First Eagle Investment Management is a New York-based independent investment management firm that works on several funds which include First Eagle Fund of America, First Eagle Overseas Fund, and First Eagle Global Fund. The company manages approximately $102 billion worth of assets for individual clients and institutions. The company’s main focus includes absolute returns and downside protection. President and CEO Mehdi Mahmud works closely with the firm’s portfolio managers. Prior to becoming First Eagles’s CEO, he worked as Jennison Associates’ CEO and Chairman of the Board and held various positions at Credit Suisse Asset Management and J.P. Morgan Investment Management. This Yale alumnus’ specialties include investment supervision and business and product strategy.
In its July 2019 Insights, First Eagle Investment Management reported that the state of the current business cycle should not be a cause for panic for the timing of its end remains uncertain. Other topics discussed in the letter include global trade wars, geopolitical tensions, monetary policy tools, and global sovereign debt.
“As the calendar turned to July, the US entered the longest economic expansion in its history. While we won’t attempt to predict the long-lived cycle’s eventual end date, certain market and economic dynamics—corporate profit margins among them—suggest that the best part of the current expansion is already behind us. That said, cycles don’t die merely of old age; typically, some sort of shock or unsustainable financial imbalance is needed to trigger their demise. Currently, we see a number of risk factors that could serve as this trigger.
While economic transitions historically have been accompanied by increased market volatility, the waning days of a business cycle should not be cause for panic. We believe investments able to demonstrate resilience in the face of cyclical adversity—notably, companies that exhibit scarcity in their business models and thus have the potential for persistent earnings power through an economic downturn—should be well-positioned for the more challenging environment that may lie ahead. Further, the reemergence of more normal levels of volatility could provide active, long-term investors with opportunities to build on or acquire positions in such investments at attractive valuations.
Potential Triggers for the Cycle’s End
The US economy entered the record 121st month of its post-global financial crisis expansion in July, and the cycle’s advanced age naturally calls into question its time remaining.
A variety of signals—including weak non-US bank prices, slowing growth in monetary aggregates, flattening yield curves and sluggish inflation expectations—suggest the global economy already has begun to slow, and there are reasons to believe US momentum may fade alongside it. For example, profit margins—the heart of the business cycle—may have already hit cyclical peaks, and ongoing capacity expansion in conjunction with expectations for decelerating nominal economic output and limited money supply growth suggests they will remain under pressure. And while risk markets appear complacent, the inverted Treasury yield curve suggests traders of government debt have concerns about the US economy’s prospects going forward.”
You can download a copy of First Eagle Investment Management’s July 2019 Insights here:
You can also see the list of our 2019 Q2 investor letters and download them on this page.