Hall Capital “Market Views” Newsletter October 2013

This is the 14th edition of Market Views from HALL CAPITAL. Our aim is to provide concise views of where we see risk and opportunity for investors.

Obamacare is a Big Deal
- but not necessarily a disaster

The Affordable Healthcare Act impacts 20% of the US economy. Those who are forecasting disaster are not speaking with any specific knowledge, only a strongly held ideology. Healthcare experts don't know the implications and insist no one does. Obamacare is a work in process and will no doubt be modified over time.

We are currently in a government shutdown which is NOT a big deal. The real issue remains our deficits and the national debt. While Republicans would prefer that we solve the issue by only cutting spending, and Democrats would prefer that we maintain spending programs and raise more taxes, as a practical matter we cannot make meaningful progress on our long term deficits without a combination of both. Hopefully, this will become obvious to lawmakers before it is too late.

Moving back to the short term outlook, while the government shutdown 17 times in the past, it has NEVER defaulted on our debt. Expect some difficulty in the market this month as the debt ceiling debate heats up. Odds favor a raising of the debt ceiling and no default, and 2013 over all will likely end up a good year for equities, if not for bonds.

The Fed Will Taper Bond Buying
- if not this year

The chart above (blue line: stocks, brown line: bonds) shows how bonds sank earlier this year when it was feared that the Federal Reserve would begin to pull back on their accommodative bond buying program. Bonds rallied in September when the Fed confirmed the status quo. The fiscal drag of the government shut down will only make the case stronger for the Fed to continue quantitative easing. However, a tapering is inevitable and though it will likely negatively impact both bonds and stocks when it happens, we believe bonds are more vulnerable.

Focus List

Apple Computer recovered 20% in Q3 from a severely oversold position. However, except for Ebay, the rest of the list lagged the 5.2% strong quarter turned in by the S&P 500. This list is less risky than the average stock in the market, but the prices have appreciated to the point that these stocks are no longer meaningfully undervalued and will likely lag if the market moves sharply higher. The list should outperform, however, if the market dips. We wish to emphasize equities in balanced accounts, but remain conservative in stock selection.

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

"We continue to avoid 'safe' long US Treasuries and most long bonds in general."
- Long T-bonds and long bonds in general showed losses over the last year.

" ... we do not believe the 'offensive' advantage (of our Focus List) can continue - that is, out performing in a rising market"
- Indeed the Focus List demonstrated defensive, rather than offensive, characteristics rising but not as much as the 19% delivered by the S&P 500 over the last year.

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