Reality Check: The US Is Due for a Recession

June 14 brought good news and bad for the United States. The U.S. Federal Reserve announced that it would increase the federal funds rate – the rate at which banks borrow from one another in private markets – from 1 percent to 1.25 percent. That the Federal Reserve would raise short-term borrowing rates is not wholly surprising – it started raising them incrementally in December 2015, when rates were still at 0.25 percent. What’s surprising is...   Read More >

Emerging Markets Are Not All Created Equal

For most investors, targeting foreign countries where there are high expectations for growth is a useful strategy. After all, in the United States, Canada, and Europe, economies are mostly growing at about 2% or less per year. And while these developed markets are less risky to invest in, finding value can be tricky.   That’s why for many decades, investors have been allured by the fast growth of far-off economies. In the 1950s and 1960s, Japan’s economy regularly expanded at a 10%+ clip, and who can forget the “Four Asian Tigers” that followed in Japan’s footsteps? In the 2000s, the focus shifted to the BRICS (Brazil, Russia, India, China, South Africa) – and more recently, attention has been on countries like Indonesia, Nigeria, Colombia, and Turkey.   Although emerging markets are similar in that they have high expectations for growth, it’s important to remember that these countries have very unique and different sets of risks... Read More >

Axioms for Graduates

As the spring semester comes to end for high school and college graduates, I wanted to perhaps give some unsolicited advice as these newly christened adults start out on their own and begin making life choices and financial decisions that will impact their future.
  1.  Resist the temptation to...
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The All or Nothing Bias

Have you ever done something where the outcome turns out much better than expected and you said to yourself “man, what if I had only bet more on that outcome?”  Of course this has happened to you because it’s happened to us all. Whether it was buying a single stock that did really well, placing a bet in a casino or buying the slightly better toilet paper (which, as it turns out, was worth a bigger investment all along).   This is an exceedingly big problem in the financial markets. And it’s particularly difficult to overcome during a bull market. You see, during a bull market you’re likely to have… Read More >

These Are Your Five Choices

The negatives: The US stock market is now selling for close to a record high valuation. Volatility for the S&P 500 is currently registering record low readings. Brilliant hedge fund managers like David Einhorn are ringing the alarm bells over the worship of growth stocks without earnings. Warren Buffett’s Berkshire Hathaway is sitting on a $90 billion cash hoard, struggling to find reasonably valued assets to invest it in. Bonds are no bargain given today’s yields vs inflation, and that’s assuming rates are just steady – if they rise more quickly than expected, there will be some pain.   The positives: Cash is abundant, the economy is steadily improving, overseas there are signs of global economic recovery, the Fed is taking its time to normalize rates, commodity prices are presenting a goldilocks scenario for consumers, US corporate earnings growth has resumed, the labor market is the healthiest it’s been in a decade (this morning, unemployment fell to the lowest reading we’ve seen since May 2007). Small business confidence is soaring, because business owners love Trump’s can-do attitude and the prospect of lower taxes. This is the push-and-pull plateau at which we currently find ourselves. There is plenty of good news, but securities prices are currently reflecting a lot of it (all of it?). So what do you do? Here are your five choices: Ignore the negatives, buy and hold.   Read More >

Investors: How To Play The Game To Win

What Rick Barry and the Atlanta Falcons can teach us about risk management   “Something about the crowd transforms the way you think” – Malcolm Gladwell – Revisionist History   With 4:45 remaining in Super Bowl LI, Matt Ryan, the Atlanta Falcons quarterback, threw a pass to Julio Jones who made an amazing catch. The play did not stand out because of the way the ball was thrown or the agility that Jones employed to make the catch, but due to the fact that the catch easily put the Falcons in field goal range very late in the game. That reception should have been the play of the game, but it was not. Instead, Tom Brady walked off the field with the MVP trophy and the Patriots celebrated yet another Super Bowl victory.   NBA basketball hall of famer Rick Barry shot close to 90% from the free throw line. What made him memorable was not just his free throw percentage or his hard fought play, but the way he shot the ball underhanded, “granny-style”, when taking free throws. Every basketball player, coach and fan clearly understands that the goal of a basketball game is to score the most points and win. Rick Barry, however, was one of the very few that understood it does not matter how you win but most importantly if you win.   The Atlanta Falcons crucial mistake and Rick Barry’s “granny” shooting style offer stark illustrations about how human beings guard their egos and at times do imprudent things in order to be viewed favorably by their peers and the public. It is this protective behavioral trait, rooted in the fear of being different, that frequently… Read More >

Declaration of the Rights of France

Europe’s future hangs on the nation-state’s ability to respond to the concerns of individuals. The first round of voting in France’s presidential election is over, and pre-election polls seem to have predicted the correct outcome. As of this writing, exit polls show Emmanuel Macron won 23.7 percent of the vote, while Marine Le Pen received 21.7 percent. The two candidates will now go head-to-head in a May 7 runoff. This does not mean Le Pen will… Read More >

Those Other Stocks

The majority of discussion about the stock market in the financial media these days is directional. This makes sense in the context of a world in which the indices are all that matter to most people and political uncertainty is widely believed to be the biggest risk factor (as opposed to financial conditions or profit concerns).   And so the discussion returns to – again and again – whether or not the next 5% move in the S&P 500 is up or down. It’s not a question of fundamentals, but of sentiment. Which way will the wind blow?   But the S&P 500 isn’t the only opportunity set in the world of equities. US stocks account for… Read More >

Prudent Investing: Keep Calm and Carry On

The discipline it takes to be a prudent investor, especially during times of heightened uncertainty, has been a common theme in many of our conversations with clients lately. Emotions can run high; it is a natural response to find yourself tempted into taking action. The non-stop news cycle and the siren call of social media updates also help fuel this sense of urgency.   At times like these, we are often asked to share our insight on navigating challenging environments and what we’ve learned from many years in the investment management business. Here are a few things we believe investors can do to help instill a long-term mindset... Read More >