Words
matter
As the third quarter unfolds, we
are gaining more clarity about what lies ahead for the financial/investment
markets. Without question, there will
continue to be an abundance of "headline
news" that shapes the landscape
versus a kind of "big picture" scenario. We are six months into a global economic
crisis that has sown discord and disruption.
Despite that uncertainty, we feel comfortable with our macro, top-down identifications,
beginning with extremely accommodative monetary policy and a belief that
underlying fundamentals...although a bit muddied at present...can rebuild. Spending and demand will remain muted, but we
see no indication of throwing in the towel just yet.
We know which sectors will thrive
(pharmaceuticals, technology) and which will fight hard for survival
(cyclicals, industrials). The market is
endeavoring to push through its volatility and generate profits for
investors. We caution, however, that
indiscriminately chasing after expanding P/E ratios and oversized relative
strength integers could lead to trouble.
Remember, all things are cyclical.
Thus, price peaks are likely to pull back at some point, particularly if
earnings fall short of expectations. Being
macro-oriented might also help to eliminate some costly mistakes. While the economy and the financial markets
sometimes emulate each other, this is one instance in which the dichotomy must
be understood. The economic recovery
dating back to the 2008 recession, for example, is still trying to gain
traction globally but, obviously, current events surrounding the pandemic might
hold greater influence in the short-term.
From a strictly empirical point of
view, we have no problem acknowledging that the averages stand today about
where they did at the beginning of the year, and have recovered extraordinarily
well from their lows in February/March. Lows
so low and the recovery so good, in fact, that history records the last three
months as the "best" quarter in decades.
It might be time to refine the
language we use when referring to current events......
Indeed, the markets soared over 20%
last quarter owing in part to federal stimulus, low interest rates, viral
controls, hopes for the future, and an indomitable spirit of "value
speculation". (It is easy to multiply gains when bouncing from the
basement of valuations.) But is the word
"best" an effective way to describe where we are now and from where
we came? Without parsing definitions,
words, and perceptions, matter.
Ask any family touched by the death
of a loved one, with depleted savings, inconvenienced by stay-at-home
quarantine, or unemployed/laid off/furloughed if the last three months were their
“best”. While the world was being
threatened by a deadly pandemic, inexorable changes were occurring in
attitudes, spending, lifestyles, and behavior.
We find ourselves today at the intersection of politics, money, and
morality.
Similarly, we hear people asking to
"go back" to normalcy, send our children back to school, bring the economy back.
Perhaps going backwards is not possible anymore. A new normal is necessary and we need to get
used to that. Once again, ask anyone who
is not an equity shareholder....and there are many....if the last three months
were their best and you would probably get a different answer than the one Wall
Street analysts are using.
It is time to find a fresh
balance.....in investing and elsewhere....that creates an equilibrium in
healthcare, social rights, politics, education, etc. so that everyone can
benefit from their initiative and inspiration.
Wall Street and Main Street are just not that dissimilar, one hopes.
I think that when we call last quarter's
market performance the “best", and limit the scope of our language and
evaluation solely to the percentage return on the Dow Jones, that we need to
step back and re-think how capitalism and vernacular all play a part in
limiting or advancing the opportunity for the population as a whole. In my mind Wall Street is not about a moment in time....the closing price on
the S&P or a quarterly earnings report, for example. Rather, it represents a marketplace in which capital
is unleashed for the long term to identify problems and provide solutions for
the betterment of society.
Consider a basket of needs today:
poverty, hunger, pollution, water shortage, energy, transportation,
infrastructure, education, healthcare.
The third quarter, alone, provides
a panoply of buying opportunities for those so inclined.
No comments:
Post a Comment