Global Market Commentary

Global Divergence?  The U.S. Steams Ahead

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After further trade-war saber-rattling, U.S. markets have again regained a semblance of calm.  Further unexpected developments and accompanying volatility undoubtedly lie ahead, but thus far, markets have greeted the potential of escalating trade conflicts without panic. The financial, economic, and sentiment backdrop in the United States remains strong.  Investor and analyst anxiety is now expressing itself in the worry of “peaking” growth, earnings, and margins.  We are skeptical that such peaks are occurring, or that developments in these areas signal a necessary end to the current long-lived bull market. U.S. GDP growth remains very strong, according to the most recent...
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Could the Bull Last Another Two or Three Years?

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A volatile year to date seems to be resolving itself into a cautiously positive market backdrop, presenting the possibility of a better-than-usual summer for stocks.  The underlying causes of volatility are still present — primarily the tug-of-war we have described several times, between rising interest rates (which are challenging for stock valuations) and accelerating GDP growth and rising corporate profits (which support higher stock prices).  Therefore we don’t believe that the rest of the year will lack further episodes of volatility. The question for investors, as always, will be whether to view those episodes of volatility as opportunities or as...
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Summer Outlook for U.S. and Global Markets

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Let’s start with a review of U.S. and global economic, trade, finance, and banking outlooks. • The U.S.: Bullish economics, very strong.  Trade negotiations not a lasting problem. • Europe:  Neutral.  Avoid. • Asia:  Growth companies are attractive.  The U.S. dollar is strong; this is neutral for Asian commodity exporters.  If and when the U.S. dollar stops rising and moves sideways or down, we will become bullish on commodity exporters. • Latin America:  On a case-by-case basis, speculators can make money buying when crises occur. The U.S. First, trade is making slow progress in spite of scary headlines.  For example, there has not been much media...
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Let’s Make A Deal, China Edition 

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Let’s Make A Deal, China Edition  Since the correction that began in late February, the U.S. stock market has been laboring under many fears. These fears fall into two basic categories — the rational and the irrational.  A fear can be rational or irrational on its face; no one would call an investor “rational” if they spent time seriously considering the effect of zombies or asteroid impacts on their portfolio. But more subtly, fears that are not that crazy could be considered irrational if they dominate an investor’s attention at a level far beyond their actual probability of occurring, or...
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LIBOR is Dead — Long Live LIBOR!

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LIBOR is Dead — Long Live LIBOR! A week ago, we read an interesting piece in Bloomberg:  “LIBOR Refuses To Die, Setting Up $370 Trillion Benchmark Battle.”  Readers may be familiar with the LIBOR — the “London Interbank Offered Rate.”  If you bear with the discussion that follows, we’ll explain why this matters for your investments. LIBOR is perhaps the most important benchmark interest rate in the world, with more some $370 trillion worth of assets tied to it.  About six years ago, it was discovered that the rate was being manipulated by employees of many globally significant financial institutions.  The scandal...
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Why Not to Worry About China

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Why Not to Worry About China Back in November, we wrote: “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...
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Gold’s Slow-Motion Bull Market

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Our analysis of global markets often comes from a contrarian point of view.  Since the 1970s, we have been well-known among investors in precious metals for this reason.  We are agnostic about precious metals, viewing them a potentially important tool in an investor’s kit for surviving and prospering under a variety of market conditions.  On the other hand, we don’t believe that a significant gold position is wise under all such conditions.  However, we understand when gold can be indispensable.  Unlike some investment advisors, we would never scoff at the yellow metal; for some investors, an “insurance policy” in gold...
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Recession Outlook Update

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Executive Summary Recession outlook: an update.  The U.S. market remains locked in a tug-of-war between rising interest rates and rising earnings.  The market is about unchanged this year after a great deal of fluctuation.  After several recent prominent earnings reports from major companies which had positive comments about continued growth, analysts have overlooked many positive facts and comments, and zeroed in on whatever negatives they could find, even if they weren’t severe.  This indicates that the market has a great deal of fear of economic growth slowing or stopping. The market is plainly nervous, and stock prices are thus neutral...
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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 Global Reform Wave Rolls On:  Former Leaders Jailed in Brazil and South Korea 

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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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With Big Tech Under Fire, Is Tech Still A Key Sector For Investors? We Say Yes.

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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 service.  The response...
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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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