Global Market Commentary

Emerging Markets and Trade War Fears

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If an impending trade war is about to create havoc for emerging markets, someone forgot to tell investors.  Emerging-market equity inflows have continued apace since the specter of a trade war emerged at the beginning of March.  (Dollar-denominated emerging-market debt moved to modest outflows, moving similarly to U.S. investment-grade corporate debt.)  EXD = dollar-denominated emerging-market debt                                                 HY = High yield EM = emerging markets IG = Investment grade Source:  Bank of America Merrill Lynch Research The largest U.S.-traded...
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The Global Reform Wave Rolls On

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The Global Reform Wave Rolls On:  Former Leaders Jailed in Brazil and South Korea Almost two years ago, we wrote about the rise of populist and anti-corruption movements around the world, and told you that we believed these movements would expand, intensify, and disrupt global politics and economics, possibly for decades.  Since then, many global events — including Brexit and the 2016 U.S. presidential election — have confirmed us in believing that public resentment continues to grow around the world as formerly unknown, hidden, or ignored misdeeds by politicians and other powerful figures come to light.  Whether in developed or developing...
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The Robot Apocalypse Isn’t Coming

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An idea that was once a twinkle in the eye of radicals is gaining ground among the Silicon Valley intelligentsia, including Elon Musk and Mark Zuckerberg.  The concept is that the disruption caused by automation and artificial intelligence is going to be so severe that half the workforce, or maybe more, will ultimately become unemployed.  Advocates say:  “Disruption is already moving up the ladder from low-skill and low-income jobs to affect more and more middle-income white-collar jobs, and artificial intelligence is reaching an inflection point where it is about to exponentially accelerate in power.  So why not tax the robots...
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Kicking the Bull Market’s Tires

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Kicking the Bull Market’s Tires Since the beginning of the year, we have been letting readers know that we expected greater volatility in 2018.  Such calm predictions are easy to make before the volatility has arrived.  Once it has arrived, of course, it feels much more alarming than it did when it was just a twinkle in analysts’ eyes. As usual, the question is whether a correction is going to accelerate into bear-market territory by clocking a greater-than-20% decline.  The initial decline from the January 26 peak of the S&P 500 was 11.8%, and the second decline, from March 13 to this...
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With Big Tech Under Fire, Is Tech Still A Key Sector For Investors? 

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We Say Yes.  Last week, several major news outlets reported that detailed data harvested from Facebook [NASDAQ:  FB] had been pressed into service by political consultancy firms under questionable circumstances.  The data were harvested by researchers who were abiding by FB’s then-current policies when they collected them.  But observers and some FB insiders, including former employees, allege that the company did not take the fate of the data seriously once they had been collected, and did not make serious efforts to ensure that they were not misused or sold on to other third parties in violation of FB’s terms of...
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February’s Goldilocks Jobs Numbers

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Among many investors and analysts, there’s a growing sense that rising growth, inflation, and interest rates are bringing and end to the long “Goldilocks” phase of the bull market that began nine years ago this month.  That doesn’t mean that stocks have no more gains to deliver — far from it.  However, it does mean that those gains are likely to be accompanied by greater volatility.  There will still be gains to make, but investors will likely need to be more nimble with market rotations between sectors and industries.  They will also need to pay more attention to the strengths...
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Trade Wars and Media Fears

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Trade Wars and Media Fears  It was a disappointing February. After a seemingly relentless and exuberant rally during January, the market stumbled in February and ultimately gave back most of its gains year-to-date, although at this writing it is slightly in the green. However, our big-picture analysis continues to suggest that the bull market which began in March, 2009 (happy birthday, Bull!) is not over.  A lot of converging data lead us to believe that a recession and the bear market that comes with it are not imminent — even though they’re getting closer.  Because we are active managers, and...
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The Crypto Capital on the Shores of Lake Zug

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In January, 2009, bitcoin’s founder, known only by the pseudonym “Satoshi Nakamoto,” launched the cryptocurrency era by mining the first bitcoin block.  Since then it has been a wild ride for bitcoin users, enthusiasts, speculators, and traders, with digital assets ranking as among the most volatile financial assets in history.   One of the key causes of this volatility has been the fear and uncertainty surrounding the response of regulators to digital assets.  The early bitcoin community was largely made up of libertarians who hoped that digital currencies would be an unstoppable force for economic freedom; in our analyses of bitcoin...
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REGISTER NOW: Opportunities In the Late-Cycle Bull

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We said in our last conference call that the bull market was not dead.  As 2018 gets underway, the U.S. stock market continues to rally — but what lies ahead in the coming year? Can investors expect further bullish performance from stocks?  Some observers believe the market has already anticipated the benefits of corporate tax cuts and stronger growth.  We think a review of bull-market history suggests that optimism is still warranted — as long as you’re carefully watching the right signals. Will U.S. GDP growth and corporate profits continue their uptrend?  We’ll examine the critical indicators — especially the...
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The new secret weapon against superbugs: dirt.

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New Antibiotics Revealed In Humble Soil This week we’re taking a break from commenting extensively on the market’s gyrations, and looking a little more long-term at some new developments in biotechnology. What Really Boosts the Longevity of Human Populations? Some cutting edge biosciences, such as novel cancer therapies, get a lot of attention from investors, including us.  However, the real drivers of health and longevity over the past century have been more humble: better nutrition, better sanitation, and perhaps most important, the discovery of antibiotics. In many ways, as far as longevity and quality of life go, agriculture was a...
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Will Ramping Inflation Cause More Problems For Markets?

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Will Ramping Inflation Cause More Problems For Markets?  The correction that began on January 30, and which may not yet be over, was triggered by several events.  The fundamental events were first, the release of new data showing rising wages; and second, increasing acceleration in the rise of long-term interest rates.  Obviously these are related.  The sharp correction indicates that investors are at long last really settling into the realization that the strong economy and the Fed’s first steps to normalize monetary policy mean that inflation will appear, rates will rise, and the boost that years of ultra-low rates have...
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What is the secret sauce for banks, U.S. corporates, and pension funds?

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Leveraged Loans Are a Secret Sauce For Banks, U.S. Corporates, and Pension Funds Modern bull markets are fundamentally credit-driven.  They are also credit-ended, when the spread between long-term and short-term rates goes negative and chokes off the supply of credit.  This is why watching that spread — the “yield curve” — is one element of an effective strategy to protect investment capital from bear markets.  The current bull market is no different (and yes, it is still a bull market in spite of the normal and healthy correction we’ve been experiencing for the past week and a half).  It has...
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Riding the Vietnamese Tiger

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We’ve been expressing our positive view about Vietnam as a favored investment destination in emerging markets since last June.  Since then, the Ho Chi Minh Index has appreciated more than 50% in U.S. dollar terms. Source:  Bloomberg Stock market rallies require a combination of economic and financial fundamentals followed by demand from investors.  Both precursors have been present in Vietnam over the past year, and the momentum appears to be sustainable.  (Of course, we caution readers that any market which has moved as far and as fast as Vietnam’s is vulnerable to a normal, healthy correction, and there is no...
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Get Ready For Self-Driving Everything

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Toyota’s Self-Driving Boxes and the Future of Retail We commented last week on Toyota’s [NYSE:  TM] presentation at the Consumer Electronics Show (CES) — an expo that has become so auto-centric in recent years that a running joke dubs it the Car Electronics Show.  TM calls its new concept the “e-Palette,” and it is essentially a self-driving transparent box on wheels which can by internally configured to be a mobile almost-anything.  In short, it is a mobility-as-a-service ecosystem which will be able to move everything from people, to accommodations, to light manufacturing facilities, to retail storefronts.  If the direction of...
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Robots, Robots Everywhere

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Robots, Robots Everywhere Robots in Food Service With the Consumer Electronics Show (CES) just past, it might be a good time to mention two developments in robotics that we’ve recently noted.  Sage analyst Larry Jeddeloh at The Institutional Strategist noted that this year’s CES was the occasion for Pizza Hut [NYSE: YUM] to unveil a driverless delivery service, partnering with Toyota [NYSE:  TM] in the development of autonomous electric vehicles. Autonomous food delivery systems will represent a major savings in labor and insurance costs for the companies that adopt them.  Automation in fast food businesses will not be restricted to...
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This Week’s Market Summary

U.S. Economics Economic data continue to impress, with wages finally moving higher by about 3% year over year, and S&P 500 profits expected to rise by 15–16%. More positive news is that the U.S. has become a net natural gas exporter, and with the creation of several new gasification and export terminals expected to come online in Texas and Louisiana in the next two years, U.S. natural gas exports will increase.  Clean-burning natural gas is the bridge fuel that is helping India and China diminish the massive pollution and huge carbon footprint that they are creating with their inexpensive domestic...
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Manufacturing PMIs Increase — Is Inflation Coming?

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Manufacturing PMIs Increase — Is Inflation Coming? The current uptick in global GDP growth means that manufacturers in many countries are experiencing higher demand.  As purchasing manager index (PMI) reports come in from around the world, they are showing supply constraints beginning to emerge.  Manufacturing PMIs are surveys which ask industrial managers about various aspects of business conditions.  While they are soft rather than hard data, they can be valuable for constructing a current picture — since the hard data typically aren’t available for several months. The December manufacturing PMI for the U.S. continued to strengthen.  The chart below shows...
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What the Tax Bill Means For Taxpayers, For Businesses, and For Investors

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The tax bill has passed and has been signed into law, the dust is settling.  Accountants and tax lawyers report that it will be moderately beneficial for most individual income tax payers.  Ambitious reformers had hoped the tax code would be so simplified that most filers could use a post-card, but that wasn’t to be.  Enough complexities remain that there will be plenty of fodder for tax professionals and enough unique situations that we can’t do more than sketch the overall effects for the majority of taxpayers, which we’ll do below. On the other hand, we believe the bill will...
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The U.S. Economy – The Tax Bill good for U.S. Economy and Good for U.S. Stock Market

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Market Summary The U.S. Economy – The Tax Bill good for U.S. Economy and Good for U.S. Stock Market Readers know that we are bullish on the U.S. economic outlook.  The passage of the tax bill will create further impetus for economic growth in the U.S.  We will not be surprised to see quarterly growth at 4% or above within a few quarters.  Such strong economic growth, which will be a welcome relief from years of slow growth in the U.S., will provide a base upon which corporate profits can continue to grow. The U.S. Stock Market Will Continue To...
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The U.S. Economy

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The U.S. Economy:  Good Performance On Many Fronts U.S. employment data from the Labor department corroborates the evidence that non-farm payrolls rose for the 86th straight month in November, with 228,000 new jobs created.  Because of the steady hiring, the unemployment rate has been at 4.1% for two months, holding at a 17-year low. What has become of all this talk about the U.S. economy being stuck for the long term at a growth rate of 1 to 1.5% per year? As recently as a year ago, several well-known economists were making that claim.  These economists should be embarrassed by...
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What is the most important aspect of the tax bill for investors?

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For Investors, Corporate Taxes Are the Most Important Part of the Tax Bill The administration is close to notching its first major policy success with the passage of a sprawling tax cut.  We will wait until the legislation is finalized before commenting on its consequences in detail.  However, for many investors, the most significant effects of the tax bill will be on the value of the stocks in their investment portfolios. That’s another way of saying that despite all the wrangling about the specifics of the tax bill that will affect individual income taxes, the lowering of corporate taxes will...
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A Tale of Two Chinas

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The skeptics and haters of the current bull market have spent the last eight years finding reasons and justifications for their skepticism.  One of the favorite reasons for pessimism has been China. Sometimes China has been a geopolitical boogeyman, with journalists fretting about China’s rise on the world stage and its potential to surpass the U.S. in military or economic power.  We have thought those fears to be baseless and have said so for years.  China has a long, long way to go before it will be able to challenge the hegemony of the U.S. either militarily or economically, even...
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U.S. Markets, Japan, and Europe

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Market Summary U.S. Markets, Japan, and Europe U.S. markets continue ahead, logging one of their longest-ever periods without a 5% correction.  We do not know what the catalyst for such a correction will be, and neither does anyone else, but there are plenty of potential culprits that everyone continues to watch, from geopolitics to the Fed to U.S. tax policy.  In any event, as we have been observing throughout 2017, such a correction will be a buying opportunity, barring an unexpected deterioration in economic or financial fundamentals.  Those fundamentals remain solid.  U.S. growth is accelerating beyond the disappointing levels that...
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What Will Push Stocks Higher?

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Productivity Growth Will Push Stocks Higher After a long slump, productivity growth is accelerating again — and the reasons for the acceleration further reinforce our view that we are in a late, bullish phase of the economic and market cycle, with more upside to come for stocks.  As we have said many times in recent months, “This bull market is not dead” — and this is further evidence to support our thesis. We’ve written a lot about productivity growth and the reasons for the slowdown of the last several years.  That slowdown has been a key component of the lackluster...
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