COMMENTARY

Boom to Bust 2.0

Mark Twain is credited with having said that “history doesn’t repeat itself, but it does rhyme.” Whether it is a repeat or a rhyme, what shocks me today is that we could be witnessing a recurrence of events that looks eerily similar to what we saw in the build-up to the housing bubble. Even more disturbing is that so few recognize it, while those that do, dismiss it. If it were a play, it would be a tragedy. It has the same cast of characters, but in slightly different costumes, yet the story line is very much the same. We have an abundance of liquidity, or credit, combined with interest rates that have been too low for too long. As a result, investors have been incentivized to invest on a leveraged basis. They have inflated an asset class that has created a wealth effect. This wealth has fueled consumer spending […]

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This Earnings Recession Can No Longer Be Ignored

It was not until after the stock market correction in late August that I finally heard the intelligentsia on CNBC discuss the possibility of a corporate earnings recession in the US, and what implication that might have for the stock market. All it took was a gut-wrenching decline of 11% for the S&P 500 (SPY) over five consecutive trading days to stir this intellectual awakening. In reality, the recession in corporate profits they were pondering began more than a year ago, but you wouldn’t have heard mention of it if your news sources were the companies that aggregate the earnings data, the Wall Street analysts that assess the earnings numbers or the actual companies themselves. This is because they are all culpable in excluding a variety of costs and expenses from the bottom line that are not unusual one-time items, but are instead recurring expenses that are a normal part […]

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Small Caps Are Sounding The Alarm, Again

There is an ongoing tug of war between the monetary stimulus that has levitated financial markets and the economic reality that underpins them. When sentiment turns sour and risk asset prices fall in response to the gravitational pull of deteriorating market fundamentals, central bankers pull hard in the opposite direction with skillful wordplay that soothes investor concerns, sparking a price recovery. Janet Yellen has been masterful at convincing investors that while the US economy has near fully recovered and is on the right path for continued improvement, it is also too soon to begin withdrawing what is still crisis-level stimulus. Something is clearly amiss. It has been my long-held view that the primary benefactors of the Fed’s stimulus have been the stock and bond markets, in turn leaving large segments of the US economy and American public behind. The result has been anemic levels of economic growth and headline numbers […]

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Man The Lifeboats Before The Crew Jumps Ship!

When I visualize the US stock market, I picture Janet Yellen captaining a huge cruise ship, known on the high seas of global financial markets as the QE Infinity! Her crew consists of corporate CEOs, business leaders and figureheads on Wall Street, who work together seamlessly to keep the ship on course as it travels through uncharted and dangerous waters. The passengers on the ship are investors, large and small, who feel impervious to the rough seas that surround them, confident that the QE Infinity is unsinkable. While the passengers dine on a three-course meal of capital gains, dividend income and all-time-low borrowing costs within the belly of the ship, they are entertained by an orchestra of prognosticators performing their rendition of the bullish narrative. The US economy is on the verge of a breakout year, they exclaim. We will finally realize 3% real GDP growth! Interest rates remain at […]

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LET’S   HAVE   COFFEE

Investors are challenged with today’s low yields, increased uncertainty and staggering volatility. If you have questions about your current investment holdings, your investment strategy, or the financial markets in general, we would like to help. We invite you to give us a call or come into the office for a visit. At no obligation, we will give you our unbiased opinion. We have nothing to sell but ourselves. We will either validate that what you are doing makes sense, and that you are on track to achieve your objectives, or identify potential pitfalls and offer suggestions on ways to get you back on track.

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