Anson Capital — Monthly Investment Update 2014 03

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MONTHLY INVESTMENT UPDATE

Harsh winter weather became a deterrent to economic expansion, as frigid temperatures slowed housing construction and dampened consumer sentiment. Economic data reflecting a slowdown in January and the first part of February was primarily attributable to the bad weather, thus de-emphasizing any apparent economic slowdown.

The winter storms in February and January have already cost an estimated $3.5 billion in economic losses due to delayed deliveries, manufacturing closures, employees not able to get to work, postponed construction, and subdued consumer demand.

Sales of previously owned U.S. homes dropped in January to the lowest level in more than a year as the bad weather combined with a lack of supply, tight credit and declining affordability slowed demand. The growth rate of home prices also fell, as weather adversely affected the housing market.

U.S. equity markets rebounded favorably in February with the S&P 500 and the Dow Jones Index rising for the month. Longer term views have become more prevalent as 150,000 to 200,000 new jobs each month are expected, relatively low inflation, accommodative Fed policies, and improving earnings for U.S. companies.

With unemployment currently at 6.6%, the Federal Reserve revised its intentions to raise rates should unemployment drop below 6.5%. As unemployment has dropped faster than anticipated, the Fed plans to maintain a low rate environment until other economic factors show steady improvement. The Fed will, however, continue with its reduction of bond purchases each month.

With the recent volatility in the emerging markets and the unrest in Ukraine, the International Monetary Fund (IMF) issued a report with concerns of possible deflation throughout emerging countries. Deflation is the opposite of inflation, with an overall drop in prices affecting property, services, and goods.

Congress agreed to an increase in the country’s debt limit ceiling through March 2015, alleviating any probable government shutdown as occurred last year.

A study by the Federal Reserve’s Philadelphia District suggests that the labor force (as measured by the participation rate) is shrinking due to baby boomers retiring and leaving the workforce. The study also found that 1.5 million baby boomers will turn 65 in each of the next 15 years, eventually leaving the workforce.

Demand for skilled labor continues to grow, yet with very few qualified candidates. The manufacturing, construction, transportation, and technology sectors all currently have plenty of jobs available. About a quarter of all small businesses have a position that they cannot find a qualified employee for, the most in the past six years.

The Congressional Budget Office (CBO) released a report on the proposed federal minimum wage increase to $10.10 per hour from the current $7.25. The report showed that an estimated 500,000 would loose their jobs due to employers trying to reduce labor costs.

Equity markets rebounded in February, with the Dow Jones Index rising 4% for the month, and the S&P 500 Index having its best February since 1998 with a 4.3% gain. Many expect that the equity markets will experience volatility and behave differently in 2014, relative to the unbridled enthusiasm of 2013.

So far this year, 2014 has seen the most IPO activity since 2007, as private companies and private-equity firms take advantage of an elevated stock market. Optimistically, as new companies come to market, demand has been strong as investors are seeking and buying them.

Major equity indices are noting particular facts in 2014. The Wilshire 5000 index has doubled in market capitalization to $22.5 trillion from $11.7 trillion in 1998, and with half the number of stocks. The S&P 500 has recorded nine daily advances to declines of 1% or more which is more than twice the amount during the first 31 days of 2013.

Fourth quarter results for U.S. companies have so far shown that further growth in profitability and revenue will eventually need to be generated by hiring and capital expenditures. In reporting their quarterly earnings, many companies identified bad weather as a culprit to disappointing results.

The fourth quarter earnings season officially came to an end on February 20 when Walmart reported its earnings results. For the quarter, over 61% of all U.S. companies beat analyst earnings expectations, which is at the top end since 2011. Average profit growth in the fourth quarter for companies that had reported was over 9%, which is considered a healthy increase.

Sources: CBO, Federal Reserve, IMF, Commerce Dept., Bloomberg, S&P

Sam Sweitzer, CFA │Principal│ANSON CAPITAL, INC.│
o: 678-216-0795│f: 877-750-9088│sam@ansoncap.com│www.Ansoncap.com│
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