Double dip recession or just a soft patch? – Capital Ideas (UAN)

Author: Capital Ideas

Covestor model: ETF Only and Macro Plus Income

Disclosures: Long UAN

Today’s economic news big question: “Double dip or soft patch?”

So far this year the DJIA has almost traced out a double dip of its own. The Dow rallied at the start of the year, only to fall back in March to around the year’s starting point. Then the market rallied sharply, only to give back a good deal of that gain in the last few weeks.

If the decline continues, as many bears predict it will, the Dow will soon be back at its starting point for the year. If that occurs, we must say so much for the “presidential election cycle” market theory. According to its adherents, the market should be up significantly this year. But the basis of the theory, stimulative Federal Reserve and Congressional policy, has been ongoing for several years now, and the economy is not growing at the desired rapid rate. In fact, the economic growth rate is slow and apparently slowing. Yet despite these economic headwinds, corporate earnings continue to hold steady or expand.

We think this economic slowdown is the news the flagging markets have been predicting. We want to stress that we have held, and continue to hold the opinion that the economy is still growing, but at an excruciatingly slow rate. This is unnerving, but most likely will not result in the dire outcomes put forth by the most vociferous members of the bear camp. Expanding corporate earnings, record low interest rates, and the lack of any other reasonable investment alternative will continue to funnel cash into the equities markets.

A new addition to our Macro Plus Income portfolio is CVR Partners LP (NYSE: UAN). The newly public entity should produce a very high yield – we anticipate 8% or more. If that level of distributable cash flow is paid out and the company becomes more well known, we expect a significant move up in security price.