I remain bullish on equities for 2014 and continue to believe (as I have since early 2010) that the stock market is in a long term secular uptrend.
In my opinion, this trend might last for 12 to 15 years and suffer the usual cyclical bear markets along the way. However we think the currency wars being waged by the world’s central banks will supply ongoing credit creation for the foreseeable future.
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That credit should limit the length and severity of any bear markets coming early in this new secular bull market. At the moment, I believe 2014 will be the first year there is a correction in this ongoing uptrend–but that correction may not exceed 7% to 10% on the downside in my opinion.
Regarding the Covestor Macro Plus portfolio, I have made a few changes in holdings since our last update. They are as follows:
1. I sold my position in the highly speculative common stock of YRC Worldwide (YRCW).
2. I have added American Airlines (AAL) based on the following logic. First of all, it has just exited bankruptcy and therefore has shed much of its legacy costs. Secondly, in my opinion, I expect a fairly strong economy in 2014 and thus airlines should continue to prosper. Last and possibly most important is the continuing churn in shareholders.
As with most reorganizations and spin-offs there is an initial period where many new holders are involuntary holders of new stock and do not want it in their portfolios. When these securities, which may be valued below the intrinsic value of the company, are sold there is sometimes upside movement in current market value of the reorganized company. In my opinion, AAL may be such a stock.
3. I’ve added to our holdings of CVR Partners LP (UAN). I believe year-end loss selling unduly depressed this master limited partnership (MLP). In my opinion, this MLP may benefit from a “tax bounce” and later seasonal strength in the fertilizer market as spring planting demand ramps up for their nitrogen product. That demand, combined with currently high natural gas prices, may allow CVR to expand margins well above those of 2013 in my opinion.
4. I have added a small position in Bank of America (BAC). I believe that Fed will continue to hold down the short end of the yield curve while international pressures and a strengthening economy will push long end rates up.
This steepening of the yield curve should be very beneficial to large banks and in my opinion BAC will give my portfolio good for my investment dollar.
Overall we will continue holding those positions already established. However I expect 2014 to be a year of economic strength and therefore will probably lean more towards the purchase of economically sensitive stocks and less towards those investments which might be held back by rising interest rates.
DISCLAIMER: The investments discussed are held in client accounts as of December 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
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