The most compelling
information coming out of earnings season confirms what we already suspected:
many global economies are slowly rebuilding back to "normal" and are
regaining a type of momentum that erects temporary immunity from direct
catastrophe. While we don't yet see a
uniformity in creation of citizen wealth, these nations are attempting to institute
measures, fiscal and monetary, that redress many of the leveraged ills pervasive
prior to the Great Recession (2007).
Consumers are consuming
again, producers are producing again, and researchers and developers are
researching and developing again, as well.
There is anticipation that institutions "get it" this time,
and broad (wishful) accord by politicians and private enterprise to try and
keep it that way.
To be sure, there may
very well be another day of economic reckoning ahead....just not right
now. This is mostly true because money
center banks and monetarists continue to keep interest rates low. At the
conclusion of last week's Fed meeting most of the rhetoric was about positive
reshaping of the country's balance sheet. To do otherwise risks the potential of
restraining further economic expansion.
It is not a matter of
if, but when another economic reversal will occur. History and science defines it as true. But until those negative signs manifest, it's
best to ride the wave of market enthusiasm cautiously. After all, we should give the market credit
for its endurance and tenacity. As long
as price projections and quantitative probabilities are on the ascent we will
continue to portfolio overweight market leaders, underweight the laggards, and
neutral weight all the others. While
risks exist, there is pedestrian evidence that they are pervasive or
trend-setting.
The nexus of our upside
predictions resides in tangible assets, consumer non-cyclical equities, energy,
and yield and earnings leaders.
Some have said that the
valuation picture has become a little "pricey". I concur.
But that excess is mostly in consumer cyclical companies, stocks that
have run in the early part of the recovery cycle. Besides, there is a healthy appetite for mergers
in the retail space as companies try to create on paper the synergies and
consumer appeal they failed to create at the storefront. While earnings acceleration rates might not increase
much beyond their current capacity, they are far from exceeding historically
robust periods in years past. The
porridge is "just right".
Slippage
(?)
Many say that the
landscape is full of reasons to abandon investments and the stock market
entirely and to cash-in our chips now.
To wit, they cite global terrorism; political inertia and discord;
regional medical epidemics, food and water shortages; consumer uncertainty;
wealth inequality. Each of these issues
is a considerable obstacle, but one that a sturdy capital marketplace and a
strong moral compass certainly could vigorously attack with allocation of
resources and volunteerism...justification for overturning negativity with
optimism. Winners see problems as
temporary impediments/long-term opportunity; doom say-ers see obstacles as
cause for despair.
In the technology
sector alone we see innumerable solutions and innovation from biotech research,
computer interconnectivity, software development, and retail distribution to underdeveloped
neighborhoods. You can make a meal out
of those possibilities....
There are also socially
responsible investment opportunities in the next decade emanating from
agriculture, alternative energy, water, infrastructure, aerospace, and telecom
sectors that represent hopefulness for the human spirit, as well as dormant
portfolio capital gains for savvy investors.
There is always a good
reason to "drive defensively".
I am a living professional example of someone like that. It is prudent to be aware of realistic
investment pitfalls. But meticulous
attention to methodology should help you quantify those risks, respond to them,
and arrive at a positive portfolio outcome over time.
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