Market Commentary for the week of August 31, 2020

Fool me once.... To say that stock valuations are a little ahead of themselves would be an understatement. As the averages hover around and break into new high territory one would think that we've already time-travelled into 2021, solved the pandemic crisis, and fixed most of our climate and energy problems. But the truth is that we have evolved into a marketplace of bottom lines and expectations that are several standard deviations from the reality on the ground. If you are a corporate CEO your obligations first and foremost are to produce profits for your stakeholders. Strange as it might seem in this age of global disease, unemployment, business closures, and consumer uncertainty, there are industries that are reporting record levels of profits, and with such speed that Wall Street investors are constantly playing catch-up with those share prices. However, there is also a massive disengagement between transactions in the market and the employees and citizens who populate our workplaces.....millions unemployed; millions more afflicted with a deadly virus; hundreds of thousands dead; thousands experiencing healthcare bankruptcies; multiple industries, including airlines, restaurants, transit, and the arts irrevocably financially disaffected. At 9:30 am each weekday morning, when the exchanges open, the perception and reality gaps widen more broadly than ever before. So why is the disconnect so pervasive and distinct? Because the objectives of the players on each side of the game are so diametrically in opposition to each other that the tug of war is only won at the closing bell, and by which side nobody can straightforwardly decipher. As noted above, CEO's are mandated to generate capital gains for their shareholders. It is their mission and the reason for holding the job. However, in this world of technology, artificial intelligence, and rapid innovation those industries require fewer "real people" to get the job done. Fewer capital expenditures (such as salaries and benefits) inure to the bottom line, thus setting up a perverse game in which a bull market closing price is a far better indicator of success than calculating the number of children who go hungry each night. Capitalism is good. Egalitarian capitalism would be better. It is so...or at least it seems...that things are not getting better for a large percentage of those not considered “affluent”. And yet, the affluent drive the same roads with potholes, cross the same crumbling bridges, take the same medicines, attend the same churches, eat the same foods, breathe the same (polluted) air, drink the same water. We had so many things in common before the corona virus pandemic that any excuses for not eradicating hunger, poverty, cruelty, and apathy just don't carry weight anymore. Curiously, the same kind of capital gains expectations that speculators and traders salivate over today would be available in industries and solutions to the human condition. Opportunities in the “next big thing” are right under our nose. ....fool me twice Somewhere between rational egalitarian capitalism and irrational rolling of the dice gambling lies a happy medium in which the world's priorities wouldn't seem so out of whack, particularly during these trying times. Hey, a dollar earned is a dollar earned, correct? So why not invest in putting people back to work by cleaning our air and water; feeding the hungry; paving the roads; curing disease; invigorating the social discourse; educating the rural and urban children; eradicating poverty and ghettos of the disenfranchised? Everyone has the potential to rise up and succeed, and we must acknowledge that their perceptions and feelings are as valuable as any currency. The world is moving ever faster; too fast for some. The wealthy should be grateful for their largesse but cognizant of those less fortunate. That is why those CEO's entrusted with the welfare of their companies should also be stewards of their communities, creatively plowing profits back into their first assets.....the employees who take the elevators up and down each day. Despite the psychological ebullience we feel watching today's S&P valuations reveal to us what a post-pandemic 2021 might look like, there is still reticence to declare the virus over and done with. Airlines are flying at 20 percent capacity; restaurants are below 25 percent full; office space is 30 percent unoccupied. No amount of cajoling or convincing can get a horse to drink at a trough if he isn't so inclined.

Market Commentary for the week of Monday, August 17, 2020

Numbers, smoke, and mirrors No doubt that we are in the middle of a fantastic bull market-style recovery as evidenced by last week's continuation of price surges in equities. But historically the most potent bull markets have been underpinned not by fantastical price spikes alone, but also by significant participation and overwhelming consumer optimism, neither of which unfortunately abounds today because of concerns about health and politics. It seems that the unsavory memories of the last two great recessions have taken much of the enthusiasm out of the current bull rally. So much so that the decline in households that actually participate in financial investing has collapsed to its lowest point in generations. Without jobs, without income, without health safety protocols a large majority those who previously identified themselves as actively sophisticated investors have abandoned the exercise altogether. Yesterday's long term objectives have morphed into today's day-to-day survival. However, the dissipation in participation has not crippled the markets. To the contrary, bourses have become the playground for professional traders, hopeful gamblers whose goal is to "shoot the moon", electronic trading platforms owned by major financial institutions, and the one-off "newbie's" who simply feel that they missed the train and need now to jump on board. While all this is happening the financial services firms are blanketing the airwaves with "trust me, believe me" commercials and solicitations for your currency. After all, making money in the market is as easy as baking a pie, isn't it? They rapture you with sunset walks on the beach, family dinner gatherings, ocean journeys, and direct face-on pitches telling you that their fiduciary services are better than the next guy. But just like the airlines, cruise companies, casinos, restaurants, and hotels they are hungry for you to come back and spend with them. What they, and others, must realize is that we have mostly a crisis on Main Street, not Wall Street. The previously mentioned volatility, while providing opportunity for some, is actually the perfect villain to the average citizen. Confusion, fear, and uncertainty are horrible elements for smooth investing. So, when a Regional Vice President looks at you through the camera lens, consider whose objectives first he/she is trying to fulfill. Sour grapes by me because these firms have garnered the spotlight? Hardly. It's more a matter of looking out for your best interests when the siren call of seduction comes your way. Dig in We do have control of our investment outcomes using prudent processes of asset allocation and risk mitigation. The proliferation of options is vast, in fact. But our love affair with making money must also be tempered by a healthy respect for fear of losing it, too. No doubt the dot.com crash in the 90's, the housing/fiscal crisis of 2008, and today's pandemic outbreak have left a bitter taste in our mouths, particularly those scarred and sullied by capital losses that changed the trajectory of their goals and aspirations. It takes discipline not to be tempted by hyperbole and greed. It is obvious to me that the markets are a soulful, dangerous place for the uninitiated. Not that we, too, aren't participating. In fact, valuation expansion since the mini-crash in March has been a boon to our performance. But it has become a race to chase what was once yesterday's opportunity...and that kind of chase never ends well. There will always be a top. That is the nature of cyclical phase methodology. One can never fill a vessel fuller than "full". The brand name stocks have already run, the laggards continue to lag. Whereas there is no indication yet that the markets are meeting resistance or are doomed to fail, there should always be that element of caution, that voice in your head gleaned from past experience, that cannot be coerced by any "Honest Abe" television commercial.

Market Commentary for the week of August 3, 2020

Century

In the wake of last week's cache of economic announcements (historically unprecedented contractions in GDP, employment, Fed stimulus) we have an immense challenge to realign our perspective about that which ultimately makes for good investment outcomes.  The Covid virus respects no borders or ideology so our solutions, similarly, must be borderless, aggressive, and comprehensive.  Yes, we need immediate responses to these crises, but we also need thoughtful, fact based, strategic forecasting.

The world is moving at such an accelerated pace, it seems, that “yesterday's news” often becomes obsolete by sunrise this morning.  But consider that prudent investing takes into account cycles which traverse longer than just 24 hours.  For example, name any business that functions purely on a “24 hour business plan”.  While custom dictates that performance be reported every quarter (3 months), even that schedule is too compact.  What would happen if we elongate the performance metric to “every 100 years”?   Things were completely different a century ago, and will be a century hence.

Look around.  One hundred years ago there were fewer automobiles and airplanes; the palette of life saving pharmaceuticals available was slight; we used Morse code, telegraph, and regular mail to communicate; women had no vote; there was no television; agriculture was a generational, family owned endeavor; education was strictly a brick and mortar experience; the world was at war; there was a global pandemic.

With the exception of war and pandemic, most everything is different today, and will be different 100 years from now.

It's no mystery that if we were to build an investment portfolio that plans thoughtfully for the future rather than just maintaining the status quo we should reasonably expect profitability and growth.

To be precise, there is no doubt that cycles come in all durations…long, short, intermediate…just as investors come in many iterations.  Losing the leverage that day-trading accords is not a consideration for many of you.  Instant gratification and message processing is the future.

But just for purposes of illustration, let's accept that the compression of our attention span and the overstimulation of our information receptors has also made for a wildly turbulent marketplace, not to mention inordinate consternation, tension, and panic .  After all, that which distinguishes us as adults from children is our ability to lend perspective, insight, and rationality to things which otherwise might provoke emotional, irrational outbursts.

Look, I'm no novice to the investment game.  But the difference between casino gambling and investing is perspective, methodology, and time.  Many of the things we think we desire from Wall Street are actually induced by peer pressure, hyperbole, and well-produced television commercials.  Investing is a noble obsession, if done with social consciousness and shared responsibility.

In 100 years we could

.....clean our air and oceans

.....eliminate hunger and poverty

.....travel extra terrestrially

.....raise children to be loving and color blind

.....eradicate cancer and other deadly diseases.

Most of these things are "investable assets" we should be planning for and implementing in our lives today, Monday, August 3, 2020.