Investing and Markets

The Butterfly Effect:  Today’s Supply Chain Shortages

The Butterfly Effect: Today’s Supply Chain Shortages

While finding appropriate historical analogies is always tricky, the current economic environment, in our view, seems most reminiscent of the mid-1960s. Those years represented an inflection point, much like today, when fiscal spending accelerated, and the Federal Reserve financed that spending with low-interest rates assuming that historically low levels of inflation experienced in the early 1960s would continue.

Is The Current Inflation Going To Be Transitory Or Persistent?

Is The Current Inflation Going To Be Transitory Or Persistent?

While finding appropriate historical analogies is always tricky, the current economic environment, in our view, seems most reminiscent of the mid-1960s. Those years represented an inflection point, much like today, when fiscal spending accelerated, and the Federal Reserve financed that spending with low-interest rates assuming that historically low levels of inflation experienced in the early 1960s would continue.

The Guns and Butter Era Redux

The Guns and Butter Era Redux

While finding appropriate historical analogies is always tricky, the current economic environment, in our view, seems most reminiscent of the mid-1960s. Those years represented an inflection point, much like today, when fiscal spending accelerated, and the Federal Reserve financed that spending with low-interest rates assuming that historically low levels of inflation experienced in the early 1960s would continue.

A Conversation with Jim Grant

A Conversation with Jim Grant

We were excited to bring to you a truly rare opportunity to hear from one of the nation’s leading experts on the fixed income markets. Our own Adam Strauss had a virtual discussion covering a wide range of financial topics with Jim Grant of Grant’s Interest Rate Observer.

Why It’s Time to Own Gold

Why It’s Time to Own Gold

“Gold gives to the ugliest thing a certain charming air, for that without it were else a miserable affair.” ─ Molière The first six months of 2020 have been historic. Thus far, the year has offered up a global health pandemic, a synchronized global recession, rising...

10 Predictions for the Next 10 Years

10 Predictions for the Next 10 Years

The 2010s represented the longest-ever period of sustained, uninterrupted economic growth and associated market gains. With shrinking unemployment, growing average household wealth, and increasing income disparity – driven by the most activist Federal Reserve in history – the stock market climbed to historic highs and the housing market was resuscitated, as bond yields declined to all-time lows.  The economy has experienced 110 months of sequential job gains thus far, and unemployment has reached a 50-year low.

Investing in Uncertain Times

Investing in Uncertain Times

Slowly but surely, the world has been moving from compromise and coordination to name-calling and tribalism. We read news of impeachment inquiries, trade wars, mass demonstrations, accusations of treason, worsening geopolitical tensions, conspiracy theories, fake news, and Twitter curses, sometimes all in the same day. The current period will likely be studied closely by historians trying to make sense of the many seemingly irreconcilable conflicts that have surfaced.

The Impact of Inverted Yield Curves

The Impact of Inverted Yield Curves

In our most recent investor commentary, we discussed the drivers for the stock market downturn during Q4 2018. We suggested that monetary tightening from central banks across the world was the primary culprit in deflating equity prices. Specifically, we postulated that markets would remain weak without a reversal in quantitative tightening. And, in January 2019, the Federal Reserve did a stunning about-face and reversed its interest rate tightening stance. This policy reversal helped to drive the U.S. equity markets to the best start to the year since 1998.

Why Has the Stock Market Become So Volatile?

Why Has the Stock Market Become So Volatile?

The S&P 500 Index generated a total return of -9.0% in December, which was the worst December return since 1931 in the midst of the Great Depression. The quarterly return of the S&P 500 Index was -13.5%, representing the worst fourth quarter return since 2008, which was in the midst of the Financial Crisis.  Outside of cash, there was no place to hide for investors in 2018, which was just the opposite of 2017 when nearly every asset class generated a nicely profitable return.  Judging by the December decline in market prices, it appears that the wheels may be coming off the bus.

How To Invest In An Era Of $100 Trillion Financial Obligations

How To Invest In An Era Of $100 Trillion Financial Obligations

It’s different this time, and it’s also not different this time. It’s different this time because the credit-driven U.S. economy is burdened with a monumental level of financial obligations relative to GDP.  According to the Bank of International Settlements (BIS), outstanding loans and debts that burden U.S. corporations, households, and government entities have reached $48.3 trillion or 250% of U.S. GDP.  Including off-balance sheet items, the effective level of debt outstanding is almost $100 trillion or more than 500% of GDP.  It’s different this time because the U.S. economy has never in its history piled on so many financial obligations.

Trade War Investment Risks

Trade War Investment Risks

History often repeats itself; when the economy is persistently weak, populism and trade protectionism tend to rise.  In light of President Trump’s recent tariff threats, financial news articles are citing the Smoot-Hawley Tariff Act of 1930 with increasing frequency.  Signed into law by President Hoover, Smoot-Hawley raised tariffs on 890 products, increasing the average industrial tariff from 37% to 48%.  While U.S. industrial workers cheer on new tariff proposals, free traders sternly warn that Trump is on the verge of making a Smoot-Hawley like mistake by starting a global trade war that could throw the world into a global depression.

Party Like It’s 1999

Party Like It’s 1999

Prince captured the zeitgeist of the late 1990s in his classic pop hit, ”1999,” although he wrote the song during the early 1980s. As the year 2000 approached, fears of a looming apocalyptic event increased, even while investors on Wall Street seemingly lost their minds with bullishness and greedy optimism. During that period, the S&P 500 Index, the Dow Jones Industrial Average, and the Nasdaq Composite Index all hit new all-time highs, buttressed by the euphoria of the unlimited possibilities of the Internet, the easy money policies of the Federal Reserve, and the illusion that the most expensive stock market ever accurately reflected the strongest economic fundamentals ever.

The New Age of Monopoly

The New Age of Monopoly

After refusing to give up his properly assigned airplane seat to an off-duty United Continental employee, Dr. David Dao was assaulted by O’Hare Airport security personnel this spring.  Dr. Dao was subsequently pulled from his seat, thrown violently against an arm rest, and then dragged off the plane, much to the horror of the other passengers. Many who watched the online video clip of this assault might have wondered, “How could this be allowed to happen?”

Four Reasons Why President Trump Wants a Weak Dollar

Four Reasons Why President Trump Wants a Weak Dollar

If the dollar strengthens significantly, it will have a significant impact on your investment portfolio. Similarly, if the dollar weakens, it will also have an impact on your investment portfolio. If you are an investor, or, for that matter, if your earnings are denominated in dollars, it’s worth paying attention to what Donald Trump says about the dollar.

Trade Protectionism: A Balancing (of Payments) Act

Trade Protectionism: A Balancing (of Payments) Act

Although John Maynard Keynes, arguably the most famous economist in the history of the world, died more than 70 years ago, he likely would have something thought-provoking to say about the state of the economy if he were alive today.  Coming of age during the early years of the 20th century, Keynes was trained as a classical economist; he learned that taxes should be low, regulatory interference should be minimal, and economic growth for trading nations could only be maximized under a regime of free trade.  In his early years as an economist, Keynes considered anyone who opposed free trade as unfit to be an economist.

The Navigator – Disability Insurance

The Navigator – Disability Insurance

Disability insurance is a powerful but often overlooked risk management tool. Most Americans focus on auto and home insurance to protect what they consider to be their most valuable assets. However, for most individuals, future potential earnings actually represent their largest asset. An individual 35 years old earning $150,000 per year will likely generate over $4.8 million of after-tax income prior to retirement.

Fundamentals Will Trump Bullish Sentiment Over The Long-Term

Fundamentals Will Trump Bullish Sentiment Over The Long-Term

The stock market has been ripping upwards ever since the U.S. election on November 9th, with investors pouring more than $100 billion into U.S. equity ETFs during the last two months of 2016. As stocks continued to rise into the close of 2016, several bullish Trump-centric investing narratives have been put forth to explain the increase in animal spirits behind this rally. These narratives, we believe, are overly optimistic and incorrectly dismissive of several important fundamental factors that are likely to stand in the way of strong U.S. stock market returns during the intermediate period ahead.

Active vs. Passive Investing: Which Is Right for You?

The Active (Value) Investor’s Manifesto

“I’m convinced that everything that’s important in investing is counterintuitive, and everything that’s obvious is wrong.” – Howard Marks, Co-Founder of Oaktree Capital Management. Don’t let the conservative dress habits of the financial services industry fool you; the financial world is far from immune to fashion trends, at least when it comes to financial products. Financial fashionistas pioneered the Nifty Fifty in the 1970s, the Dot-Com Bubble in the 1990s, and Collateralized Debt Obligations (CDOs) in the 2000s, to the great benefit of the investment banking industry and to the detriment of their clients.

Green Bonds: Impact Investing with Fixed Income

Green Bonds: Impact Investing with Fixed Income

The financial services industry is constantly developing new products to serve the ever-changing wants and needs of a diverse array of investors. While Wall Street financial innovation often leads to problems (e.g., the exotic mortgage debt instruments that helped fuel the 2008 financial crisis), investment banks occasionally launch new products worthy of investor’s attention. We think green bonds are an interesting product that is worth considering.

Value or Growth: Which Investment Strategy Works Best?

Value vs Growth and the Path to Monetary Normalization

Value investing can be a challenging endeavor, even in the best of times. It involves investing long-term capital in companies that are unknown, unloved, or unpopular. In our view, the only reason value investing receives any attention is that it has historically outperformed the broader equity markets over the long-term when applied in a disciplined and consistent manner. That being said, when value investing underperforms over multi-year periods, as is the case today, skeptics wonder what the heck value investors were thinking by investing in such undeserving companies.

King Dollar and the impact on the global monetary system

King Dollar and the impact on the global monetary system

Over the past year, strength in the value of the dollar has largely dominated asset class returns and has been at the front and center in driving investor sentiment. Ever since the end of the Second World War, the U.S. dollar has acted as a fundamental linchpin of the global monetary system. As the premier reserve currency, the dominant medium of exchange, and a store of value, the greenback deservedly warrants the moniker, “King Dollar”. Despite an ongoing tilt eastward and a concurrently diminished role of the United States in terms of global trade and GDP, roughly 60% of the global population still lives in a world in which their local currencies either 1) are the dollar, or 2) are pegged to the dollar. Indeed, the dollar’s pivotal role as the “straw that stirs the drink” has powerful economic repercussions, particularly so during dollar volatility spikes like the one occurring now.

Greece and China – global expansion through debt leverage

Greece and China – global expansion through debt leverage

When it comes to markets, no one can perfectly predict the future. When we manage our clients’ assets, our focus is on managing risk and limiting our capital investments to situations where the chances of an attractive return appears to be weighted heavily in our favor. With that in mind, we want to discuss some of the investment risks related to recent developments in Greece and China.

Value investing principles and declining bond yields

Value investing principles and declining bond yields

Etsy is an online marketplace for handmade and vintage objects, and we have at least one jewelry-maker client who has had a fair amount of success marketing her handmade wares through the Etsy platform. Etsy’s business has grown at a rapid pace in recent years, and, as we are writing this letter, the company has offered its shares to the public market through an IPO. Etsy opened trading at $31 per share, suggesting a valuation of $3.4 billion.

Our Asset Management Principles

Our Asset Management Principles

It perhaps goes without saying, the key to success as an investment professional is to pursue investing principles that properly inform decision making.Many years ago, famed investor Benjamin Graham laid out his timeless investment wisdom in The Intelligent Investor, which has become a bible of sorts for value investors (including ourselves).  Graham’s advice about acquiring suitable securities at suitable prices is easy to understand but difficult to execute consistently, and, we would add, particularly so in the present zero-interest rate environment.