More
Than A Color
The
markets were punctuated by a succession of new highs in the second quarter, then,
for good measure, an unwelcome "Greek correction" in the last few
days. Of course, the level of discomfort
was increased significantly for many professional investors who had worried
that we hadn't experienced a true "correction" since the bull began
in 2009. While it was encouraging that
we registered seemingly uniform upwards momentum in all sectors during the
quarter...and a concomitant increase in
consumer confidence ...the reality is that we must continue to be aware of the
difference between daily advances and prudent asset allocation for the long
term.
No
one wanted to see that correction happen, and neither were they prepared
properly when it occurred. I saw too
many portfolios blindly allocated towards a "never ending" bull
market and unaware, or unwilling, to take some winners off the table. In anticipation of a whole realm of
possibilities in world and economic events for the next few quarters, we are tempering
our enthusiasm for the markets with an identification that certain rules and
processes always apply. One must be
aware that asset allocation and sector rotation is fluid, and that new sectors
of leadership constantly emerge from cycle turmoil.
Going
long-term
It's
no coincidence that some of our keenest scientific minds are now focused upon a
"green revolution" in agriculture.
A number of corporations have also come to realize that not only can
genetic agricultural biosciences do good for the world, but that there is
sustainable profit to be had, too. The
traditional battle between environmentalists and corporate boardrooms is morphing
into a different discussion. There's
enough "on the plate" (no pun intended) for both factions, that food
has become a win-win situation for all involved.
In
fact, our third quarter equity research identifies sustainable trends in several
food, bioscience, and agricultural companies.
Many
agribusiness companies are really in their infancy across the globe. So much so that regional disparities in
research, development, and delivery have still not fully been ameliorated. Some places are more fortunate and bountiful
than others. Age-old techniques for
planting seeds and sowing crops will not suffice anymore. Remaking the world's fertile fields is more
than just harvesting product. It is
creating methods for "clean", affordable, plentiful, disease-free,
nutritious food.
Our
quantitative research is uncovering a revival in farming, albeit different than
before, and like none since the industrial/agricultural revolution. The differences this time involve computers,
testing laboratories, and science rather than tractors, tills, and Father Time.
There
certainly is still room for instinct and traditional family farms. Man's hand in the soil can always do more
than a computer manipulation alone. But
science can improve upon farmer's experience and intuitions by supplying them
with better chemicals, disease resistant seed, and complex gene-splicing methods
that improve upon output in ways that natural techniques might not.
Without
engaging in a moral debate about codes of
ethics or political realities, we must
recognize that we have a hunger problem around the world, and a perpetual
drought that impedes our ability to feed the hungry.
Agricultural
biotech has proven to increase farmland production and turned some starvation
ravaged regions into improving ecosystems.
Just as medicines have created ways to improve our quality of life, so
too has high tech farming provided relief from those markers which characterize
underutilization, underperformance, and poverty.
By
no means are these perfect sciences just yet.
But by decreasing the time it takes to build countermeasures to these
pressing social and moral issues one might envision how Wall Street and Main
Street might find mutual benefit.
Elusive
Truths
Gradually,
a shift in attitudes and practices is beginning to change consumer behaviors,
too. Biotech and agricultural innovation
allows government to spend less/do more, and to launch hunger initiatives that have
the potential to redefine the health and well-being of their citizenry.
One
of the biggest political obstacles not yet overcome, however...particularly in
the United States.... is an acknowledgement of how climate change has become a
factor in modern society, particularly agriculture. Once again, this tome is not about engaging in
blame-laying, or a cause-and-effect debate.
Rather, we simply need to recognize a "new normal". Population studies clearly indicate where
hunger exists. We also know that without
plentiful fresh water, each passing decade raises the specter of death and
disease in regions where those resources are in short supply.
This
conversation should not be about polarizing one side versus the other. Capitalists and moral ethicists must be able
to work harmoniously to begin finding a new way to get things done.
But
science, itself, is not the answer. As
alluded to above, political willpower and a common altruism is the missing
ingredient. We have to find ways of
converting science in the abstract into meaningful policy and action. Greater
than the disaster of hunger is the failure of government to galvanize their
resources towards alleviating their population's common social problems.
In
this regard, the much maligned corporate sector has actually stepped up more
effectively than the politicians have.
Perhaps it's because of the profit motive, but a number of companies are
seeing how developing and sharing technology can inspire the public and improve
the condition of the disaffected. While the
public might disdain the messenger, we do like the improvements their efforts
bring.
The
result of these "altruistic" endeavors has also created an
opportunity for investors. We know it is
premature to "ordain" corporate sainthood, but profit and "doing
good" are not necessarily mutually exclusive.
High
Stakes
Quality
of life issues are seldom well-defined, black or white. But we do know the difference between life
and death, pain and painlessness. At the
end of this journey, if we are better able to provide for those who have no
other contingencies, then that outcome is better than the alternative.
Agriculture
is only one of the sectors from which our research is indicating profit
potential. Seeking to capitalize upon
extraordinary opportunity and trends in energy and healthcare, small and large
entrepreneurships are developing products and methods that redefine a sense of
what's possible. Whether one's motive is
dollar signs or world peace, the pieces are in place for enormous civic change
in the next half-century.
I
believe that a profit motive is only truly meaningful when behaviors and
results reach those who need them most. Unfortunately, Wall Street's credo is not
about offering guarantees of return
on investment, simply opportunity to make those evaluations for one's self.
Imagine, though, initiatives which fix our energy sustainability, our water scarcities, our food shortages, our healthcare requirements, and our ecological well-being.
Green is more than just a color. It is quickly becoming an ideological blueprint for how money is spent, gets accumulated, and gets shared. It is also a roadmap for building portfolio wealth and sustaining an economic cyclical rejuvenation.
Suggested
Balanced Account Asset Allocation, Q3, 2015
Fixed Income: 10%
Cash: 25%
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