Summit media policy, and he took action.

INDUSTRY INCLUSION ISSUE
The wealth & investment management industry has an inclusion issue. One 2017 study reported that women account for 58% of employees in financial services, but only 48% of first and mid-level management roles, and 31% of senior & executive level management roles. And frankly, that is propped up by women’s relatively higher success in banking. In investment management, these numbers are 51%, 41%, and 26%. In brokerage, the numbers are 39%, 34%, and 19%. Results in wealth & investment management are horrible. And the participation of minorities may even be a bigger issue. This is a big issue.

BOTTOM LINE & CALL TO ACTION
We all choose our ways to deal with bad behavior. The recent situation that arose at Tiburon has been dealt with firmly. I believe that I clearly repudiated the comments and apologized to all the attendees. I further barred the speaker from ever attending again. I am not naming names today because this issue is not about one person; this is an industry issue. I hope to share a learning opportunity with industry participants, not deliberately harm one’s business.

A few suggestions for those of you who really want to have impact… Do not assume too quickly. Do not judge too quickly. Do not tell us that we must prioritize replying to journalists. Do not claim that we refused to comment (which is not true). Watch our actions. Help us. The industry’s issue will not be improved by a few people sending off uniformed tweets and emails, making further accusations. Propose how you can work with Tiburon to address these issues. Propose CEO-level women (and minority) speakers for our Tiburon CEO Summits. Help us recruit them to come speak. Bring on your ideas and your hours of effort! This is a serious industry issue. Let’s move past the Tweets and get to work on the dignity and inclusion issues. Comments like we heard on Tuesday, in my opinion, will discourage women from participating in the wealth & investment management industry.

Charles (“Chip”) Roame
Managing Partner
Tiburon Strategic Advisors


David R. Kotok
Chairman and Chief Investment Officer
Email | Bio





Taxing Wealth Instead of Income, Part 2

As a follow-up to David Kotok’s piece last week on taxing wealth (https://www.cumber.com/cumberland-advisors-market-commentary-wealth-tax/), it may be useful to remind readers what the potential incentive effects might be when it comes to the implications of wealth tax proposals to tax wealth may have on entrepreneurs and business structures. Proponents of a wealth tax are motivated by the need to finance what is now a growing federal deficit as well as to address what is perceived to be a problem with growing wealth inequality in today’s economy.

Market Commentary - Cumberland Advisors - Taxing Wealth Instead of Income

Two of the proposals that are more easy to understand and calibrate are those put forward by Senators Bernie Sanders (https://berniesanders.com/issues/tax-extreme-wealth/) and Elizabeth Warren (https://elizabethwarren.com/plans/ultra-millionaire-tax). The Sanders proposal contains a progressive tax with a maximum of 8% on net worth over $10 billion, declining gradually to 2% for families with net worth between $50 and $250 million. The Warren proposal is less progressive, with a 2% tax for households with net worth between $50 million and $1 billion and a 3% tax on net worth above $1 billion. While the plans seem quite different, we can plot what might happen over time to the net worth of households that started with $10 billion of net worth. The chart below shows the path for net worth under both plans over the most relevant range.[1]

The Sanders’ plan would halve net worth in about 11 years while the Warren plan would halve net worth in about 23 years. It is important to recognize that these are maximum-impact cases, since the analysis ignores any investment returns or other sources of growth in the value of wealth. If the household could earn at least enough on its asset holdings to more than cover the cost of the tax, for example, then effectively the net-worth tax proposals would amount to capping net worth at whatever the current levels were. In the Sanders proposal, for example, an individual with at least $10 billion in net worth would have to earn a bit more than the marginal 8% tax rate. In Warren’s proposal, the household would only have to earn a bit more than 3%.[2] So while the proposed net-worth taxes would generate revenue to support the government, they would do little to address concerns that many have about wealth inequality which would have to depend solely on increasing the wealth of those not subject to the taxes.

Implementation of such programs could, however, have significant implications for how people manage their wealth. In a previous commentary, I noted how the composition of wealth varies over different classes of net worth. The most recent data available are from the Federal Reserve’s 2016 survey of consumer finances, shown in the following chart.

For those with net worth over $1 billion, which is really the target group for the wealth-tax proposals, I noted that “more than two thirds of the wealth of the $1-billion-dollar-net-worth cohort is composed of what are termed ‘business interests.’ The Survey of Consumer Finances divides business interests into those businesses in which the owner has an active management role and those in which the owner does not play an active role, and well over 90% of such business interests involve active management. Thus, those who wish to tax wealth rather than yearly income are, in fact, targeting mainly privately held businesses whose value is derived from the active entrepreneurial involvement of the principal and his or her family.[3] Such assets are hard to identify, since they can include loan guarantees, intellectual property, etc. Those business interests are not frequently traded and are extremely hard to value. These are the same business interests that generate employment and benefits to many others.”[4] But capping net worth effectively caps the value of household business interests, and this cap has implications for how such businesses can grow and increase their capital as well as their risk taking incentives. If the effect is to stifle growth and employment, then the unintended consequences might well be detrimental to the economy going forward. If the effect to promote excessive risk taking, then the stability of the economy may be at risk.

In Sanders’ case, it is estimated that the proposal would impact about 180,000 households, and the IRS would be tasked with the job of valuing the net worth of those households each year. This would seem to be a very difficult and costly bureaucratic process to undertake, and one can imagine the disputes over values that would accompany implementation of the wealth tax. In short, proponents of a wealth tax need to delve a bit deeper into the likely first- and second-round implications of their proposals, which may not be quite as simple as they are represented.

Robert Eisenbeis, PH.D.
Vice Chairman & Chief Monetary Economist
Email | Bio

[1] One can easily calculate from this chart how many years it would take to reduce net worth by one half, from, say, $4 billion to $2 billion, under either plan.
[2] Of course, as the marginal net-worth tax rate declined, the earnings requirement would be reduced.
[3] See for example “Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances,” Brian K. Bucks, Arthur B. Kennickell, Traci L. Mach, and Kevin B. Moore, revised 2009, Federal Reserve Bulletin, Vol. 95, 2009, https://www.federalreserve.gov/pubs/bulletin/2009/articles/scf/default.htm.

 


Here are links to our recent writings on the subject of Wealth Taxation.

Market Commentary - Cumberland Advisors - Wealth Taxation Series

Wealth Tax,” David Kotok, October 9, 2019
https://www.cumber.com/cumberland-advisors-market-commentary-wealth-tax/

Taxing Wealth Instead of Income?” Bob Eisenbeis, February 13, 2019
https://www.cumber.com/taxing-wealth-instead-of-income/

Taxing Wealth Instead of Income, Part 2,” Bob Eisenbeis, October 15, 2019
https://www.cumber.com/taxing-wealth-instead-of-income-2/

The Kiplinger Tax Map: Guide to State Income Taxes, State Sales Taxes, Gas Taxes, Sin Taxes,” David Kotok, October 25, 2019
https:/www.cumber.com/cumberland-advisors-market-commentary-the-kiplinger-tax-map-guide-to-state-income-taxes-state-sales-taxes-gas-taxes-sin-taxes/


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Market Commentary – Warren?

Elizabeth Warren (@ewarren)

“On my first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands. And I will ban fracking—everywhere.” (Twitter, 4:26 PM, Sep 6, 2019)

Market Commentary - Cumberland Advisors - “You can’t make this stuff up” by Suzanne Greenberg

Elizabeth Warren’s increasing political strength relative to Joe Biden’s is leading market agents to become serious about policy changes under a Warren presidency. The tweet above is an example of a proposed policy.

Meanwhile, Trump’s growing impeachment problems and his Navarro-advised failing trade policy have weakened the US Manufacturing sector and changed some of the granular polling data. It is now impossible to confidently forecast the 2020 election outcomes. While the Democrats are still favored to keep their majority in the House and the Republicans to keep their majority in the Senate, the best guesses today are made with high uncertainty.

Meanwhile, market agents are repricing risk, and that risk includes possible changes in health care and banks/financial and, given the above tweet, the domestic US Energy sector.

Let’s use an example.

Natural gas is a terrific American production success. We have a lot. It’s a clean fuel. The world wants to buy it. America is a safe source and has reliable long-term contract law.

Warren’s tweet puts energy capex on notice. Does she encourage investment in energy or discourage it? You know the answer.

Add to her tweet her advocacy of a Sanders-type wealth tax and apply that tax to risk-taking in oil and gas production, exploration, transportation (pipeline), and equipment supplies. Does she encourage or discourage these investments? You know the answer.

Meanwhile, once-expected LNG exports to China and elsewhere are slowed by the ill-conceived, Navarro-designed Trump Trade War. Encourage or discourage? You know the answer.

Is it any wonder the US Manufacturing sector is mired in a slowdown and economic growth is under 2%? Trump and Warren are polar political opposites whose widely divergent policies harm or stand to harm a large sector of the US economy.

We are a year from an election, and this writer only expects the various proposals to get worse while the debate gets uglier. The opinions expressed on CNN and Fox now epitomize the divide. Tax increases or cuts won’t happen for at least two years, and this writer is not sanguine about any of the outcomes.

Dear readers, once fiscally responsible Republicans have delivered a one-trillion-dollar deficit and a modern version of Smoot-Hawley protectionism, while some Democratic hopefuls seek to destroy wealth with taxation and to attack capital formation in American industries and business.

The now-familiar expression “You can’t make this stuff up” was coined by Suzanne Greenberg, a now-deceased former Cumberland Partner. She was prescient.

Fortunately, the Fed has awakened to the liquidity issue after dodging the repo bullet. Better late than never.

To this writer, stock markets seem to be discounting the worst as the ugly headlines continue. As long as the markets remain fearful of worst-case risks, stocks can rally to new highs as we progress to year end. Widespread pessimism is a buying opportunity.

We remain fully invested in our US stock market ETF strategy and in our US stock market quantitative strategies (three of them). Please email me if you would like to see the white paper on the quantitative work.

P.S. Here’s a Bloomberg opinion column we recommend. It focuses on truth, politicians, and constitutional issues of free speech. It also has a warning for each of us.

https://www.bloomberg.com/opinion/articles/2019-10-09/facebook-can-fight-lies-in-political-ads.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.




Cumberland Advisors Week in Review (Oct 07, 2019 – Oct 11, 2019)

The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team.

Week In Review

These are not revised assessments, and circumstances may have changed in the market from the time of original publication. We also include older commentaries that our editors have determined may be of interest to our audience. Your feedback is always welcome.

MATT MCALEER’S WEEKLY RECAP

As part of Cumberland Advisors’ continuous effort to maintain strong customer relationships, we offer this week’s short video discussing current market conditions and how we are positioning portfolios.



In this week’s review, Matt talks about:
-What encourages us?
-What causes a “higher-low”?
-Where are we stuck?
-Let’s talk about stepping back and recency bias.
-We share some charts from Dorsey Wright and look at performance.
-Where should allocations have been made at various times?
-Flexibility and the ability to always take a look at multiple asset classes and try to analyze risk and reward is necessary for long-term performance.
-Enjoyed our time at recent Sarasota Chamber of Commerce get-together and we want to share our favorite quote from guest speaker, Tony Moore.
-“What got you here, won’t get you there.” -TM
-Matt paraphrases, “What got you here investing-wise, may not get you there in the future.”
-Email us at info@cumber.com or give us a call at (800) 257-7013

Enjoy your weekend and please send us your questions and comments. We thank you for joining us!

Watch in the video player or at this link: https://youtu.be/Z4RN2VHv06w

Matt enjoys your feedback. You can reach him at:
-Link to Matt’s Email: Matthew.McAleer@Cumber.com
-Link to Matt’s Twitter: https://twitter.com/MattMcAleer4
-Link to Matt’s LinkedIn: https://www.linkedin.com/in/matthew-mcaleer-9415b16/


It’s that time of year when the Team at Cumberland Advisors provide their Q3 Reviews. We may discuss what we favor, cash positions, warning signs, and what we see as opportunities. Read to learn more about the thinking behind our positioning of portfolios and how we execute strategies. https://www.cumber.com/2019-q3-reviews
Reviews cover the strategies that follow.

US ETF/Markets by David R. Kotok, Chairman of the Board & Chief Investment Officer:
https://www.cumber.com/cumberland-advisors-market-commentary-3q19-review-us-equity-etf/

Market Volatility by Leo Chen, Ph.D., Portfolio Manager & Quantitative Strategist:
https://www.cumber.com/cumberland-advisors-market-commentary-3q2019-review-market-volatility-etf/

International ETF by William Witherell, Ph.D., Chief Global Economist:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-international-equity-etf/

Taxable Fixed Income by Dan Himelberger, Portfolio Manager & Fixed Income Analyst:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-total-return-taxable-fixed-income/

Puerto Rico by Shaun Burgess, Portfolio Manager & Fixed Income Analyst:
https://www.cumber.com/3q2019-review-puerto-rico/

Tactical Trend by Matthew C. McAleer – Executive Vice President & Director of Equity Strategies
https://www.cumber.com/cumberland-advisors-market-commentary-3q2019-review-tactical-trend/

Tax-Free Muni by John R. Mousseau, CFA – President, Chief Executive Officer & Director of Fixed Income:
https://www.cumber.com/cumberland-advisors-market-commentary-3q-2019-review-total-return-tax-free-municipal-bond/

Read the rest here: https://mailchi.mp/cumber.com/cumberland-advisors-week-in-review-sept-30-2019-oct-04-2019


Camp Kotok - Big Lake - Stacked Stones - Conversations from Camp Kotok

We invite you to visit our YouTube channel and explore the “Camp Kotok” video playlist. This playlist is comprised of Camp Kotok interviews with guests and “campers” who participate and enjoy sharing with us. We also include panel talks, scenes from the location in Maine, and other snippets we find interesting. Enjoy! #CampKotok


Wealth Tax

Democratic presidential candidates Castro, Sanders, and Warren have explicitly sponsored wealth taxation.

Readers may view the candidates’ proposals at their campaign websites:

Castro: https://issues.juliancastro.com/working-families-first/

Sanders: https://berniesanders.com/issues/tax-extreme-wealth/

Warren: https://elizabethwarren.com/plans/ultra-millionaire-tax

A New York Times article published last week considers the economic implications of both Sanders’ and Warren’s proposals: “Democrats’ Plans to Tax Wealth Would Reshape the U.S. Economy” (https://www.nytimes.com/2019/10/01/us/politics/sanders-warren-wealth-tax.html).

Follow link here to read some of our bullets: https://www.cumber.com/cumberland-advisors-market-commentary-wealth-tax/


Cumberland Advisors' Robert "Bob" Eisenbeis, Ph.D.

The Market Knows

The Federal Reserve Bank of New York announced on Friday, Oct 4 that it would continue to offer a maximum of $75 billion in overnight repurchase agreements and at the same time offer a series of term repos through at least November 4 according to the following schedule:[1]

This extension seems to be an attempt to use the market to determine exactly how much excess collateral is in the financial system that needs to be financed.  The term repos are a way of sterilizing a large portion of the excess supply of securities and then the overnight repos provide some indication of how much funding may or may not be available on the margin. The following chart provides some clues as to the maximum amount of financing that the Fed may be willing to provide and represents an experiment to let the market determine, given the lack of bank financing that is apparently quite scarce for this market, how big a facility might be necessary to support the primary dealers.

Continue reading here: https://www.cumber.com/cumberland-advisors-market-commentary-the-market-knows/


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.