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On My Radar: Russia’s Putin and China’s Xi

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May 25, 2024
By Steve Blumenthal

“One of the key priorities today of Chinese policymakers is to de-dollarize their trade, is to reduce their dependency on the U.S. dollar. And this is much more for geostrategic reasons than economic reasons. I think in the past 15, 20 years, you have seen the U.S. dollar weaponized time and time again to confront geopolitical rivals or problematic countries […] And the U.S. politicians have used the hammer of the U.S. dollar to beat people up, and China doesn’t want to be on the other side of that hammer.…”

-Louis-Vincent Gave

China and Russia signed a joint statement on Thursday that proclaimed opposition to the U.S. on a number of security issues, expressing their shared view on everything from Taiwan, Ukraine, and North Korea to cooperation on “new peaceful nuclear technologies” and finance.

New peaceful nuclear technologies? I find that hard to believe.  

Xi has expressed to Putin that, together, they could drive changes the world hasn’t witnessed in a century. I’ve written extensively about China challenging the U.S.-led global order—a rising power challenging the existing power. My Washington insider friend, Renè Javier Aninao, who is the Managing Partner of CORBŪ, writes extensively on geopolitics and markets. With permission, I’m sharing excerpts from a recent email he sent regarding Putin’s visit to China:  

“There are 7 key narrative points worth quickly articulating [in order of importance]: 

  • Regardless of any diplomatic rhetoric to the contrary, the U.S.-China bilateral relationship is in a far worse position today, in May 2024, than even during the “lows” of the spy balloon incident in February 2023. 
  • While the latest round of Sec301 tariffs will have little impact on the current U.S./global economy, the composition and timing are a political signal to Beijing that U.S. policy intends to truncate the Chinese market share of strategic economic sectors. 
  • This [arguably] offensive act of economic statecraft—and the fact that ALL the Trump-era tariffs will remain in place—signals that: 
  • The U.S. tariffs and export controls regime against China will end only once there is a regime change in Beijing [and Moscow]. 
  • Given the near-term economic implications for Europe (e.g., who need at least a roughly +50% tariff on Chinese-origin EVs), the U.S. tariff announcement is clearly a response to Beijing’s support of Putin and a threat to European collective security. 
  • Expect Beijing to retaliate only indirectly and non-proportionally in non-U.S. theatres and through active, non-economic countermeasures.   
  • That said, in economic space, will continue to reaffirm long-held CORBU house view that the optimal policy for Beijing is an “external revaluation” (i.e., to depreciate the exchange rate). 

Aninao closed his short client note with one final observation: 

  • e.g., On 7th October 2022, the Biden administration announced historic (arguably war-level) controls on the Chinese tech sector. 
  • e.g., On 30th November 2022, OpenAI publicly released ChatGPT-3 “into the wild.” 
  • Since December 2022, the leadership position of China in AI space has totally collapsed. 
  • And the structural growth gap between the U.S. and China has widened, along with the capital flows. 
  • This is not all mere coincidence, but rather, it demonstrates that the power of American economic policy is greater than the use of kinetic force. 

“That said,” he concluded, “whether this policy mix deters adversaries OR changes regime behavior OR accelerates conflict is TBD. YOU PICK. LET’S SEE.”  

The China panel at the Mauldin Economics 2024 Strategic Investment Conference at the start of the month brought together several well-known China experts. Conference founder and engaging leader John Mauldin summarized his takeaways in his newsletter last week. A few points are worth bringing to your attention. I will share them with you further below. 

Top line, it’s important to note that China faces significant challenges. China’s economy is slowing, its demographics are declining, and its authoritarian grip on its people is tightening. China is also increasingly aligning with Russia, North Korea, and Iran. Are these trustworthy partners? I know what I think. You can make your own call. They are certainly strategic if the goal is to dethrone the American giant and reshape the world order.  

The U.S. sees China as its primary competitor and Russia as its primary nation-state threat. The U.S. also sees China and Russia as authoritarian regimes that suppress free speech and maintain strict control over media and the judiciary. Biden has referred to Xi as a “dictator” and Putin as a “killer,” even once calling him a “crazy SOB.”  

Calling out the fine line Xi is trying to walk in backing Russia, State Department deputy spokesperson Vedant Patel, told a daily news briefing that China “cannot have its cake and eat it too.” Patel added, “You can’t want to have good, further, stronger, deepened relationships with Europe and other countries while simultaneously continuing to fuel the biggest threat to European security in a long time.” (Source: Reuters) 

Things are also complicated on the technology manufacturing front. While Apple carefully expands its manufacturing throughout Asia, it remains dependent on China—just as China is dependent on Apple, for that matter. Can the economic interests—that fine line Xi is attempting to walk—keep us from war? The momentum is in the wrong direction. As reported in the WSJ yesterday, Microsoft has asked some of its China-based employees to leave the country.  

Grab your coffee and find your favorite chair. This week’s OMR covers more on China and looks at current valuations and what they may tell us about the probability of coming 10-year U.S. equity market returns. You’ll see my “We are here” and “We’d be better off here” arrows.

On My Radar:

  • Russia’s Putin and China’s Xi 
  • The Bull-Bear Debate
  • Random Tweets
  • Personal Note: Handcuffs
  • Trade Signals: May 15, 2024

See Important Disclosures at the bottom of this page. Reminder: This is not a recommendation to buy or sell any security. My views may change at any time. The information is for discussion purposes only.

Russia’s Putin and China’s Xi

Last week, Mauldin gave an excellent summary of the China discussions at the 2024 SIC in his weekly newsletter, Thoughts from the Frontline. You can find the full piece here. 

The rest of this section is from John:  

“China is recovering, but many problems remain. I think Xi’s assertion of greater control over the economy—and suppression of entrepreneurial activity—will have deep long-term consequences (see below). But China has more immediate issues and effects on the world. That’s where our panel started.

My partner Ed D’Agostino, who was moderating, asked Lyric Hughes Hale to describe what is happening with the Chinese economy right now. Lyric is fluent in six languages, including Chinese and Japanese, and lived in both countries. She brought the Super Bowl to China in 1986. She is wired and knows China intimately. Her letter is excellent.

Here is part of Lyric’s comment from the transcript (which, by the way, is 19 full pages so I can only share some short clips).

“I think what we’re seeing right now is the end of Chinese exceptionalism, economic exceptionalism. I do believe that somehow communism and capitalism are incompatible. And right now, China was able to not do anything to reform many of its political institutions because just the growth rate was so quick, and the base was so low when they started out that it looked like a miracle that could go on forever.

“And then China, many people said, would exceed the growth of the United States. According to my calculations, it’s not even true demographically. By the end of this century, the United States could have a larger population than that of the People’s Republic of China.

“So what we’re seeing right now, all the problems that we’re seeing, I believe the economic decline is real. And the best way for investors to measure that, I think, right now is the price of gold. China is now the largest buyer of gold, and it’s not just at the retail level where they far exceeded Indian purchases, but it’s also at the governmental level. The rise in the price of gold to me is an inverse indicator of the problems with the Chinese economy…”

Louis Gave then jumped in with another explanation for Chinese gold buying. He thinks Chinese investors see the Western sanctions on Russia, don’t want to be next and are thus urgently trying to get out of dollar assets. Here’s Louis:

“One of the key priorities today of Chinese policymakers is to de-dollarize their trade, is to reduce their dependency on the US dollar. And this is much more for geostrategic reasons than economic reasons. I think in the past 15, 20 years, you have seen the US dollar weaponized time and time again to confront geopolitical rivals or problematic countries, whether… call them Iran, call them Venezuela, call them Sudan, call them Russia… And the US politicians have used the hammer of the US dollar to beat people up, and China doesn’t want to be on the other side of that hammer…

“For most of my career, gold was always said to be the anti-US dollar. It was always said that when the policy mix in the US is wrong, when monetary policy is too loose, when fiscal policy is too loose, that gets reflected in a stronger gold price and a weaker dollar vis-a-vis gold. So I was smiling to hear that now a weaker dollar, stronger gold is actually a reflection on China, much more so than on the US.

“I think if you’re Chinese and you look… if my choices are Vancouver real estate or gold because I don’t want to invest in China, maybe now gold makes more sense.”

If this is right, then Chinese gold buying isn’t so much about wanting gold but about not having any better alternatives. Emily de La Bruyère then said it’s even broader than that; China wants to reduce outside dependence on everything else, too.

“There was a point already about China’s effort to rid itself of dependence on the US dollar. That’s important because China’s industrial policy more generally hinges on ridding itself of dependence on other players, or at least shifting the relative balance of dependence so that China is relatively more independent in any product than its competitors, adversaries, or even partners, because that gives Beijing leverage.”

I found this darkly amusing in a way. We seem to be regressing back to the time when physical gold—“specie,” as they called it—was the measure of power. And this time it’s gold plus a bunch of modern gold equivalents like microchips.

Decoupling and Diversion

If you believe some of the Wall Street narratives, this desire for economic independence—which exists in the US, too, we should note—is behind the “decoupling” of China and the US. Remember when people talked about “Chimerica” (a term coined by my friend Niall Ferguson)? You don’t hear that anymore.

Louis Gave says China sees this differently.

“Yes, the Western world is trying to reduce its dependency on supply chains, but meanwhile, China’s footprint across emerging markets is growing by leaps and bounds. And so, when you look at China’s trade surplus that has gone from $30 billion to $70 billion over the past five years.

“Five years ago, the Western world decides—basically the US and then others tag along—that China’s a bad actor, that we need to freeze them out, we need to block them from global supply chains. We fast-forward to today, and the trade surplus is up 2.5X.

“So arguably, you could say, ‘Okay, well, that’s been a failure,’ but that whole growth has come from trade with emerging markets. If you go back to just five years ago, China’s exports to Southeast Asia, to ASEAN countries—so, the Indonesias, the Philippines, the Malaysias of this world, the ASEAN countries—was about 60% of China’s trade to the US.

“Now, in the past five years, China’s trade to the US has basically flatlined. Meanwhile, China’s trade to the ASEAN has more than doubled. So that today, China’s trade into Southeast Asia is 120% of China’s trade to the US. So today, for China, Southeast Asia is arguably now more important than the US.

“This is how the decoupling is working, and it’s not working in favor of the US. It’s actually working in favor of China because China is getting bigger and bigger inroads in the markets that are going to be the growth markets of the future…

“China’s growth is no longer about selling plastic toys and tennis shoes. It’s now selling cars, earth-moving equipment, solar panels, telecom switches, and it’s selling it not to the US, not to Europe, it’s selling to all these other emerging-market countries.”

Louis makes sense, but it’s fair to wonder how much of this business would have gone to US companies. We simply don’t produce those kinds of products anymore. For better or worse, we’ve pivoted over the last two decades to exporting intangibles: software, financial services, etc. Those are our strengths now.

(Note: I have a close friend who sells Chinese “earth-moving” equipment, think Caterpillar or John Deere, here in the US. He has become the largest distributor of Chinese-made equipment in the world, in under two years. They literally cannot keep up with demand here in the US. Think about that. And then ask where Caterpillar and Deere manufacture a lot of their equipment. Just one more example of how difficult China policy is.)

But to Louis’s point, Lyric and Emily both think much of China’s export volume to these other countries is “diversionary” and still ends up in the US. Here’s Emily:

“Both of these things can be true. Yes, China’s exports to emerging markets have gone way up and China dominates their production, but at the same time, China is also using emerging markets and other international markets as ways to access the US, EU, and other developed countries’ markets where there are higher barriers to entry.

“If you look at diversionary trade through Mexico to the US, 100%. Where are the solar panels in the US coming from? They’re coming from China. Where are the EVs in Europe increasingly coming from? They’re coming from China.

“So yes, no question to the emerging markets point, but that doesn’t mean that the US and the European markets are not still really, really important for China. And why is that important? Because of dependence on China, but also because that means that there is this political opportunity in the geopolitical contest for the US and Europe to use their markets as leverage against China.”

This is what I mean about the relationship being complicated. Neither the US nor China is yet able to decouple in the way leaders on both sides want. American consumers need Chinese goods and Chinese producers need American customers, which means they have to take our dollars. This is changing, but slowly.

The Next China?

What you just read is maybe 20% of the China panel. There was so much more but space limits me. (You can, however, still get the full video and transcripts of the entire conference.)

We ended with audience questions. We have a system for SIC where people can submit a question and then others give their vote. This lets the moderators ask what the audience wants to hear. Oddly, the top question for the China panel was about India. Can India be the next China? All three panelists weighed in, Lyric first.

“Well, India and China are vastly different countries, obviously. I think the way that I look at the world, we have two spheres of influence now, the US, Europe, Japan, and then also China, Russia, North Korea, and Iran. And then you have a whole category of other countries that are trying to create some kind of multipolarity. India is trying to be friends with Russia, with China, and with us. And if the world becomes more contentious, that will become more and more difficult for them.

“But obviously India, I think, today is the most populous nation in the world if the statistics were reported correctly. I think there’s a huge amount of hope for India, but it’s not the same. It doesn’t have that same ecosystem as China does in terms of manufacturing.

“And Louis, I think you would agree with me, there is a tremendous amount of innovation that takes place on the factory floor in China with all of these similar kinds of component parts, people who work together. And while Apple might send them the design, real innovation is done there as well, and I think that takes time to recreate that ecosystem. I don’t see that in India yet.”

Louis Gave added:

“Building an industrial ecosystem takes a long time. It’s an old generation that trains a new generation, and that’s why once you lose it, it’s very hard to bring back together. And today, there’s no doubt that there is one industrial superpower in the world, and that industrial superpower is China. I think Japan and Germany are other industrial superpowers, but that’s basically it. India is nowhere near.

“Now, I think India has a great story to tell. There’s lots of super-exciting things happening there. Big productivity gains as you get the low-hanging-fruit infrastructure spending done and demographic growth, improvement in the population through education. There are tons of great stories about India, but it’s not going to be an industrial powerhouse, I think, in my lifetime.”

Emily de La Bruyère concluded:

“One thing to add on is the nature of China’s system, and part of why it’s so unique is both China’s scale and its centralization, and it’s like those forces together that make China what it is. And India doesn’t and probably will never have that kind of centralization… I would argue that that’s really important for how their trajectories will differ.”

In the Western context we think of “centralization” as bad. We let ideas compete and see what works, rather than impose it from the top down. That’s the key to much of our success. In contrast, the Chinese found ways to both centralize authority and let individual creativity flourish. The results are obvious.

The question now is whether it can continue as Xi Jinping cracks down on individual rights and business freedom. Count me dubious the country’s economic success can continue under those conditions.

The Final Panel on China

China was on the mind of the final panel. Space limits but here are a few highlights:

From Bill White:

“Demographics [have] turned negative in China in terms of their future capacities to throw labor at markets. Another thing is the anti-technology or the anti-business approach that Xi is following. And I think John said earlier on, that in America, when you have a success, it just breeds more success, whereas in China, what’s happening now is that the successful entrepreneurs are basically putting their heads down and trying to get their money out. Now, this is not a solid foundation for future growth.”

We had a very rousing discussion and I concluded it this way (with the luxury of editing myself):

“If you look back over the last century, I think clearly one of the five most important people of the last century was Deng Xiaoping. He came in 1980 and turned that country on a dime, grabbing it by the neck and said, ‘We’re going this way,’ and allowed free markets, and the country simply took off.

“For those of us who travel around the world, it’s hard not to notice that the Chinese, everywhere in the world they land, are entrepreneurial. In many countries in Asia, they become dominant. Deng Xiaoping changed everything. Xi Jinping comes along, and he’s consolidated power, and now, to Bill’s point, when somebody rises up in tech, they get slapped down. [They’re] losing the momentum of growth.

“When Deng started in ’80, we didn’t really start going ‘Wow’ until the aughts. I mean, it was cool to watch, but you got to the middle aughts and ‘Wow. Look what’s happening here.’ It takes time for these major shifts to come to fruition.

“Along comes Xi. When you start crushing innovation and entrepreneurship, it takes time for that to filter into the broader economy. We’ve talked a lot about artificial intelligence at this conference. The US isn’t just ahead, it’s moving ahead faster because China is not allowing artificial intelligence to come into the country in any meaningful manner. It is going to take time, as Joe Lonsdale and others said, for AI to really show up in our productivity figures, it’s going to take time for the lack of AI to demonstrate itself in China. Unless they reverse course, they are basically saying… And this is not what they think, but it’s what’s going to happen.

“When you push against free markets, when you push against innovation, when you don’t adapt to the latest new systems, it’s like saying, ‘Well, we don’t want to have railroads,’ or ‘We don’t want to have phones.’ If you don’t want to have AI, you’re going to fall behind. So I think it’s too early to say China’s going to be the end-all and be-all here and the rest of the world’s going to revolve around it, because they’re going to visibly slow down vis-a-vis the US over the next decade.”

And to Lyric’s point, China has demographics working against them. Coupled with their focus on top-down innovation rather than bottom-up, which is never as efficient, and it reminds me of Japan in 1989. Everyone thought Japan would own the world. That’s what the trend suggested. Yes, different times and circumstances, but it rhymes.

Food for thought the next time you think China will swallow the world.”

SB here: China, Russia, Iran, North Korea? Xi should be careful of the friends he picks. It’s telling. It’s concerning. “New peaceful nuclear technologies?” Give me a break.

This is not a recommendation to buy or sell any security. It is for educational discussion purposes only. Opinions are subject to change. Consult your advisor. 

The Bull-Bear Debate

Equities have been on a great run since last October. This week, the Dow Jones Industrial Average traded above 40,000 for the first time. Despite the extreme level of overvaluation, the trend continues to lean bullish.  

One of my all-time favorite quotes on markets comes from the late Charlie Munger. He said, “Extreme patience combined with extreme decisiveness. You may call that our investment process. Yes, it’s that simple.”  

There is a reason his partner, Warren Buffett, is sitting on record amounts of cash.  

Big picture: Their success is tied to entering positions at a good price. Simply put, the price one pays for an asset matters. When valuations are high, subsequent future annualized returns will likely be low. When valuations are low, the subsequent future annualized returns will likely be high.  

Will it be different over the coming 10 years? Maybe, but I wouldn’t place that bet. 

The following are two charts I post weekly in Trade Signals. The first is the Shiller PE; the second plots the 10-year return history based on how high or low the PE 10 ratio is, as sorted into deciles.  

Key points: 

  • First, note that the current Shiller PE is at 34.79 (red dot on the far right side of the chart). 
  • Next, look at the entire chart to get a sense of the current level compared to the long period plotted in it. 

 

Now, onto the second chart.  

Here, Ed Easterling from Crestmont Research did some interesting work. He plotted all of the month-end Shiller PE or PE 10 readings into deciles, ranging from the most expensive (decile 1) to the least (decile 10). He then showed the lowest, highest, and average return per decile.  

Some notes for reading the chart: 

  • The red “we are here” arrow shows us the current state of play—decile 1. 
  • Out of the many 10-year return data points measured since 1909, the best reading was an annualized total return of 3.6% per year. The single worst was a 1.8% annualized. The single best instance was 3.6% annualized. The average was 1.3%. 
  • If you compound your money at -1.8% per year for ten years, your $100,000 will turn into $83,390 in 10 years.  
  • If you compound your money at 3.6% per year for ten years, your $100,000 will turn into $142,429 in 10 years.  
  • If you compound your money at 1.3% per year for ten years, your $100,000 will turn into $113,787 in 10 years.   
  • That is a far cry from Jeremy Siegel’s 6.9% “Stocks for the Long Run” stock market return average (source: Stocks for the Long Run) 
  • Of course, that’s pretty old data since his book was published. And 10-year periods are better than others.   

For me, the following data does as good a job as any I’ve seen in terms of when subsequent 10-year annualized total returns are most likely to be highest and when lowest. Over the long run, reward favors the investor buying in at a good price. I think we lose site of that in the day-to-day casino we all live in.  

I hope this helps set some perspective. We’ll get to the “We’d be better off here” deciles. Patience combined with extreme decisiveness. Have a plan and be ready to act when the arrow turns green.  

This is not a recommendation to buy or sell any security. It is for educational discussion purposes only. Opinions are subject to change. Consult your advisor. 

Random Tweet

Source: Visual Capitalist

I “like” and “retweet” posts I find interesting. I enjoy X because I can easily follow people I like to keep On My Radar.

You can follow me on X (formerly Twitter) @SBlumenthalCMG.

Not a recommendation to buy or sell any security. For discussion purposes only. Current viewpoints are subject to change.

Personal Note: Handcuffs

My son Matthew texted me just as I began writing this morning: “Dad, Scottie Scheffler was arrested and taken away in handcuffs after he attempted to drive past a police officer near the entrance of the Valhalla Golf Club.” Apparently, according to Matt, there’d been a big car accident with a fatality that Scottie was not involved in, but the cops freaked out when Scottie tried to get into Valhalla, and he was charged with second-degree assault and reckless driving.  

If you’re unfamiliar with Scheffler, he is currently the world’s No. 1–ranked golfer. And this weekend, Valhalla is hosting one of golf’s biggest events, the PGA Tour Championship. If you are a golf fan, I’m sure that, like me, you love this guy. He’s about as kind and gracious of a human being as there is.  

Competitors seem to have an interesting gene that sparks the fire inside. It’ll be interesting to see how Scottie plays in the aftermath of this incident. “I bet he goes out and shoots a 67,” I texted back. Matt responded, “I bet he could break 70 in handcuffs.” I bet Matt’s right. Go, Scottie. We’re rooting for you. 

Golf aside (and included), what a week for a sports geek! I caught Tuesday’s Phillies vs. Mets game at Citi Field in NYC. Of course, I was pulling for my Phillies—a big thank you to Chad, Brandi, and my good friend Mike for hosting. But the fun didn’t stop there. Mike tracked down two tickets to game five of the Knicks vs. Pacers NBA playoffs in Madison Square Garden. Don’t tell my Sixers friends, but I was in awe watching Jalen Brunson in person dice up the Pacer’s defense. It was a blowout win for the Knicks, and the fans were elated. Their excitement and electric energy brought pure joy. I love seeing how a team can bring all kinds of people together. Let’s go, Knicks!  

By the time this hits your inbox, Susan and I will be at Citizens Bank Park with beer and peanuts in hand, watching the Phillies host the Washington Nationals. A good week for a sports geek, indeed. 

I’ll be taking some time off from work starting late next week. Matthew is flying home, and we have some golf planned at Stonewall on Thursday. Then, on Friday, I’ll be driving to Ithaca, NY, for the college graduation of the youngest of our six children, Kieran. Susan lined up an Airbnb for the long weekend celebration. At my graduation back in 1983, my father whispered in my ear, “It’s all downhill from here kid.” Fortunately, the “senior week” party begins next week—one last college party week before the pure joy of full-time employment. It really is going to be fun to see what Kieran creates next.  

My travel schedule is picking up, including several planned trips to Dallas, Denver, Chicago, and San Diego. We have a few investments in the energy space and remain bullish in this area. I’ll be doing a series of podcasts with industry leaders and hope to share them with you soon.  

Lastly, a belated Happy Mother’s Day! Women are our planet’s most important human beings, and no one is more important to humanity than Mom. I hope your day was great. 

Have a fun week, 

Steve

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Trade Signals: May 15, 2024

“Extreme patience combined with extreme decisiveness. You may call that our investment process. Yes, it’s that simple.” 

– Charlie Munger

Notable this week:

The dashboard of indicators and charts with explanations is updated. 

Past performance does not predict future performance. See important disclosures below.

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Each week, we update our dashboard of indicators covering stock, bond, developed, and emerging markets, along with the dollar and gold charts. We monitor inflation and recession as well.   

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TRADE SIGNALS SUBSCRIPTION ACKNOWLEDGEMENT / IMPORTANT DISCLOSURES 

The views expressed herein are solely those of Steve Blumenthal as of the date of this report and are subject to change without notice. Not a recommendation to buy or sell any security.

Stephen B. Blumenthal
Executive Chairman & CIO
CMG Capital Management Group, Inc.
Private Wealth Client Website – www.cmgprivatewealth.com
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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.

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IMPORTANT DISCLOSURE INFORMATION

This document is prepared by CMG Capital Management Group, Inc. (“CMG”) and is circulated for informational and educational purposes only. There is no consideration given to the specific investment needs, objectives, or tolerances of any of the recipients. Additionally, CMG’s actual investment positions may, and often will, vary from its conclusions discussed herein based on any number of factors, such as client investment restrictions, portfolio rebalancing, and transaction costs, among others. Recipients should consult their own advisors, including tax advisors, before making any investment decision. This material is for informational and educational purposes only and is not an offer to sell or the solicitation of an offer to buy the securities or other instruments mentioned. This material does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors which are necessary considerations before making any investment decision. Investors should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, where appropriate, seek professional advice, including legal, tax, accounting, investment, or other advice. The views expressed herein are solely those of Steve Blumenthal as of the date of this report and are subject to change without notice. 

Investing involves risk.

This letter may contain forward-looking statements relating to the objectives, opportunities, and future performance of the various investment markets, indices, and investments. Forward-looking statements may be identified by the use of such words as; “believe,” anticipate,” “planned,” “potential,” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular market, index, investment, or investment strategy. All are subject to various factors, including, but not limited to, general and local economic conditions, changing levels of competition within certain industries and markets, changes in legislation or regulation, Federal Reserve policy, and other economic, competitive, governmental, regulatory, and technological factors affecting markets, indices, investments, investment strategy and portfolio positioning that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties, and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Investors are cautioned not to place undue reliance on any forward-looking statements or examples. All statements made herein speak only as of the date that they were made. Investing is inherently risky and all investing involves the potential risk of loss.

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), 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, has not been independently verified, and does 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 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 purposes.

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.