The Issachar Fund holds 115% in Muni Bond Mutual Funds (70%) and ETFs (45%). The stock market peaked on October 3rd and High Yield Muni Bonds bottomed on October 10th and they have been trending higher (double-digit annualized rates) ever since. Maybe the bond market was predicting that if the Fed raised rates like they indicated, the economy would slow and low and behold, I think the bond market was right. The Fed raised rates in Q-4 and the stock market dropped about 19% while the munis continued to attract money and trend higher. Munis have historically been a low-volatility asset class and I like that because their trends tend to persist. Low volatility trends that persist like junk bonds (not currently doing well) and munis has allowed us through the years to generate return relative to the risk we are taking. I have conviction in this muni trade, and I plan to stay as long as we are being rewarded. (Portfolio holdings are subject to change at any time and should not be considered investment advice. Allocations exceeding 100% result from the use of leverage.)
All major stock market indexes are now trading below their 50-day moving averages (dma) which could mean trouble for the stock market. The major market indexes remain in a three-week downtrend (lower lows and lower highs) “correction” from their early May highs. This is the deepest correction since the market rally began in late December, so we need to discern what the market is trying to tell us. The semi-conductor stocks were leading the stock market higher, but they have certainly run out of gas as they have shed over 15% since their peak on April 24th. The small-cap Russell 2000 Index (R2K) is trading below its longer term 200 day moving average (dma) and that indicates to me that risk is “coming off”. A “risk off” market simply means that money is coming out of the risky stocks (R2K) and into more “safe” areas like government bonds. Muni bonds tend to be lower yielding bonds issued by city and state government municipalities that pay lower interest rates, but their income is tax free. If risk is “coming off” and the economy does slow then I would expect bond prices to rise and yields to decline further. As I see things today, the stock market is expecting the economy to slow, and “big money” is flowing out of stocks and into bonds.
China is smart but I believe Trump is smarter. Trump wrote “The Art of the Deal” and I see him as the best negotiating President America has ever had. Yes, America may endure some economic pain in the short-run, but I believe we will be better off in the long-run if we trust the process. It seems un-fair for our so-called trading partners to outright steal our “intellectual property” to copy it then sell it to the world at a lower price. I believe the theft of American ingenuity stifles America entrepreneurship and I am glad someone is finally standing up for what is right in America. China sees that the trade war may be causing our stock market to decline, and their market is hurting as well but they might feel they have leverage. Therefore, I believe that China does not mind inflicting collateral damage on their people if they get what they want. In my experience, the US tends to live in the present and many of our decisions are made to get the maximum benefit today. I feel China is much better at looking into the future. I believe that Communist China is willing to keep this “trade war” alive until 2020 in hopes that Trump will lose reelection and they will get their way again with a Democrat President. I also believe that Trump knows this, and he will do whatever it takes to get reelected, so I believe America wins and China loses in the end.
For God hath not given us the spirit of fear; but of power, and of love, and of a sound mind. 2 Timothy 1:7
Bottom line: I believe risk is elevated due to the “trade war” with China and it may continue until the 2020 Presidential Election. I believe we need to be patient and sit quietly in muni bonds until the tide changes. If I am wrong, I will not hesitate to do what is necessary to achieve our objective. Investors who have a mandate to always stay invested in stocks, may experience “death by a thousand cuts” until the market has done what it needs to do.
Investors should carefully consider the investment objectives, risks, charges and expenses of the Issachar Fund. This and other important information about the Fund are contained in the prospectus, which can be obtained by calling 1-866-787-8355 or visiting https://www.LIONX.net. The prospectus should be read carefully before investing. The Issachar Fund is distributed by Northern Lights Distributors, LLC., member FINRA/SIPC. Horizon Capital Management Inc, Inc is not affiliated with Northern Lights Distributors, LLC.
Important Risk Information
Mutual Funds involve risks including the possible loss of principal.
The Fund may hold cash positions when the Adviser feels that the market is not producing returns greater than the short-term cash investments in which the Fund may invest. Municipal securities backed by current or anticipated revenues from a specific project or specific assets can be negatively affected by the inability to collect revenue, for the project or from the assets. Moreover, an adverse interpretation of the tax status of municipal securities may make such securities decline in value. There is a risk that the sections of the market in which the Fund invests will begin to rise or fall rapidly and the Fund will not be able to sell stocks quickly enough to avoid losses or reinvest its cash positions into areas of the advancing market quickly enough to capture the initial returns of changing market conditions. The Adviser’s judgment about the attractiveness, value and potential appreciation of particular asset classes and securities in which the Fund invests may prove to be incorrect and may not produce the desired results. Past performance is no guarantee of future results.
Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. NLD Review Code: 3395-NLD-5/28/2019