October 8, 2021
By Steve Blumenthal

“These are not regulatory events….
These are policy interventions to reshape Chinese society,
guided by Xi’s personal agenda,
intended to effect objectives that aren’t always knowable.”

― Andrew Foster,
CIO, Seafarer Capital Partners, LLC

In April, President Xi ordered Ant Group, a tech affiliate of Jack Ma’s Alibaba, to restructure before it would be allowed to go public. Since then, the Chinese government has hit Alibaba Group Holding Ltd. with a $2.8 billion antitrust fine and blocked Didi Global Inc. from adding customers mere days after the ride-hailing company went public on the New York Stock Exchange.

In July, shares of New Oriental Education & Technology Group Inc. and TAL Education Group plunged approximately 70% after Communist Party authorities ordered the tutoring firms to be run as not-for-profit operations. The companies themselves never saw it coming, and Wall Street analysts had been blithely touting the stocks.

In the last few weeks, the combination of massive overbuild, Covid, trade wars with the U.S., and over-indebtedness forced Evergrande Group, China’s largest real estate company, to skip debt payments. Default on Evergrande U.S. dollar debt is imminent. Market forces are at work.

The latest news: Fantasia Holdings and Jumbo Fortune Enterprises failed to make a payment of US$260 million on October 3. A five-day grace period to make payment expires today. Evergrande Group is the guarantor of the debt. The tide has gone out, and others are standing there naked.

No one knows the extent to which Xi and team will bail them out, but to be clear, the problems are far bigger than what we read in the papers each day. The major risks sit in the leveraged banking system (Chinese banks and global banks) and in the shadow banking system. If you want to gain a deeper understanding of what that looks like, read “No Time To Die: China Banks Edition” by Marc Rubinstein, which you can find on my friend Ben Hunt’s Epsilon Theory website here.

John Mauldin writes what I believe to be the best economic letter in the business. Though I must admit, I’m biased. We met in early 2000 and have been friends ever since. I convinced John to merge his advisory business with mine a few years ago, and working with him every day is great joy.

John serves as CMG’s Chief Economist and Co-Portfolio manager of the Mauldin Smart Core Strategy. Separately, he is a partner in the newsletter and investment conference business, Mauldin Economics. His letter, Thoughts from the Frontline, hits nearly 700,000 email inboxes every Saturday morning. I wake up, grab a coffee, find my favorite chair, and pull up John’s letter on my laptop. I love the way he explains things, and if you haven’t read his letter yet, I’ll bet you’ll enjoy it too.

Last week he wrote about China and he had a very thoughtful take. Grab your own coffee and settle into your seat of choice. Take a look at John’s post on China, followed by a fun personal note from yours truly. Thanks for indulging me each week.

---

“Xi’s Changing Plan,” by John Mauldin

“Six months ago, few Americans had heard of Evergrande. Now many worry this Chinese property developer’s downfall will start an economically devastating chain reaction.

They’re right about the chain reaction part, but I don’t think it will “devastate” anyone outside China (unless they have business there). Nonetheless, this episode exposes some other China issues worth discussing.

A few months ago in Xi’s Big Mistake, I said Beijing risked killing the entrepreneurial activity that had spurred the country’s rapid growth. As we learn more, this is looking less like a mistake and more like a mistakenly-conceived plan.

It’s hard to be sure because Chinese plans unfold so slowly. Leaders like Xi also don’t panic when their plans encounter difficulty. They patiently wait to get back on track, maybe nudging events along here and there. As long as society is stable and the regime not threatened, they just let it unfold. This opacity makes understanding China from the outside difficult.

Not Just Wrong but Incredibly Wrong

My views on China and Russia are rooted in the teaching and mentorship of Andrew Marshall. He was spectacularly right about both while the rest of the political/economic establishment, the CIA, and the State Department were not just wrong, but incredibly wrong.

Andrew Marshall (his biography is called The Last Warrior) was a legend in military circles. He served at the premier Defense Department think tank from 1976 up until a few years ago. He was reappointed by eight presidents of both parties. His impact on US defense planning and thinking cannot be overstated. For whatever reason, in the mid 2000s, he began to have longer discussions with me and eventually took me under his wing. I had a great deal of access to his thinking, especially after he resigned.

Let’s rewind to the 1970s. Paul Samuelson, Nobel laureate and textbook writer (if you took Econ 101 in that era you likely used his text), had this chart from 1961 and similar ones in each succeeding edition.

Samuelson predicted that the GNP of the USSR would surpass that of the US by 1984 or in the worst case 1997. He would move the dates back in each edition and sometime in the late ‘80s the chart simply disappeared, as it had become embarrassing. It wasn’t just Samuelson; this was accepted thinking in many academic and government circles.

Samuelson’s thinking influenced multiple generations of economists and bureaucrats. This from the same source as the graph above, emphasis mine:

In Samuelson’s case, some of his pro-Soviet bias may be, in part, a result of his personal beliefs. He was a fan of socialism, and as he said in the 1989 edition of his hallmark text, ‘The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.’

Andy Marshall (and James Schlesinger as well) argued Russia was a literal Potemkin village, not growing nearly as much as Samuelson and others said. Andy, along with Jim Williams, helped develop what is called “inferential analysis.” You have to look past the headlines and do the analysis on the ground, not unlike what value investors do when analyzing a company. Counting the number of cars in the parking lots, etc. As the old saying goes, it’s what’s on page 16 that will end up making a difference in the future.

Much of today’s China analysis is based on headlines and not what’s really happening on the ground. There is a great deal of bias and sensationalism used to attract eyeballs and readers. Similarly, in the 1980s when US government agencies and especially the Defense Department were focused on Russia, Andy Marshall was saying China would be a bigger problem.

Down on the Farm

Like much of our discourse these days, the China discussion suffers from either/or thinking. Some call China an implacable foe bent on world domination, whatever the cost. Others see an aging autocracy clinging to a failed Communist ideology that will inevitably collapse.

I don’t rule out either of those possibilities, but there’s a lot of room for China to “muddle through” between them. That’s the far more likely outcome in China, in my opinion, just as it is in the US. Muddling through doesn’t mean “no problem.” It can bring big problems, but they fall short of the doomsday thinking of the either/or scenarios.

To understand how/if China will muddle through, we need to view current events in context. Change happens slowly even in small countries. China certainly isn’t small, so it can take years to even notice a change is happening. But consider the last few decades.

Modern China’s founding father, Mao Zedong, led the government from 1949 until his death in 1976. He was ideologically Communist and acted accordingly. There was nothing resembling capitalism in China during those years. And like the Soviet Union, it didn’t work very well. China under Mao was an unmitigated disaster. Tens of millions of people literally starved as government officials lied about farm production in order to please Mao. Massive misallocation of capital kept the country poor. Reeducation camps for anyone thought of as an intellectual scarred a generation.

A once-thriving economy became an impoverished mess. Mao’s successors recognized this and started “restructuring” long before Moscow did under Gorbachev. This may be why China avoided a similar disorderly breakup. And understand, many of the subsequent and current leaders of China grew up and were influenced by those events under Mao.

So throughout the 1980s and 1990s, Chinese authorities, under the encouragement of Deng Xiaoping, allowed some capitalist-like innovation and entrepreneurship, but always within limits. It led ultimately to China’s 2001 admission to the World Trade Organization, now widely seen as the launch of globalization.

Louis Gave argues (and I think rightly) that in global historical perspective, China entering the WTO may have been more important than 9/11. The country’s growth in the early 2000s was unlike anything in economic history. As many as 250 million people moved from subsistence farming to working in cities with far better lifestyles in a few decades. That’s a bigger migration by a factor of 10 than anything else of which I’m aware.

But as the old song went, “How ya gonna keep ‘em down on the farm after they’ve seen Paree?” Show people even a little prosperity and they don’t want to go back.

This became a problem for China when the Great Recession struck in 2008. Those millions of newly-happy peasants became a threat to social order, something Beijing couldn’t abide.

The solution was simple, though. With exports dried up, the government turned inward by launching massive infrastructure and housing projects around the country. These produced some valuable facilities but their real point was to produce jobs. And it was mostly debt-financed.

All this happened before Xi Jinping became president in 2013. He was on the Politburo at the time, though, and so involved in the decisions. Did he agree? We can’t know. He had grown up under Mao and spent his career advancing through the Party’s ranks. Everything we know says he is a dedicated communist. But he reached the top by being a pragmatic, get-things-done administrator.

In any case, it fell to Xi to deal with the aftermath of these choices. The infrastructure campaign and related policies produced a giant economic boom in themselves, further enhanced by the rest of the world’s simultaneous recovery. China and Xi took advantage of the economic boom and their trade balance simply soared. It is hard to see a trade war in this data:

China developed something new: a class of wealthy business founders, corporate executives, and professionals seemingly independent of the Communist Party. Their rise is now looking less like the goal and more like a temporary side effect.

The phrase—’To get rich is glorious’—is the simplified version of what Deng Xiaoping told his country a generation ago: ‘Rang yi bu fen ren xian fu qi lai,’ he declared. ‘Let some people get rich first.’ It unshackled China’s economy, and created the tycoons and super-growth we see today.

(Evan Osnos in The New Yorker)

Which brings us to Evergrande.

Imploding Superblocks

Evergrande, the troubled property developer now emblematic of China’s problems, didn’t appear out of nowhere. It grew by providing a) something people needed which was b) consistent with the government’s goals.

Sometimes the best economic insight comes from outside economics. This is from an interesting 2019 article on Chinese “superblock” architecture—those giant, tombstone-like apartment towers that dominate city skylines there.

Chinese officials in the 1990s were under pressure to expand the housing supply, and fast. The most expedient way of accomplishing this was to parcel out enormous plots of land to private developers, who quickly filled them with 30-story residential towers. The city planning authorities, meanwhile, obligingly built eight-lane highways between the blocks to service inevitable car traffic.

One reason for this… is the symbolic importance of cars and highways. Chinese officials obsessed with projecting a “modern, world-class” facade would of course seek to emulate the American city model, no matter how badly that model has been discredited. For ordinary Chinese people, too, car ownership was a crucial indicator of socioeconomic status.

But an even more important reason behind the continued insistence on superblock planning is the reliance of Chinese city governments on land lease revenue. Since the tax-sharing reform of 1994, cities have been obliged to fork over an enormous percentage of their tax revenue to the central government. In order to generate enough revenue to cover social services and other costs, cities have come to rely heavily on China’s land-lease mechanism that allows the city to rent parcels of land to private developers for a period of 70 years.

Superblock planning therefore was irresistible to Chinese officials, who could quickly expand the housing supply and generate a massive amount of tax revenue in the process. Although it’s changing, it’s still the case that Chinese cities generate an astonishing percentage of their revenue from land leases—more than half by most estimates.

The key point here: Evergrande-like development in China wasn’t just capitalism doing its thing. It was capitalism facilitated by government officials for their own purposes. Beijing wanted social order and local officials wanted revenue. The housing projects helped deliver both. Capitalism with Chinese characteristics?

Not surprisingly, this led to excess. You may have seen the viral video of 15 empty towers being imploded in Kunming this summer. They had sat empty since the developer ran out of money in 2013. Many more such “ghost cities” exist, often financed by pre-sales before construction even started.

Here in the US we think of homeownership as a sign of financial maturity and stability. In China it is even more so. Some estimates show 80–90% of household wealth is in real estate. That wealth is now in serious danger. The Kunming implosions suggest portions of it will literally go up in smoke.

Evergrande’s problems, like those of other developers, began when the government cracked down on the same leverage and speculation it encouraged for years. That’s how central planning works. The plan can change.

The China experts I follow don’t expect this will spark a financial crisis. As Louis Gave said in a recent report I shared with Over My Shoulder members, Evergrande is collapsing not in spite of the government’s wishes but because the government decided to let it fail. Protecting big companies is inconsistent with Xi’s new “Common Prosperity” initiative, so it will stop. Here’s Louis.

Common prosperity is a way for the Chinese government to highlight the differences between policymaking in China and in the West, not just to China’s citizens but also to citizens of the developing world in general. The not-so-subtle message is that while policymakers in the West allow big tech monopolies to fleece small and medium-sized companies, China protects its mom and pop corner stores, restaurants and other small businesses from the predatory behavior of tech platforms.

While private education companies in the West are free to gorge themselves on the insecurities of parents, in China that behavior will no longer be accepted. While in the West, gains are privatized but losses are socialized, China aims to privatize the losses (as with Evergrande) and socialize more of the gains (as with the pressure on tech platforms to raise wages, hire more young graduates, and make big donations from their profits to charitable causes).

This isn’t entirely bad. Making businesses bear the cost of their mistakes is refreshingly capitalist. We should do more of that here. In the Chinese case, these mistakes were also the government’s. But because the government rules, it will decide who to protect. Chinese homebuyers who never got their homes will probably get bailouts. Property developer executives, shareholders, lenders, and suppliers probably won’t.

In fact, what is happening on the ground is that all of the cash from Evergrande and other equally distressed companies is being used to finish the projects for the homebuyers at the expense of the bondholders and of course the equity holders. The rule of law is the rule of Xi, and he is pragmatic. He deems the well-being and happiness of homebuyers more important than a few upset bondholders.

Traumatic Ends

The visible impact of all this will be mostly within China, but its macro effects will be global. Such wealth destruction should be intensely deflationary. That may be part of the goal, in fact. Chinese consumers are feeling significant inflation in food, housing, and other living costs. Demographic factors, particularly population aging, will increase this pressure. Decades of the one-child policy reduced working-age labor supply, which raises wages and other prices.

But it won’t stop there. For years, China’s voracious appetite for energy and materials underpinned prices worldwide. At the same time, its low manufacturing prices basically exported deflation. Hence we saw little or no inflation in most finished goods but a lot of inflation in commodity-intensive services like food, energy, and housing.

In short, China is losing its role as the world’s lead manufacturing exporter. Government policies aren’t helping, but George Friedman notes this is actually a cyclical process. He wrote a thoughtful piece (which I shared with Over My Shoulder members here) about the apparent 40–50 year pattern in which a nation takes on this role then loses it. The US did so in the 1890s, then it was Japan, and China since the 1980s.

This process seems to be built into modern capitalism. There is a hunger for low-price manufactured products by wealthy countries that can no longer afford to produce them. Why does the cycle take 40 years? I have no explanation. It could be coincidence if there were only three cases. Or there could be some structural cause. But it is there, and it seems to be reaching its terminal stage in China.

The end of this period is traumatic. The US marked it with the Great Depression, and Japan with its 1990s downturn, but both countries adapted and recovered. (You might even say they “muddled through.”) George expects the same for China.

China, of course, isn’t going anywhere, and it will be a permanent economic power after it stabilizes. But the breathless blather of its taking over the world will have been proved wrong. Another country we never expected will take its place, and then we will claim to have always known it was there.

China has its own wrinkles, which to me are quite frustrating. A country so large, with so many brilliant, hard-working people, really could take a leading economic role in the right circumstances, and the world would be better for it. But it would require a government that allows personal freedom and entrepreneurship, and China under Xi will have neither.

#  #  #  #

You can find a link to John’s full piece here. And you can subscribe to his free letter by clicking subscribe.

If you missed last week’s OMR, I share a few summary notes and the link to a one hour discussion with Dr. Lacy Hunt and Felix Zulauf moderated by Grant Williams. Hat tip to Jennifer Mendel and Felix for allowing me to share the webinar replay with you.

---

Dr. Lacy Hunt, Felix Zulauf, and Grant Williams

Zulauf Consulting hosted Dr. Lacy Hunt for a webinar on September 2, 2021, which featured a lively conversation moderated by Grant Williams, publisher of Things That Make You Go Hmmm… and the Grant Williams Podcast. The discussion covered macro themes, including deflation, interest rates, and various other topics.

Lacy and Felix are two of the greatest investors of all time. I favor investors who have skin in the game. You will get a sense for how they are positioning client money (in the case of Lacy) and family money (in the case of Felix). Google them…

Following are a few high-level takeaways:

Lacy on debt and demographics:

• The US global economy has a lot of serious problems, the most important of which is that we’re excessively over-indebted. And we’ve taken on a great amount of new debt in the past year to try to ameliorate the consequences of a pandemic.
• And while this debt can be deemed as politically popular and socially irresponsible, it’s going to have a very deleterious effect on economic growth for a long time to come.
• And in addition to that, because we’ve been on this high-debt path for so long. The trend rate of economic growth has fallen dramatically below what we were achieving up until the late 1990s. That’s when we became over-indebted. And each year that goes by we, we move further below the curve.
• The world is getting older. Age demographics do not support growth.
• The outlook for the global economy is not good; it’s not constructive at all.
• And he doesn’t think there are remedies to correct the problem that could be adopted in this current political environment.

Felix:

• Concurs with Lacy on the secular debt and demographics headwinds.
• The 2020 recession was the shortest on record, but it was not a normal recession. It was government-induced late in an aging business cycle. And due to government interference, the recovery out of that decline happened very quickly, and therefore we cannot treat it as a normal recession.
• A recession normally clears the system from excesses that have been built up previously in an expansion that has not materialized. This time, the excesses are still there, and they are bigger than before.
• Therefore, this recovery is going to be a bumpy one and incomparable to the normal recoveries coming out of recessions—that’s the first point.
• The second point is, he expects this recovery to take the shape of a capital M. We had the sharp shot up out of the low due to the stimulation and support.
• He thinks we are now at the high point, and are now declining toward the middle of the letter M. He expects a pronounced slowdown, into, let’s say, the middle of next year. Driven by the restrictive policies in China, and by a decline in real personal income in the U.S., this slowdown will probably surprise in magnitude, because the (current economic) expectations are too high.
• The inflation rate that we are seeing is a result of a disrupted and distorted world economy, where we had the demand and the supply shock. The demand shock was helped by government support, whereas the supply shock is still struggling. And therefore, the price has to bring demand and supply into balance. Therefore, we have higher inflation, which is a temporary thing. He expects inflation to soften somewhat into the middle of next year.
• Then if the economy surprises on the downside into next year, he believes our authorities, desperate and afraid of a weakening of economies, will come in with new support measures, and that will probably bring us another recovery attempt higher, which will be from the middle of the letter M into the upper right hand high of the letter M. He expects that to occur from, say, mid-2022 into 2024.
• He thinks inflation will swing with it, as will bond yields. He expects that bond yields are having an open window for decline from later this year into let’s say sometime around the middle of next year, but then go up again into 2024 with the rise in inflation.
• If things work out as he expects, then that should terminate the bull market in equities (2023 or 2024).
• The bull market in equities has been a liquidity-driven bull market fueled by money fleeing all other nominal investments. Hiding in what investors perceive as the best investment through a difficult period of time.
• As soon as bond yields start to rise in the next little mini cycle in 2023 and 2024, the cyclical bear market in stocks will begin. And around the middle of this decade, we will fall back into a serious global recession.
• In this scenario, as soon as governments, and particularly the US government, becomes more aggressive again on the fiscal and monetary side, he thinks that will be the beginning of the next big leg down in the US dollar, and that will have a detrimental effect on the bond market, and it will be very bullish for gold, and the commodity sector.
• This in a nutshell, is the big picture.

SB here: I’m a subscriber to Felix’s research letter. He continues to expect that a meaningful correction into mid-next year is probable. His most recent letter was more bearish than what you’ll hear listening to the September 2021 webinar (below). I hope you find it insightful. Not a recommendation to buy or sell any security. I still believe, “It’s time to hedge.”

Please click on the image below to access the webinar. The replay will start automatically once you submit your information.

---

Trade Signals – Deterioration in Technicals

October 6, 2021

Posted each Wednesday, Trade Signals looks at several of my favorite equity market, investor sentiment, fixed income, economic, recession, and gold market indicators.

For new readers – Trade Signals is organized into three sections:

• Market Commentary
• Trade Signals — Dashboard of Indicators
• Charts with Explanations

Market Commentary

Notable this week:

Click HERE to read to the balance of Wednesday’s Trade Signals post.

Not a recommendation for you to buy or sell any security. For information purposes only. Please talk with your advisor about needs, goals, time horizon and risk tolerances.

---

Personal Note – Good Times Never Seemed So Good

Where it began, I can’t begin to knowing
But then I know it’s growing strong
Was in the spring
And spring became the summer
Who’d have believed you’d come along

– Neil Diamond, “Sweet Caroline”

The trip to Penn State last weekend was so much fun. What a party! Not sure how else to describe the football game. If you watch football on TV, you know how many breaks are taken for commercials (TV timeouts). If you attend in person, waiting for play to resume can be frustrating. At Penn State and many other stadiums, that has changed. In between plays and during TV timeouts, the scene becomes similar to an outdoor concert, with the music playing loud as you sing along with 110,000 of your closest friends.

Hands, touching hands
Reaching out, touching me, touching you
Sweet Caroline
Good times never seemed so good

The tailgate started at 2pm. Susan, Matt, Connor, Mike, Kate and I arrived around 3:30pm. The kids left the old people tailgate to join their friends. We all met up at 6:45pm to enter the stadium together. Penn State dominated Indiana, winning 24–0. My #4-ranked Nittany Lions play Iowa (#3) in the Hawkeye State tomorrow. I’ll be watching.

Inside the stadium, it looked like this.

And the excitement continued. Last night, I watched Susan coach her Malvern Prep high school boys’ soccer team to an exciting 2–1 away game victory.

Sweet Caroline
Good times never seemed so good
Sweet Caroline
I believe they never could
Sweet Caroline
Good times never seemed so good

It was a nail biter. but Coach Sue and her boys got an important win in the end. And let’s just say the post-game beer we shared was…

SO GOOD, SO GOOD, SO GOOD

Wishing you the very best. And rooting for a big win for your favorite team!

All the best,

Steve

Stephen B. Blumenthal
Executive Chairman & CIO
CMG Capital Management Group, Inc.

Consider buying my newly published Forbes Book, described as follows:

With On My Radar, Stephen Blumenthal gives investors a game plan and the advice they need to develop a risk-minded and opportunity-based investment approach. It is about how to grow and defend your wealth.

If you are interested in the book, you can learn more here.

---

Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management.

Click here to receive his free weekly e-letter.

Follow Steve on Twitter @SBlumenthalCMG and LinkedIn.

---

IMPORTANT DISCLOSURE INFORMATION

Investing involves risk. Past performance does not guarantee or indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by CMG Capital Management Group, Inc. [“CMG”]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CMG. Please remember to contact CMG, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. CMG is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice.

No portion of the content should be construed as an offer or solicitation for the purchase or sale of any security. References to specific securities, investment programs or funds are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities.

This presentation does not discuss, directly or indirectly, the amount of the profits or losses, realized or unrealized, by any CMG client from any specific funds or securities. Please note: In the event that CMG references performance results for an actual CMG portfolio, the results are reported net of advisory fees and inclusive of dividends. The performance referenced is that as determined and/or provided directly by the referenced funds and/or publishers, have not been independently verified, and do not reflect the performance of any specific CMG client. CMG clients may have experienced materially different performance based upon various factors during the corresponding time periods. See in links provided citing limitations of hypothetical back-tested information. Past performance cannot predict or guarantee future performance. Not a recommendation to buy or sell. Please talk to your advisor.

Information herein has been obtained from sources believed to be reliable, but we do not warrant its accuracy. This document is a general communication and is provided for informational and/or educational purposes only. None of the content should be viewed as a suggestion that you take or refrain from taking any action nor as a recommendation for any specific investment product, strategy, or other such purpose.

In a rising interest rate environment, the value of fixed income securities generally declines and conversely, in a falling interest rate environment, the value of fixed income securities generally increases. High-yield securities may be subject to heightened market, interest rate or credit risk and should not be purchased solely because of the stated yield. Ratings are measured on a scale that ranges from AAA or Aaa (highest) to D or C (lowest). Investment-grade investments are those rated from highest down to BBB- or Baa3.

NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.

Certain information contained herein has been obtained from third-party sources believed to be reliable, but we cannot guarantee its accuracy or completeness.

In the event that there has been a change in an individual’s investment objective or financial situation, he/she is encouraged to consult with his/her investment professional.

Written Disclosure Statement. CMG is an SEC-registered investment adviser located in Malvern, Pennsylvania. Stephen B. Blumenthal is CMG’s founder and CEO. Please note: The above views are those of CMG and its CEO, Stephen Blumenthal, and do not reflect those of any sub-advisor that CMG may engage to manage any CMG strategy, or exclusively determines any internal strategy employed by CMG. A copy of CMG’s current written disclosure statement discussing advisory services and fees is available upon request or via CMG’s internet web site at www.cmgwealth.com/disclosures. CMG is committed to protecting your personal information. Click here to review CMG’s privacy policies.