Market Update: 05-30-18

The Issachar Fund (LIONX) is 50% invested as of Thursday, May 24, 2018. Here are the ETF themes that LIONX owns: Russell 2000 Value (11%), S&P Small-Cap (9%), Commodity Tracking (9%), Energy (6%), US Medical Devices (5%), US Dollar (5%) and Mid-Cap (5%). I was somewhat encouraged last week as the LIONX positions increased in value but then the market took a breather in anticipation of Trump cancelling the North Korea Summit. The market was gearing up for a favorable outcome at the Summit and now “uncertainty” is creeping its ugly head again. I believe Trump will eventually win the negotiations with North Korea and the market will rally to new highs but not without more price volatility

I do not like the way Energy and Commodities are acting as they chip-away at recent gains. It seems that the algo-traders are punishing the recent winners and that is not a good feeling, if you know what I mean. Commodity ETFs were doing well but now they too are sliding south with Oil/Energy. There are times to draw a line in the sand and certainly act accordingly when the line is crossed. If risk is not managed properly, it could lead to life-changing decisions which is typically not a pleasant conversation. My advice is to make sell decisions (draw a line in the sand) before you buy so that you are not emotionally attached to a bad trade that could ruin your portfolio.

There is currently about $9 trillion in sovereign debt worldwide that pays negative interest rates. I cannot understand why anyone would buy a bond that pays zero interest, but Central Banks are forced to buy them because no one else will. When Central Banks start selling bonds to reduce potential inflation like they are currently doing, they tend to decrease the available liquidity in the market and that tends to remove buying power to support stock and bond prices. When buying power is reduced and supply is constant then prices tend to fall. Corporate debt to GDP appears to be peaking just like it last did in 2002 and 2008. After the trend of corporate debt peaks and turns down then we have historically seen subsequent recessions shortly to follow. I am not predicting a recession, just saying that the warning flags are flying if you care to take notice.

Treasury rates on the 10 Year and 30 Year Bonds are still rising as the threat of inflation looms. The US Dollar is still in an up-trend while the Euro is steeped in a down-trend. It appears that money is fleeing Europe and finding a happy home here in the US. Consensus says that there is a good chance that the Fed will raise rates by 25 bps at the June FOMC meeting. The anticipation of higher rates typically attracts capital looking for a place to invest provided the country is credible. I believe that foreign money is coming to the US because it is a safer home with higher interest rates. Our higher rates are possibly due to higher expected growth/inflation potentially caused by too much credit creation originated by Global Central Banks. Yep, they may have created the problem they are trying to fix.

Bottom line: I am not as optimistic as I have recently been, and I plan to let the charts dictate what I do instead of how I “feel” about a position. (Portfolio holdings are subject to change at any time and should not be considered investment advice. There is no guarantee that any investment will achieve its objectives, generate positive returns or avoid losses.)

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Dexter Lyons