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Market Outlook – Three in One

- July 1, 2020

In the normal recession, unemployment goes up, delinquencies go up, charge-offs go up, home prices go down, none of that’s true here…Savings are up, incomes are up, home prices are up…So it’s just very peculiar times.

Jamie Dimon, JPMorgan Chase CEO, July 2020

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Q2, 2020 Market Review

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Market Outlook Summary

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It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago… I think it makes a difference that there are lenders of last resort, that monetary policy is proactively able to come in and ensure enough liquidity in markets, that fiscal policy is able to play a major role in supporting firms and households.

Gita Gopinath, IMF Chief Economist, April 2020

Active Cases Remain Elevated in Many Countries

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Surge in Cases & Hospitalizations Leading to Rollbacks

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Tracking the Recovery

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A “V” in Consumption, But Not in Activity

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Growing Twin Deficit Will Be a Headwind for the Dollar

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Global Fiscal Policy Response to COVID-19

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Inflation Expectations are Low but Trending Higher

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Who Will Win the 2020 U.S. Presidential Election

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S&P 500 During Presidential Election Years

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You know… they’re bolstering the stock market. Ok, there’s a floor to the stock market. Everybody knows it’s not going below a certain place.

Nancy Pelosi, House Speaker, July 21, 2020

Equity Returns

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Coronavirus Crisis vs. Major Bear Markets of History

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Equity Internals: Decline & Rally

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Winner Take All Markets May Be Around for a While

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The Rise of Retail Traders

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U.S. Corporate Earnings Expectations

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Wall Street vs. Main Street

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Central Bank “BS” and Global Stocks

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Fed Can Provide More Stimulus Relative to Other Central Banks

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Venture Activity Cut in Half From Peak

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Buyout & Venture Secondaries Should Get Interesting

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Post-GFC experience shows that low interest rates don’t trickle down. They inflate financial assets primarily owned by the rich. The idea is to increase borrowing, but the last thing we need is more debt.

Sheila Bair, Former Chair of the FDIC, June 12, 2020

Fixed Income & Credit Review

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Fixed Income & Credit Returns

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Fed Purchases of Corporate Bonds

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Watch Credit to Lead Equities On the Way Out

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A Record Year for U.S. Core Bonds

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Short-Term Corporate Bond ETF Basket vs. U.S. Core Bonds

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Treasury Issuance Has Been Concentrated in Shorter Duration Bills

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Buyers Have Enabled U.S. Treasury to Build Enormous Cash Reserve

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Negative Real Yields Across the Curve

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U.S. Bank Provisions for Loan Losses Jump

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Possibly without serious vetting and a conscious decision to adopt it, Modern Monetary Theory is here. Whether we like it or not, we’ll get to see its impact much quicker than I had thought. (And remember, 100% of the “top scholars” polled by The University of Chicago Booth School of Business disagreed with some of MMT’s claims).

Howard Marks, Oaktree Chairman, March 2020

You can’t continue to run deficits, sell debt or print money rather than be productive and sustain that over a period of time.

Ray Dalio, Bridgewater Associates Co-Founder, July 2020

Real Asset Returns

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Retail, Hotel & Resort and Office REITs Remain Challenged

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Gold Increasingly Viewed as an Alternative Safe Haven

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Gold Trying to Keep Up With Exploding Money Supply

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Gold has Room to Run vs. Core Stocks & Bonds… & Miners Have Room to Run vs. Physical

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The Next Bubble? Gold Miners vs. Technology Stocks

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U.S. Crude Oil & Gasoline Inventories Remain Elevated

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Commodities Back to Marginal Cost of Production

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In some respects it’s different because of the Fed and the liquidity they’ve introduced and the inflation for financial assets that comes with that. But on a bigger picture, it’s so similar [to the Tech Bubble]. Everybody is a genius in a bull market, everybody is making money right now because you’ve got the Fed put and that brings people in who otherwise wouldn’t participate.

Mark Cuban, Entrepreneur & Investor, July 2020

Opportunistic Strategy Returns

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Closed-End Fund Discounts Got as Wide as the Financial Crisis

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Expected Returns for a 60/40 Remain Low

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Over the last two centuries, the fraction of inflation’s long-run variation explained by long-run money growth has been very high, and relatively stable, in the United States, the United Kingdom and several other countries.

Luca Benati, European Central Bank, March 2009

 

Source: ECB working Paper No. 1027, March 2009: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1027.pdf

Diversification Still Works Over the Long-Term

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60/40 Expected Returns

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Asset Class Correlations

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DISCLAIMER

Magnus Financial Group LLC (“Magnus”) did not produce and bears no responsibility for any part of this report whatsoever, including but not limited to any macroeconomic views, inaccuracies or any errors or omissions. Research and data used in the presentation have come from third-party sources that Magnus has not independently verified presentation and the opinions expressed are not by Magnus or its employees and are current only as of the time made and are subject to change without notice.

This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Except for the historical information contained in this report, certain matters are forward looking statements or projections that are dependent upon risks and uncertainties, including but not limited to factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle.

Additionally, please be aware that past performance is not a guide to the future performance of any manager or strategy, and that the performance results and historical information provided displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be inferred that these results are indicative of the future performance of any strategy, index, fund, manager or group of managers. Index benchmarks contained in this report are provided so that performance can be compared with the performance of well-known and widely recognized indices. Index results assume the re-investment of all dividends and interest.

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DEFINITIONS

Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index; U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index; Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg Barclays U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Barclays Global Aggregate Bond TR Index.