Square
one
Benchmark indices tumbled last week
ahead of tomorrow's Presidential election, and owing mostly to disappointments over
government inaction towards the pandemic and bailout spending packages, as well as incoherent data about the
economy. Reports about expanding US
gross domestic product (GDP) have to be offset, of course, by the fact that the
third quarter was starting off from such a low number, having fallen precipitously
in the first two quarters of this year from virus related fears. Think of it this way....if you were a
restaurant with no customers, an increase of 15 people each night would represent
an "improvement". But not one
which might sustain profits, employees wages, or long-term viability. Despite a strong bias always to find reasons
to buy stocks, investors are sending a clear signal that nothing is certain in
the age of Covid 19.
Any expectation that the government
will immediately ride to the rescue to help stem the tide of business closures
and millions of jobs lost is just a worn out fiction. The work of sorting out winners and losers
unfortunately falls upon the private sector and the rest of us to figure out,
with the hope that we can circumvent an uglier political, economic, and
health-related outcome than what we have now.
Most dire of all, though, is that as
the chasms are widening, there are many who are doing better than "just good enough" to
stay solvent. The profit disparity
between large businesses and Main Street stores is staggeringly large, which
causes all sorts of problems for Wall Street prognosticators when trying to
hone in on effective recommendations for clients and near-term portfolio
strategies. Thus, a pattern of hope followed
by panic, then hope again is causing...or being caused by.....worries about the
virus' containment.
We witnessed last week, as before,
an inter-day pattern in the stock averages that bounces wildly from triple
digit gains on the Dow Jones to triple digit losses the very next. Many investors are feeling whip sawed into a
state of submission, and don't know which way to go or to whom to turn.
Move
on
Long
term sustainability will only return when the virus is defeated.
Until then, it is likely that we see
market spurts and stops corresponding to psychological and economic patterns of
capital investments and consumer spending.
Instead of thinking about the 24 hour news cycle, we should retrain our
economic brains to think in terms of 5 and 10 year cycles. Our fixation upon headlines is detrimental to
corporate profits and psychological well-being.
Successful bull markets have never been predicated upon short-cycle
response but, rather, upon macro continuums and innovation made over the long
haul.
I have always found a strong
correlation between capital gains and
socially responsible investing. One of
our primary themes for the next decade will be to focus upon capital spending in
areas of the planet's sustainability....telling a tale of economic and social
equality for all living things on this sphere.
In particular, our ArlingtonEconometrics
probability measures revolve around enterprises with outsized earnings growth well
above historical averages, profitability and productivity in renewable
energy, life sciences, agriculture (food and water), technology, ecology, and
infrastructure.
Investor's problems exist when they
"look backwards" rather than "looking forwards". Those who worry that "it wasn't done this way before" are being held hostage
by old ideas. Mankind has always looked
ahead to adapt to change.
Communications, air flight, medicine, science are all different than a
century ago. Intercontinental travel is
different today than in the age of Magellan, yes? The profound impact of innovation and
entrepreneurship can change industries, borders, and perspectives for decades.
The herd culture must be
broken. We must embrace a willingness to
accept change, boldness, new deeds, policies.
Monetary and fiscal incentives can only do so much to create the
conditions favorable to growth. We,
ourselves, must do the rest.
No comments:
Post a Comment