The Cumberland Advisors Week in Review is a recap of news, commentary, and opinion from our team.
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.
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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.
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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:
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.
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.
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.
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.
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:
Market Volatility by Leo Chen, Ph.D., Portfolio Manager & Quantitative Strategist:
International ETF by William Witherell, Ph.D., Chief Global Economist:
Taxable Fixed Income by Dan Himelberger, Portfolio Manager & Fixed Income Analyst:
Puerto Rico by Shaun Burgess, Portfolio Manager & Fixed Income Analyst:
Tactical Trend by Matthew C. McAleer – Executive Vice President & Director of Equity Strategies
Tax-Free Muni by John R. Mousseau, CFA – President, Chief Executive Officer & Director of Fixed Income:
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