On Aug. 30, Muhlenkamp & Company Inc., founded by Ronald H. Muhlenkamp, held its quarterly webcast for its mutual fund (MUHLX, Financial).
Muhlenkamp is a patient investor who often holds on to many companies for a decade or more. When picking stocks Muhlenkamp looks for the type of companies that have return on equity of 15% as well as solid balance sheets.
The webcast focused entirely on the market outlook. I'll highlight here what I thought were nine of the most interesting slides, as the firm made a few familiar and several highly original observations. The first slide is an overview of their future outlook, and where their outlook has changed over the past quarter is shown in red:
Delinquencies by loan type:
Only auto loans and student loans look worse compared to pre-crisis levels. Auto loans have been securitized. Auto lenders are on their list of companies to avoid.
Inflation is another measure they watch. Below they observe that CPI is picking up in a noticeable way:
To dig deeper, they then delve into the velocity of money, contending that quantitative easing didn't trigger inflation because of low levels of velocity of money. The chart belows clearly shows a very low velocity of money since 2009:
Lately, though, the velocity of money picked up. If that continues, the result should be rising inflation.
Muhlenkamp is also among the yield curve watchers. Historically, short interest rates rising above long-term rates triggers a recession, and their chart shows the short-term rate in black is trending that way. But it is not above long-term rates yet. It becomes an indicator only if it actually crosses.
The next slide is on quantitative easing being rolled back by the Federal Reserve. They point out that the Fed is on target to hit its aggressive 2022 target. Because quantitative easing drove up the prices of assets, including the stock market and the housing market, a rollback should logically result in asset prices falling. Therefore they have concerns about what this will do to the markets.
They shared an interesting analysis on tariffs. They believe there is a stage of posturing in these trade negotiations and a stage of serious talks. With Europe they believe the stage of serious talk has been reached. With China we are still in the posturing change where many headlines are made.
Last, they highlight that company valuations have come down slightly because earnings are very strong this year. They aren't enthusiastic about the bargains out there but seem to think the market is more or less fairly priced:
Disclosure: No positions
