Global Market Commentary

April 21, 2017

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Market Summary   In the last few weeks, U.S. and world equity markets have exhibited the greatest period of weakness since January because of concerns that President Trump’s tax cuts and infrastructure spending will be delayed or abandoned — and at the same time, the arrival of fears due to rising geopolitical risks. Have these events caused the buying opportunity that investors have wanted?  Within three days, the first phase of the French elections will have occurred; the final round will conclude on May 7.  The U.K. has scheduled an election, but they have already agreed on Brexit, and this...
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April 13, 2017

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India Makes Progress Under Modi’s Steady Hand Back in September, we gave readers a rundown of the big digital strategy of India’s Prime Minister, Narendra Modi — an effort which will be critical in the unleashing of Indian economic growth and India’s rise on the world economic stage in coming years.   It is difficult to describe the depth and intractability of the problems Modi is confronting.  Though India and China are both developing Asian economies with powerful economic growth trends, they are completely different beasts.  One major difference is the nature of central power. How India Differs From China...
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April 07, 2017

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Elon Musk On Our New Robot Overlords:  If You Can’t Beat ‘Em, Join ‘Em Elon Musk is a larger-than-life titan of industry — the modern equivalent of Gilded Age figures such as Carnegie, Vanderbilt, and Rockefeller.  The style may have changed, but the essence is the same: bold innovators and visionaries who identify epochal technological and social trends and position their enterprises to ride the wave.  While the barons of the Gilded Age were known for industries typical of the first industrial age (e.g., railroads) or the second industrial age (e.g., electrification), entrepreneurs like Elon Musk (and Steve Jobs, and...
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March 30, 2017

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We See Opportunities Across the Atlantic Our basic view on the U.S. market remains positive.  As we’ve written in recent letters, we believe that the post-election rally doesn’t just reflect the optimism of businesspeople and consumers about positive developments in U.S. tax and fiscal policy.  Midway through last year, markets were already beginning to reflect the passing of the dollar and oil shocks of 2014 and 2015 — the impacts of a large and sudden rise in the value of the U.S. dollar, and of a large and sudden fall in the price of oil.  The arrival of a new...
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March 23, 2017

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What the Fed Means For Your Portfolio World markets are facing a major change, as interest rates have begun a multi-year uptrend. U.S. and foreign economic data continues to improve.  On many fronts, including employment, capital spending, salary increases, backlogs of orders, housing demand, retail sales of home-related items, and many others, the economic outlook for the U.S., Asia, Europe, and the world continues to improve. U.S. and foreign interest rates are in a rising trend, and will continue to rise for several more years as higher economic growth, higher employment, and higher incomes continue to support business and consumer...
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March 16, 2017

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Is Your Portfolio Prepared For the New Market Environment? The change that is underway in U.S. markets is no run-of-the-mill, short-term shift.  This is a sea-change — not business as usual.  We’re referring to the end of a thirty-year period during which interest rates were falling — a thirty-year bull market for bonds.  We believe that looking back, we’ll see that long-term U.S. government bonds peaked in July, 2016 — the end of an epic rally. Bear in mind that the bull market in bonds was generational.  That means that many money managers and many money management firms have spent...
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March 09, 2017

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The U.S. Growth Comeback Is In Its Early Innings Here’s why we’re bullish on U.S. economic growth for the rest of 2017, and probably longer. The Great Recession was not a standard textbook economic contraction, and the recovery has not been an ordinary recovery — neither in its structure, nor in its strength, nor in its length. The recovery has been weak and prolonged, partly because the downturn was driven by a severe financial crisis rather than the dynamics of a typical economic cycle; and partly because the policy response to the crisis put significant additional tax and regulatory burdens...
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March 02, 2017

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Global Stocks Stocks are attractive in the U.S. and several other countries, driven by improvements in economic performance. Since the third quarter of 2016, U.S. corporate profits have begun to rise after a six-quarter stint of sideways earnings. Since the end of the first half of 2016, manufacturing PMIs have been inflecting up around the world. (The Purchasing Managers’ Indices survey samples of business managers about their perceived prospects for new orders, inventory levels, production, supplier deliveries, and the employment environment.) Combine this with higher export statistics and expectations for continuing corporate profit growth globally, the advent of modest inflation...
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February 23, 2017

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Running On Empty: Crumbling U.S. Infrastructure Will Take Trillions To Fix, Creating Big Opportunities An unfolding crisis in northern California has brought unexpected attention to the infrastructure push that was one of the campaign planks of the new administration. The Oroville Dam is, in a sense, a crowning achievement of California’s 20th-century growth and the politicians and hydrological engineers who made it possible. The years after World War 2 saw a boom in California’s economy and its urban population, and by the 1950s, plans were being made to construct a system of dams, levees, and aqueducts that would control devastating...
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February 16, 2017

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Looking Back on 2017 Let’s take a step back and imagine that 2017 is almost over — and that we’re looking back from a standpoint in late December. What will we see has happened in the U.S. market during the remainder of 2017? First, we think we’ll be reviewing a volatile year. (The current lack of market volatility is a sign that investors should be prepared for volatility after the current rally slows down.) In summary, as regular readers probably know, we think that from the perspective of the year’s end, our current bullish view of U.S. stocks will be...
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Febuary 09, 2017

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Market Summary We are bullish on the U.S. but cautious in most other markets. At any time, a correction may begin in the U.S. market as political battles slow down the agenda of tax cuts and deregulation proposed by the new administration. As mentioned above, any failure to have tax cuts by September 2017 could create a negative psychology for U.S. stocks. By the end of 2017, the visibility of tax cuts and diminished regulation will be greater and the market will be on a positive footing. Certain market sectors such as financials, domestic industrials, and metals will benefit greatly...
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February 02, 2017

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Trump’s Plans Are Not Mysterious… He’s Fulfilling Campaign Pledges The new administration’s whirlwind first days in office have led some observers to wonder what they’re up to. Regardless of what we think about the political or economic ramifications of new policies, it’s important for investors to orient themselves and have a grasp of what’s going on. Mr. Trump is acting quickly to reward his voting base and fulfill promises he made during the campaign. If his business history is an indication — and we think it is — he will be working hard to get “huge,” visible results as quickly...
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January 26, 2017

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Tailwinds Still Strong For U.S. Materials Industries Back in early 2016, when Donald Trump’s victory in a contentious Republican Party primary still looked unlikely, the global commodity complex reached the bottom of the decline that had begun in mid-2014. From that bottom, commodities rose unevenly through the rest of the year.  Then they got another powerful impetus after the presidential election in November.  Sentiment took a decisive turn to the positive among businesses and market participants.  Many investors, consumers, and analysts seemed finally to break through the fear that the global economy was stalled in a prolonged disinflationary trend.  Growth...
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January 19, 2017

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The Markets In 2017:  Inflation, Stocks, Bonds, and Gold   Despite headlines declaring that the post-election rally is running out of steam as we head towards Inauguration Day, we continue to be optimistic about the prospects for the U.S. stock market for over the next several months.  Later in the year there is more potential for corrections from a few sources, which we will note below. Watch Inflation and Treasuries — Don’t Just Count the Rate Rises We believe that U.S. headline inflation will reach 3% in the first half of 2017.  As the Economist observed this week: “Headline inflation...
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January 12, 2017

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How China Could Boost Commodities In mid-2014, China’s foreign exchange reserves peaked at nearly $4 trillion.  Since then they have been declining as China defends its targeted exchange rate against the U.S. dollar, and increasingly against a trade-weighted basket of its trading partners’ currencies.  Reserves now stand at slightly more than $3 trillion. China Spends Down Its Foreign Reserves to Defend the Yuan Source:  Bloomberg At some point, the Chinese government’s economic calculus will shift, and it will decide that allowing the yuan to decline further or faster is preferable to a continued bleed of reserves.   If a lower...
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January 05, 2017

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Our 2017 Outlook Is Optimistic:  A Short Summary The Rise of Nationalism Has Changed the World   Last year, rising nationalism sparked many global events, and is now an established global trend.   We saw it especially in Europe.  The European Union’s governing powers in Brussels have long promoted internationalism — and have created resentment among workers and entrepreneurs in economic sectors that don’t benefit from it.   Indeed, the EU has put policies in place that undermine local and national interests in order to focus on achieving the priorities of the whole bloc (which really means, the interests of...
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December 29, 2016

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New Opportunities are Opening Up, and New Risks Are Ahead:  How You Can Change, Adapt, and Profit Over the Christmas weekend, instead of enjoying time with family at home, our Senior Analyst found himself making a quick round-trip from Los Angeles up to California’s snowy far north and back again.  The mission was to deliver a sweet old dog to a new home — in fulfillment of a promise made to the dog’s previous owner on her deathbed.  As we all know, this is sometimes how it goes: commitment can take us to unexpected and sometimes uncomfortable places.  But it...
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December 22, 2016

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Market Summary Over the next few months, we believe, the U.S. economy will grow, and certain industries are poised for more rapid growth in the immediate future.  We see no U.S. economic recession on the near horizon, and without a recession, it is hard to see the U.S. market having a major setback. The major negative influence in world markets today remains the weak status of the European banking system, which could create a world recession if it implodes. On the other hand we see positive economic variables on the horizon for the U.S., including potentially lower taxes, less regulation,...
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December 15, 2016

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For the U.S. Economy to Grow, Productivity Must Rise — But The Obama administration aimed to increase U.S. labor productivity; and the incoming Trump administration has the same goal.  Although the goal is the same, their prescriptions are different. Here is our list of industries to own and to avoid. Economists generally agree that for a nation’s standard of living to improve, labor productivity must rise faster than inflation.   Such productivity growth creates jobs, increases economic growth, and improves the living standards of the poor — lifting their income and economic status.  In turn, rising living standards grow the...
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December 08, 2016

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The Market’s Turn:  Financials In the wake of President-Elect Trump’s unexpected victory, two of the sectors we favor are financials and industrials, and we’ll briefly discuss why.  First, financials. Financials have enjoyed a strong rally in the month since the election.  As of this writing, the Dow Jones U.S. Financials Index has produced a 10% one-month total return, but that broad performance masked significant divergence in the performance of different industries within the sector.  In many cases, the post-election rally brought companies into the green which had spent the year in the doghouse until the last month. As we have...
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December 01, 2016

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Trump Taps a Turn-Around King The Secretary of Commerce acts “as the voice of U.S. business within the President’s Cabinet.”  Trump’s pick for the post, Wilbur Ross, tells us something about the President-elect’s psychology. Mr. Ross has bought and restructured steel, coal, telecom, and textile firms during a forty-year career as a banker and investor.  He has made his fortune turning around left-for-dead companies — particularly in U.S. industries hit hard by the “bad trade deals” whose criticism garnered critical support for Mr. Trump during his campaign.  More recently, he has searched for bargains and opportunities in down-and-out European financials. ...
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November 23, 2016

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              Source: Bloomberg The post-election rally has now taken all four major U.S. indices — the Dow Jones, the NASDAQ Composite, the S&P 500, and the Russell 2000 — to new highs. The strongest rally has been in the Russell 2000, which consists of the smallest 2,000 stocks in the Russell 3000 index (which itself is a capitalization-weighted index of the 3,000 largest publicly traded companies in the U.S.). The median market capitalization of a company in the Russell 2000 is $1.7 billion, compared to slightly over $18 billion for the S&P 500. The...
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November 17, 2016

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Market Summary   Here is a further summary of what we see to be the likely effects of Trump’s victory.           Banks and Financials Banks and financials will be helped.  The Dodd-Frank Act will not be entirely wiped out, but it will be moderated.  As written, it is a one-size-fits-all act, and it hugely penalizes regional and local banks — many of which have gone bankrupt during the last few years.  Dodd-Frank does not consider that small banks cannot afford or handle the regulatory and administrative costs that the Act places on them.  The new Congress will likely pass a...
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November 10, 2016

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Cows on Wi-Fi Show the Future of Health Care We’ve written several times in the past about the coming integration of health sciences, the internet of things, and big data analytics – a noteworthy example is Alphabet’s [NASDAQ:  GOOG] life sciences research lab, Verily Life Sciences.  Verily is pursuing a variety of potentially transformative projects in this area: Contact lenses that allow people with diabetes to continually check their glucose levels without a blood test; A spoon for people with tremors; The Baseline Study, a project to collect genetic and molecular information from enough people to create a picture of...
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