Hall Capital “Market Views” Newsletter July 2015

This is the 21st edition of Market Views from HALL CAPITAL. Our aim is to provide concise views of where we see risk and opportunity for investors.

Greece is a Tragedy
- but mainly for the Greeks

There is a 50% chance that Greece does not reach a deal and prints a new currency to pay its internal bills, pensioners etc. The recipients of such will find that their drachmas won't buy much and, thus, they will be worse off than taking the IMF's recommended austerity. So either way, Greek citizens are facing difficult times.

The Greek situation is more important politically than economically, as Greece is not that large relative to the European economy. Contagion is not likely. We will know the outcome soon as the "final" deadline is July 12.

As pointed out years ago, debt in the developed world will be THE major on-going issue for investors for many more years. While smaller, Puerto Rico's $73 billion debt may be more relevant to US investors.

European stocks look somewhat undervalued compare to US stocks but there is still risk in the euro currency, if only because of massive quantitative easing in the face of higher competing interest rates in the US.

Our Fed Remains on Hold
- for now

Greece is not the only international variable at play currently. The environment is dynamic in China, Japan, Russia and Iran, as well as Europe. Greece may hold some political importance, but China is far more important economically. While much is made of the swoon in Chinese stock prices, Chinese stocks are still up double digits so far in 2015.

Though Greece debt and Chinese stocks dominate today's headlines, over the next few quarters the key variables in the outlook will be GDP growth in China and the US and how the US stock market copes with the inevitable rise in interest rates. We do not believe the threat of higher rates warrants a full scale retreat from stocks. Nor do price levels justify an aggressive stance. Whether stock prices are damaged much with higher rates will depend on what is driving the rate increases. If the driver is a stronger economy then this will be an offset to the rate head wind for stocks.

Focus List
- holding steady

The Focus List managed to edge out the S&P 500 again for the rather uneventful quarter adding .5% vs .3% for the market, bringing the YTD to 4.5% vs 1.2%. Thus, since inception the FL has advanced 128%, well ahead of the market in a time when even matching the S&P 500 has been a challenge. Furthermore, though concentrated, we have maintained that the stocks in this list are less risky than the average stock in the S&P 500.

Abbott Labs has been on the list since inception and a good example of the concept. This chart shows a beautifully steady performer over the time held. If the performance of Abbott's spinoff, AbbVie, were added in, the return would be even better.

While a chartist would be reluctant to sell this stock, we are nearing the point that we will have to say good-bye to our steady friend. Abbott is no longer undervalued and therefore subject to "price risk".

For individual stocks as well as selection strategies, past performance is not necessarily indicative of the future.

Hall Capital Focus List

Follow Up – from our letter one year ago

"The Fed is Not Behind the Curve - on keeping inflation in check."
- Indeed inflation has remained low and no increases in interest rates so far.

"The long term implication of low growth and sustained low interests rates is 6% from stocks. Our portfolio strategy remains unchanged with an emphasis on equities."
- Over the past year the S&P 500 returned 7.4% and the Barclays Aggregate US Bond market returned 1.9%.

NOTE: Now in addition to ALL our quarterly letters, on our website is a tab with just the Follow Ups.

About HALL CAPITAL

HALL CAPITAL, LLC is a registered investment advisor and was formed by Principals from Arcturus Capital in 2010.
For more information, contact Donald Hall 626 578 5700 x101 dhall@hallcapitalmanagement.com