I shall now recall to mind that the motion of the heavenly bodies is circular, since the motion appropriate to a sphere is rotation in a circle. - Nicolaus Copernicus

Doctors recommend people exercising for any number of reasons, all of them worthwhile. There are plenty of ways to get in your required exercise, including jogging, running, biking, hiking, swimming, skiing, snorkeling (and plenty more). Of course, going to the gymnasium is also a common method of getting your blood flowing. At a gym, many people workout with weights using a circuit type routine. An individual, often with the help of a trainer, moves from exercise to exercise, performing three separate sets of repetitions, usually 10-15 times per machine. The routine often involves a rotation in circular or semicircular direction as a way to be efficient within the facility. Athletic teams use this kind of training in a group because it is easily understandable and makes excellent use of time. With the idea of rotation in mind, let us turn to the capital markets, because rotation is quite pertinent, and may get much more so in the near future.

Over the last week, domestic equity markets began taking Copernicus to heart and engaged in its form of rotation, moving from growth stocks to value oriented holdings. Many would say it is a long time coming, as the growth category has been the star performer for well over a decade. Plenty of value managers have wondered when will capital flow to undervalued assets from what they considered vastly overvalued ones? Money moved into retail and banks stocks. Energy saw a little love, and it still remains well below its historical percentage in terms of weighting in major market indexes.

Across the pond, the ECB cut its short term deposit rates for banks by 10 basis points to -.50%, and also resumed quantitative easing. The bond buying package will entail purchasing $22 billion per month starting in November. With the Federal Reserve meeting next week and all but guaranteed to lower short term rates by 25 basis points too, many investors still believe growth assets are the proper positioning for portfolios. Low rates are an effort to stimulate growth as Europe and Japan continue to suffer from minimal rates of economic activity.

With the world searching for growth and stimulative policies dominating the Central Banking landscape, there is another segment of the investing world which sees value as the natural beneficiary. Value typically resides in more defensive areas like banks, energy, insurance, utilities and telecommunication. The question between growth and value is really one where one decides to place the highest concentration of capital in the portfolio. In a well diversified portfolio, most holdings will represent either of these styles. If you are managing a fund which relies on quarterly or monthly performance for attracting capital, the concentration issue is quite important for business. If not, and you are comfortable with your current holdings, then I wouldn’t rotate it onto your high priority list.

In the energy world, the biggest news was T. Boone Pickens passing away at the age of 91. Many years ago, I enjoyed the opportunity to hear Mr. Pickens speak at a convention. He was well prepared, engaging, humorous, and made a great deal of sense. At the time, he was promoting the Pickens Plan as a way to get the United States off of foreign oil. It is many years later, but mission accomplished. Pickens was a fabulous investor and made his shareholders billions of dollars during his time in the capital markets. Pickens was one of the most famous corporate raiders during the Michael Millken era of greenmail and corporate takeovers. He was quite friendly with many of the biggest names in business, including Carl Icahn. Just as important, he was also very generous, giving over a billion dollars to his alma mater, Oklahoma State University. 

Elsewhere in the energy world, today, the Houthi rebels attacked Saudi Arabian oil fields. The effect is yet to be seen, but early reports are that the Saudi’s will see lower production by nearly half of their daily output. The Saudi’s may decide to release oil from their vast reserves as a way to not disrupt global supply. In case you were not aware, the Saudi’s produce nearly five million barrels per day, or 5% of the total global daily supply. Clearly, the recent Democratic Presidential debates showed the major contenders for their nomination might not understand the importance of oil to the globe. Nearly all the contenders called for a complete fracking ban in the United States. Fracking is the method which is responsible for the United States to become nearly self sufficient in terms of oil production. From a national security perspective, does it make a lot of sense to eliminate the method which helps ensure energy self reliance? It is something to watch from the media to see if they will connect the dots and bring up this critical issue in future debates. Will they rotate into becoming responsible journalists and get rid of the pom poms? Don’t bet on it.

In other news, Apple (AAPL) came out with its new slate of products last week, including the news that they will be offering $4.99 per month content for AppleTV subscribers. Buyers of Apple products can get that thrown in for free if you plunk down enough cash for a computer, iPad, iPhone, etc. It will be interesting to see how well this offering attracts subscribers, especially from Netflix (NFLX) and maybe Disney (DIS). Disney chief Bob Iger resigned from the Apple board of directors yesterday, so it is something worth paying attention to, especially if you are a media investor.

Finally, President Trump agreed to postpone tariffs on some Chinese imports for a few weeks. Markets liked the news and it helped the mood, and then the Chinese decided to play nice with exports of soybeans and other items. With more meetings scheduled in October, the President’s chief supporter of tariffs, Peter Navarro, seems to think it will be a long slog with respect to both countries agreeing to a deal that is mutually beneficial. The rotation between hostile rhetoric and professional negotiations seems to change at the blink of an eye, just like investors now preferring value over growth. Copernicus would be pleased.