Apr 192021
 

April 10, 2021

Whew! March 2020 seems like a lifetime ago! We had just started on this COVID induced adventure. It’s turned out to be a series of personal, political, economic, and medical twists and turns. Hopefully, we’re getting a handle on the pandemic and can look forward to a more stable (normal) time period.

We had the deepest and quickest economic contraction at least since World War II. Now it appears we may post the best economic growth spurt in my lifetime. Of course, this will not be a straight line, but the promise is certainly there to make such a prediction.

Here’s a T-Chart with some of the pluses and minuses:

The current pace of COVID-19 vaccinations is providing significant support for the economy.Vaccine hesitancy and the COVID-19 variants risk stalling or at least slowing businesses reopening and leisure travel.
The labor market has made some steps toward recovery with almost 1 million jobs added last month.However, there are still about 8.4 million less people employed than a year ago.
The Federal Reserve Bank has effectively gone all in to keep the economy in recovery mode.Its balance sheet has increased substantially. How will that impact the economy longer term?
Interest rates will remain at extremely low levels supporting economic activity and asset values of all kinds.Someday, interest rates and asset values will return to a more typical relationship. Will this be a smooth adjustment?
In the short term, inflation is going to be higher than we’ve been used to. For now, this transient inflation is related to pandemic related supply disruptions.However, if it’s permanent due to monetary and fiscal policy actions, inflation will add another layer of complexity to the recovery.
The various stimulus/economic support payments have had a very positive impact on the overall economy.What happens as these payments come to an end?

For equity investors, the past twelve months turned out to be a ‘rainbow’ year. I don’t think anyone would have predicted the kind of equity returns we’ve seen, at least so quickly. On the other hand, you do have to remember how bad March 2020 actually was!

I believe I said last year not to get overly concerned about one month’s investment returns. This year, I would make the same comment – do not expect the recent returns to be a “new” normal.

As a reminder, Vanguard’s most recent outlook suggests US Equity returns of 3% to 5% going forward and bond returns to be in the 0.8% to 1.8% range. They also suggest the median volatility for US Equities to be around 16.9%. In essence, that means the stock market return could range from +21.9% to -11.9%. This could be a pretty wild ride.

Last summer, the prognosticators were giving us an alphabet soup of options for an economic recovery. At this point, I’m sticking with the K-shaped version. The people who could work from home are most likely on the upper leg of the K. On the other hand, if you lost your job and/or had COVID related challenges, you are most likely on the lower leg of the K.

For the remainder of 2021, the big factor will be the evolution of the coronavirus. When will the vaccine and other measures get the pandemic behind us?

Of course, as we deal with the pandemic, we still have our ‘normal’ economic concerns to deal with. It appears we’re on the edge of a long-term transition regarding energy. It will also be interesting to see if this tentative move from Reaganomics, pushed by the pandemic, is a longer-term phenomenon or transitory.

I see some suggesting that we are entering a Goldilocks stage of economic growth. This seems to me to be what the market wants to expect – low interest rates, economic stimulus, etc. will lead to a very robust recovery without long term inflation.

In the end, je ne sais quoi. But, what will be will be!

SPRING!

Emerging Markets

 Economy, Investing  Comments Off on Emerging Markets
Mar 012019
 

The MSCI Emerging Markets Index has increased its allocation to China. Per Axios:

“MSCI said Thursday it would quadruple the percentage of access foreign investors can get to stocks from mainland China in its widely tracked emerging-markets index, which is tracked by nearly $2 trillion of funds.”

Investment in Emerging Markets maybe on the rise and the change in the MSCI Index may help start a trend.

Axios 3 1 19

These charts don’t go together, but I think interesting nonetheless!

 General Interest, Investing  Comments Off on These charts don’t go together, but I think interesting nonetheless!
Feb 222019
 

Another group of beneficiaries from the new tax law – Accountants.

For all the headlines Alphabet has received, this is kind of interesting. Dominos stock has actually outperformed since the went public. Either one would have been a good investment 15 years ago, but 3600% does beat 2500% rather handily!

GDP Update

 Economy, Investing, Retirement Planning  Comments Off on GDP Update
Jan 162019
 

This chart was part of today’s Wall Street Journal Daily Shot.

Looks like Oxford Economics is expecting at least somewhat of a slow down this year. They also had some information on the potential impact of the government shutdown. However for now, the year over year comparisons will be harder due to the impact of the tax cut impact in 2018

If I recall, they were suggesting that the shutdown might result in around a 0.4 tenths of a percent reduction per quarter.

Lets hope that gets resolved soon.

Hindsight is Wonderful!

 Economy, General Interest, Investing, Retirement Planning  Comments Off on Hindsight is Wonderful!
Jan 152019
 

Who knew at the start of 2018 that the stock market’s ride would be this wild? Although after a very lucrative 2017, it should have been reasonable to expect a change.

The challenge is always to try to determine which way to go – going forward. It turns out that hindsight is not very helpful looking forward. Looking backwards, I would say it was easy to see that a trade war with tariffs and the resulting business disruptions and uncertainty were going to be a problem. But, the timing, magnitude, and duration of the challenges were and actually still are hard to quantify.

If foresight was any good, we may have known when to make some changes, but I’m pretty sure art and fine wine would not have been my alternate investments.

Luxury Goods Outperform as Markets Swoon WSJ 12-31-2018

On the other hand, in spite of its lumps and bumps our democracy and capitalism based economy will almost certainly continue to work going forward. And, although Art and Fine Wine may be perfectly good asset classes, I think I’ll stick with Equity, Fixed Income, and Cash along with some real estate for my investment assets.

Have a Happy New Year!

This morning lead at Seeking Alpha

 Investing  Comments Off on This morning lead at Seeking Alpha
Aug 212018
 

This was the lead blurb on Seeking Alpha this morning.

Obviously good news historically, but what about looking forward?


The S&P 500 will tie the record for the longest U.S. bull market in history today at nearly 3,500 days, rising more than 320% since March 9, 2009. It’s a record few would have predicted when stocks struggled to find their footing after a 50% plunge during the financial crisis. There is still no shortage of bearish warnings out there as analysts debate the future, but many investors continue to see plenty of gas left in the tank for equities.

Feb 272017
 

Since 2009, the stock market has had quite a run! Per the chart in today’s Wall Street Journal, the value has more than doubled since the recession low.

WSJ 2-27-2017

The question of course is whether it has gone too far too fast!

Has it just caught up to where it would have been if it had not lost so much value back in 2008? If so, it may be reasonable to expect continued good news.

The alternative is that it has  once again gotten ahead of itself and is to expensive – setting us up for another decline of whatever magnitude.

Obviously I don’t know for sure. For the most part, other than its longevity and height, it doesn’t seem like it is too far ahead of itself.

The key to extending its positive performance will be increasing productivity and corporate profitability. The answer to this will not only be up to the companies themselves, but the Trump administration’s policy initiatives. It appears that some of these are likely to be positive for business while others may turn out to be not  so beneficial.

Bottomline, I’m not particularly concerned about the future for the overall stock market. On the other hand, I may not be overly optimistic that its performance for the next seven years will be an exact duplicate of recent history. Therefore it is probably reasonable to be at least modestly skeptical, but no particular reason to be overtly pessimistic.

What will the Fed do next?

 Investing, Wealth Management  Comments Off on What will the Fed do next?
Feb 032017
 

This is an interesting chart. It is supposed to highlight the situation the Federal Reserve is now in with regard to the size of its balance sheet and the what it might do next – raise short-term rates or reduce the size of its balance sheet.

Obviously its holdings are very large, but I was somewhat surprised to see how large it was in the 1930’s and 1940’s. It’s clearly larger in nominal terms. But relative to the size of the economy or adjusted for inflation it has to be significantly smaller.

It is also somewhat surprising to realize that it has been nearly 10 years since the yield on the 10 year US Treasury note was above 5%. Clearly the move over the last several months from 1.5% to 2.5% is quite significant on a relative basis but on a nominal basis – it is still quite low historically.

What will the Fed do? Good Question!

For the last couple of years, its been suggested that rates will start to move up. Obviously that didn’t happen, but I would suggest this might be the year we see high short-term interest rates.

On the other hand, maybe they will work on their balance sheet. This could have a bigger impact on longer term rates than short-term rates.

Either or both of these actions would not surprise me. The real question relates to magnitude, to which I will plead ignorance.

Dow 20,000 ! or ?

 Investing, Wealth Management  Comments Off on Dow 20,000 ! or ?
Jan 262017
 

It is quite exciting to hear the Dow closed above 20,000 yesterday. But the following from the WSJ Wealth Adviser Daily Briefing email says a lot.

I don’t necessarily want to be pessimistic, but there is room for caution…

 

Britain is leaving the European Union, a protectionist is in the White House, the front-runner in France’s presidential election wants out of the euro. Yet paradoxically, investors have concluded the world is getting less risky, not more. The result: a hunger for shares that carried the Dow Jones Industrial Average over the 20000 mark Wednesday for the first time, writes WSJ’s Greg Ip.

It is hard to explain this with economic fundamentals. They have improved since Donald Trump’s improbable election victory in November, but not by much.​What has changed is how investors assess the balance between upside and downside risks.

Their worries about Mr. Trump’s protectionism or European populists’ growing threat to the euro are outweighed by the pro-business tilt of Mr. Trump’s cabinet picks; the prospect of more infrastructure spending and lower taxes, especially on profits; better bank profits from rising bond yields and lower odds of more negative central-bank rates; and the boost to U.S. oil producers since the Organization of the Petroleum Exporting Countries and several other countries agreed to trim production to prop up prices.

Nonetheless, the market needs a reality check. The U.S. expansion is​ more than seven years old and retains little momentum from using up spare capacity from the recession. At 4.7%, the unemployment rate is at levels the Fed considers a fully employed workforce. Indeed, recessions usually happen with unemployment around or below 5%.

This is interesting

 Investing  Comments Off on This is interesting
Jan 232017
 

This is from today’s Wall Street Journal…

It appears that individual stock volatility is within a pretty modest range. Nonetheless one of the dangers and opportunities of holding individual positions is the chance – however small – that your holding may be the one that experiences a 19% move versus its three-month moving average.