I want to dispel the notion that I am an investment “bear.” There is nothing wrong with expressing an opinion, bullish or bearish, particularly when the “consensus” says it’s alright. Proof of one’s courage, though, lies at the margins, during undetectable inflection points, before the consensus has arrived. My track record versus the benchmarks demonstrates a successful delineation between bearishness and being opportunistic. However, I am a realist, and against the current global backdrop there is very little to suggest an earnings expansion or a worldwide economic recovery just yet. As a result, my asset allocation models continue to be underweighted in stocks and favoring cash.
What
makes the “risks” even more glaring is the lack of momentum from policymakers
to create consensus about style or substance.
I am more neutral about fiscal policy than I am about self-sustaining
economic cycles.
Earnings patterns are decelerating because very few are
willing, or able, to make capital expenditures when they are fearful about the
economic climate in which they operate.
While
monetarists, worldwide, have forced interest rates into a corner, I would posit
that no matter how low interest rates go, or how inexpensive it might seem to
be when borrowing money, that you can lead a horse to water but you can’t make
him spend. There is no indication
in any sector I follow that inflation, or reflation, is a concern.
Besides,
adjusting monetary policy has proven to be no match for intractable economic
cycles that have boomed, then busted, in long secular durations. Politicians can certainly adjust spending to
match current conditions, but when everyone goes into hiding, as is the case
now, traditional political solutions just won’t work. The key to reigniting the economy lies in a shared
sense of sacrifice, and creating a level playing field from where everyone
“feels” as if they have an equal footing, an equal shot, and an equal stake. No guarantees…just a sense of fair play and
opportunity, win or lose.
Until,
or unless, we find such adjustments, the market will remain tepid, at
best. In that climate, no manipulation,
by government or the private sector, can jump-start a psychological sense of
well-being which might aggressively increase the prospects for growth and, at
the same time, limit the potential for downside deterioration.
Declining confidence.
People
are fearful. Employment statistics are
stalling, paychecks are not keeping up with spending, and corporations are
hoarding cash. The message is
clear: you are in this alone, get
used to it. A downshift in
expectations becomes a harbinger for negative portfolio results. The paradigm is a self fulfilling prophecy.
Not
one week, one quarter, nor even one year can markedly change the momentum of
political inertia. However, the pulse of
secular cycle, quantitative macroeconomics tells us that cycles, themselves, do
not necessarily rely upon politics but, rather, a social dynamic that has a
life of its own. Elements such
as healthcare, energy, technology are not beholden to a Congress or Parliament,
or even a dictator, but to the evolution of social consciousness and need.
Banks
need to “let go” of capital to help the entrepreneur.
As
investors, we are “in it” either to make a profit, or to inspire social and
moral good. They are not mutually
exclusive goals, however, but they have just recently become an either/or
dilemma for the current times. In my
opinion, that juxtaposition is the biggest investment hazard we face.
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