Market Commentary for the week of March 19, 2018

The "experts"

Over 40 times per year I write this weekly market missive to share our view of current events and market diagnostics with clients, prospects, media, etc., as filtered through a sometimes biased but always quantitatively-based lens.  I enjoy the process of analysis, your feedback on those views, and the indispensable creation of interactive dialogue that allows each side to build problem-solving solutions to various investment-related issues.

But it also occurs to me that the proliferation of opinions and market gurus has inflated significantly since I began writing these essays more than 3 decades ago.  No longer is the flow of information limited to tomorrow's edition of the Wall Street Journal or the monthly editorial board of Look magazine (am I dating myself?).  Today we are inundated by 24 hour news, instantaneous information transmission, and, unfortunately, too many talking heads on television telling us what they think, and what they think we should be doing with our money, our lives, and our ideals.

The crux of your belief as the reader of these informative pieces is that there must be some inherent value or action plan expressed by the author so that either his/her point of view is made very clear, or that your values and norms find some sort of resonance with the words and opinions you digest, whether you agree or not with the points being made.

This dynamic is as ageless as communication.  It would take an eternity to read or hear every  point of view about every  piece of data.  Furthermore, there just aren't enough correct prognostications to make sense out of every argument.

Sometimes one just has to find a favorite playwright, favorite musician, favorite author, favorite commentator and fit their patterns of persuasion into your everyday life sufficiently enough to build one's own comprehensive lifetime tapestry.

And yet, doesn't it seem as if there is always another "hot" topic du jour to consider (dot.com; bit coin; e.g.)  trying to influence our norms and standards to accept "just enough"  discomfort in our search for perfection that we stray from our comfort zone to take a plunge into the world of unattainable perfection.

Why?

Prediction and high expectation is the way our brains are wired.  Curiosity is the core of intelligence.  Additionally, we crave reward.  There is nothing more detrimental to the human condition than uncertainty and upheaval.  Our chemistry is not efficient when exposed to anxiety or distress.  Certainly, a portfolio filled with convulsion or lack of structure is not likely to yield success.  Thus, we are always seeking information or opinion about how to proceed next.  Who better than the "experts" to tell us how and when.

Experts fill a need both for themselves and for you, their audience.  The "analyst" in me, for example, loves to impart information; the inquisitive in you (sometimes) likes to listen.

Knowing all this, I believe that the key to a successful communication dynamic is the outcome of the shared experience.  If throwing darts at an abstract target worked equally as well, there would be no need for the exchange.  But knowing which buttons to push...and why/when...is a convention that has its roots in science and methodology, and which expresses a clearer path forward for the long haul.

 

Market Commentary for the week of March 12, 2018

Let them eat cake

Recent political pronouncements and policy initiatives, combined with grim winter weather have put significant pressure upon raw materials prices.  The market's fear is that burdensome cyclical pricing pressure might become systemic trends that would accelerate inflation in everyday products, including energy and food, thus undermining wage gains, consumer spending patterns, and global trade.  There is no question, however, that the pricing curve is shifting upwards.

The political and economic consequences of these changing tides are leading to the creation of global "ideological" movements that reflect population displacements and financial disequilibrium.  Examples of "jingoism", "protectionism" and fear-mongering litter the election landscape throughout Europe, and are dangerously migrating into the 2018 plebiscite here in the US.

These threats and false promises are more than just rhetoric.  They extract a human toll felt by our socio-economic dynamic that forcefully will govern stock and financial analysis for the next decade and beyond. 

These changes can be evidenced in the raw data as well as in the stories we tell around the kitchen table.  They represent generational shifts that might elongate the timeline of how we analyze, extract, and interpret our financial condition.

We know, for example, that interest rates will  rise.  While it is impossible to forecast the target date for each increase, one must accept that rising rates are a by-product of coincidental expansion in other areas of the economy.  The trajectory of bond yields will accelerate, making fixed income the alternative investment to stocks it historically always had been.

Price pressure in agricultural commodities is also expanding at a faster rate than at any time in the past 5 years.  Industrial and population evolution requires sophistication in farming techniques to keep pace with the demand for food and potable water.  If one subscribes to the notion that emerging markets are the next great places to invest,  then a corollary to that thesis might be the expansion of agricultural technology to feed those growing population centers.  We believe that the next capital gains beneficiaries of top-down macro global trends are the agricultural foodstuffs, including corn, coffee, wheat, soy, poultry, beef, grains, sugar, and dairy, amongst others.

A sophisticated population ecosystem cannot rely solely upon the capriciousness of weather patterns but must, instead, develop well thought-out structures for managing food processing and delivery to support its population's needs.

Those who seek to find capital gains from real estate investment in ETF's and private placement offerings might also look as an alternative at public/private partnerships that are developing arable farmland across the globe.

I proudly note that my proprietary research analytics, ArlingtonEconometrics, has allowed me to construct portfolio solutions for clients that reflect these, and other, specific investment silos. While I generally adhere to a broadly diversified portfolio strategy to mitigate risk, I also believe that customization of portfolio solutions can localize performance in areas that we and our clients believe hold opportunity for the very long-term, such as our previous efforts in Health and Life Sciences, Alternative Energy, Water, Global Agriculture, and a host of other socially responsible topics.

Population explosion and dislocation, natural and man-made disasters, and natural resource shortages are making our planet seem as if we are reverting back in time, when bread basket migrations caused sociological, political, and economic revolutions.  Those indigent souls that you see on television rioting in the streets because of drought, political oppression, or natural disaster are not hungry for a piece of the profit....they are literally starving for their fair share of the food, water, and opportunity that many simply take for granted.