Market Commentary for the week of August 26, 2019

Self-fulfilling prophecy

Look!  Up in the sky!!  It's a recession.  It's a slowdown.  It's a blip.

Yes, there has been a lot of consternation in the last few weeks amongst politicians, retirees, investors, and business owners over trade wars, tariffs, corporate earnings, currency devaluations, and interest rates to determine whether or not we are headed into a dreadful and catastrophic reversal of fortunes.  No doubt that trade and macro uncertainty is causing a “pause" in the market's thinking, making for a more conservative climate.  Are these issues, however, sufficient to cause a massive bear market and recession going forward?

Ok, let me be the first (?) one to say it: believing, as I do, that all things in life are parabolic (quantitative), there is no question in my mind...or my science...that the global economy and the financial markets are fated to be headed in the opposite direction at some point  in the near future.  The issue is whether it takes on a magnitude of despair or merely pause, and whether it constitutes not only a change of fundamentals but a reversal of positive psychology.  I have written extensively about my views anticipating a negative turnaround in several "linear" or excessive trends that have persisted for nearly a decade.  I am not ready, however, to declare that the economic bull is defeated.

That also doesn't mean that private capital isn't now or will not be in the future essential for investment in solving immediate and long-term issues such as global water shortages, hunger, infrastructure decline, territorial security, medical pandemics, technology, and renewable energy.  That list, right there, is sufficient to dispel any notion that everything  is going to hell in a hand basket, and that we need to abandon all money activities for the future.

But I realize that each and every time you, the investor, get your monthly portfolio statement, and it shows a reversal of your gains (you call it a "loss"), that it is shocking, disturbing, and terrifying.

So, which comes first...a decline in the "averages" followed by a recession, or does the recession creep up on us (as perhaps it already has) causing a decline in investment valuations, confidence, and activity?

The answer is: "yes".  It's really a little of both.

Which came first?

My readers, specifically, understand that in a world of statistical probabilities, as things go up, their relative strength potential for increase begins to wane until such time as the trend expires and reverses direction.  Strangely, in the parlance of statistics, the more something goes "up" the less potential value it retains, while the opposite is true: as a security loses value it might be  of greater upside potential when the downtrend terminates, as long as the axis of acceleration remains on a bottom-left to top-right continuum. The timeline might be weeks, months or years, but all trends traverse this parabolic course....birth, life, death.

Of course, not all trends or sectors are correlated in such a way that they move contiguously with one another and in perfect rhythm to everything else around them.  Thus, portfolio allocation by sector and asset class is designed to minimize the effect of following one trend only, and helps to deflect the magnitude of this chicken-or-egg conundrum that the markets are presently wrestling with.

Nevertheless, it is futile to stand in front of an avalanche or to try to roll a boulder up a hill.  For that reason one must have a sense of timing, patience and realism.  No portfolio will go straight up.  One should do one's methodological best to mitigate the effects of a trend in (downward) transition.

Absolute skeptics of the whole process should probably not even be in the investment game.  It is, after all your money and if you cannot tolerate fluctuation then I would proffer that there are less volatile...but perhaps less rewarding.... alternatives for you. Reversals are a part of the investment dynamic.  Anticipation, methodology, and prudent man execution are the best antidotes for what happened last week.

Market Commentary for the week of August 5, 2019

Sweat-based profits

In case you haven't noticed, pounding rain storms and scorching summer temperatures are becoming more fierce more frequently.  While no one is ready to predict the apocalypse just yet, we are becoming increasingly concerned from a markets' perspective that the paradigm of our story is shifting.  Just who does  benefit from a change in crop patterns, population and geography shifts, and seasonal dislocations?

This missive is not about solving the scientific debate being waged by political parties or other interested parties.  Rather, it is about who is helped by...or hurt by...industrial shifts that have shaped our social and business evolution since fire was discovered and factories replaced hand-made goods.

Let us begin with a small concession: that the last two centuries on planet Earth have seen a technological alteration in the way things are manufactured and delivered.  There need not be any further agreement than that the odds favor additional changes for corporations.

Fine.  Then even a small change has the potential to dissolve business patterns and create new ones...from healthcare, agriculture, technology, energy, and transportation.  Surely Wall Street will be paying attention, if they aren't already.

Investors whose portfolios reflect, or anticipate, these changes should be handsomely positioned for profit potential.

At any given point in time there is always a flavor-of-the-month-type approach banking on the future.  But I chose to focus on a flavor-of-the decade  methodology and structure.  If not properly diversified, portfolio returns might seriously be underperforming or underprepared.

One cannot pin all hope for profit potential upon solving all the issues, all the time, at any given moment.  In contrast, profit in a changing realm is about neutralizing downside exposure while creating a harmonious balance amongst the myriad number of opportunities before us.

For example, what the Federal Reserve does today, or did last week, is of very little immediate consequence to a secular obligation that money borrowed and spent goes into appropriate social, moral, and business baskets.  We can debate ad nauseum  about the rate cut's effect upon the stock market.  But in the end, trends are not defined by a 24 hour news cycle.

Imagination

The Earth is not crumbling, the seas are not shrinking, the skies are not tumbling.....it only seems that way sometimes.  Sure enough, though, there are granular shifts in climate that require more hours when the air conditioner is on.  Modern conveniences can address that for us.

One can be nearly certain that we eventually will need to factor in other modifications, as well.  Once again, this is not  about scientific deliberation over climate change.  It is, instead, about what we observe with the naked eye and how prepared we are to address ourselves and our fellow citizens to relieve their discomfort.  The history of mankind is really about how we explore the boundaries of our control; to move those limits beyond conventional wisdom; and to develop the systems and philosophies that enable progress to be made.  This has historically been true in medicine, science, technology, education, agriculture, energy, and elsewhere....and will continue to be so.

In this era of stand-by, instantaneous news it requires vision, courage, and innovation to set new standards of examination and leadership.

To be fair, the skeptics have their right to deny.  We are not easily going to reconcile two opposing points of view.  But ever since we evolved from bonfires to smokestacks, smokestacks to nuclear energy, nuclear to solar and wind, there hasn't been an investment opportunity missed by educated traders and savvy investors to profit from the change.

Why should we stop now?