Big River Report
BIG RIVER CAPITAL MANAGEMENT

Phone: 601.259.3731

Email: wtr3@bigriverfunds.com


RiverView Q2 2018


For accounts invested throughout the full quarter and full year-to-date, the net of fee results:

Q2 2018 range +2.70% through +6.77%

YTD range +1.84% through +5.76%

The net of fee results for the actively managed strategy: Q2 +3.17%, YTD +4.90%

There is greater variability in the numbers this quarter, and we expect there will be greater variability going forward because we have added concentrated accounts.

I’ve found that not having all of your money with one advisor works well for many people. Consider Big River for a portion of your capital designated to higher risk objectives.

During the quarter, US economic data was strong across the board with moderate inflation pressures building in the supply chain, recent month annualized PPI registered 3.1% and CPI increased 2.8% over the past year.

US GDP is expected to have grown at an over 4% rate during the second quarter. US retail sales are running +5% over the past year.

As a result of the heating economy, the Fed lifted rates during June and signaled it’s intention to lift again in September and December. The prime rate now stands at 5% and it is expected to reach 5.5% at year end.

The Fed is trying to return interest rates to “neutral" and historically that has been around 3% for the Fed funds rate or 6% for the prime rate.

The Fed cautioned that it expects to move beyond neutral in order to slow inflation with median interest rate projections of 3.4% for the Fed funds rate in 2020, roughly 6.5% for the prime rate.

Rising rates are potentially beginning to effect the US economy. We’ll continue to monitor the incoming data carefully.

Due to a strengthening dollar along with global trade and political uncertainty, there are geopolitical concerns in China, Italy and emerging markets such as Mexico, Argentina, Brazil and Turkey.

China is struggling with enormous corporate and government debt burdens, and an extended trade war with the US could be seriously problematic for China.

Italy has instated a new government that is less agreeable toward the EU and this increases the risk of financial instability in the region. Additionally, there are many unknowns as Britain prepares to formally leave the EU.

Emerging markets are experiencing higher inflation due to political uncertainty, trade concerns and a strengthening dollar.

The EU recently signaled the end of their monetary stimulus programs, although the timeline for raising rates was extended through the summer of 2019.

With stimulus removal measures around the globe on the horizon, interest rates rising in the US and the Fed’s balance sheet shrinking, a substantial reduction in global liquidity is occurring. 

Any of these or other developments could have substantial, negative effects on the US stock market. Big River's actively managed strategy strives to protect capital during periods of volatility.


*These results are reported net of an actual 1.5% annualized management fee.


BIG RIVER CAPITAL MANAGEMENT, LLC
MONEY MANAGEMENT
CEO: Bill Robertson
Email: wtr3@bigriverfunds.com
Fax: 601.487.6365
Phone: 601.259.3731

Client performance for 2017, net of fees, ranged from +16.68% through +21.25%. This range represents clients who were invested throughout the full year.

During December, the Federal Reserve raised the benchmark Fed Funds rate to between 1.25-1.50%. The prime lending rate is now 4.5%. 

Forecast for 2018 call for three interest rate increases taking the Fed Funds rate to between 2.00-2.25% and the prime lending rate to 5.25%.

The most recent Federal Reserve forecast for 2018 is as follows:

GDP: +2.5%

PCE Inflation: +1.9%

Unemployment: 3.9%

Fed Funds Rate: 2.1%

The bull case for US stocks (stocks will advance without a 20% or greater decline) is that the market is on pace for the longest bull run in history, potentially reaching nine years old in 2018.

The recently passed US tax cuts are expected to add economic growth to a US economy that is already gaining momentum.

The bear case for US stocks (a bear market is defined by a 20% drop in price) is that valuations are historically high, and the good news is already priced in. 

During 2018 the US Treasury is expected to issue roughly $1 trillion in securities to fund the deficit, and the Federal Reserve will reduce it's securities holdings around $230 billion. The result will be a roughly $1.25 trillion increase in supply of treasury related securities.

These market dynamics: high stock market valuations, rising interest rates and an increasing supply of debt securities represent potential catalysts for an inevitable bear market in US stocks.

Alternatively, US stocks could tread water throughout 2018.

Our aim is to build wealth, not time the stock market.

At some point in time, the bull market will end and there will be a bear market. Whatever the new year brings, if we are adequately prepared, there will be opportunities to build wealth.