Global Market Commentary

Potential Trouble Spots?

Market Summary U.S. and World Outlook:  Pivotal Influence Is the Value of the U.S. Dollar The U.S. dollar continues to be strong and this continues to disincentivize U.S. investors putting money into commodities, non-U.S. stock and bond markets.  Simultaneously, the strong U.S. dollar incentivizes foreign investors to put money in the U.S. markets so that they will benefit not just from higher U.S. stock prices, but from a dollar which rises in value versus their home currency.  Both of these trends are fortunate for U.S. stock owners, and have contributed to the continuing slow and steady grind-up in U.S. stock...
Read More →

The Yuan’s Falling, and the Market’s Not Panicking

//
Posted By
/
Comment0
/
Categories,
The Yuan’s Falling, and the Market’s Not Panicking The steep drop in the value in U.S. dollar terms of the Chinese yuan contributed a lot to the difficulties experienced by the U.S. stock market in 2015 and 2016.  The yuan’s initial sharp devaluation in early August, 2015 caused the S&P 500 to correct by 11%.  Between that initial devaluation and the U.S. presidential election in November, 2016, the yuan fell almost 9%; the U.S. stock market traded sideways with significant volatility and only moved to significant new highs again after the election was over.  In short, Chinese currency instability was not...
Read More →

Where Is The Growth Story Strong?

India Economics: Steaming Ahead The Indian stock market has seen a strong year, continuing the rise from the bottom at the end of 2016. Source:  Bloomberg Finance LLP When expressed in U.S. dollars, however, the chart takes on a different hue.  U.S. dollar strength has meant that in U.S. dollar terms, the Indian market has still not returned to its January highs. Source:  Bloomberg Finance LLP In short, the domestic Indian economic recovery and transformation remains a durable theme.  This is a theme we have noted since Narendra Modi became Prime Minister in 2014.  We believed then as we believe...
Read More →

Market Summary for week of July 30th, 2018

The U.S. Economy and Stock and Bond Markets As trade tensions have escalated during 2018, we have told our readers that we would inform them if we believed the likelihood of a real trade war was becoming greater.  Although a full-blown trade war has not yet broken out, we now believe the risk is elevated.  The greatest risk is with China; Mexico and Europe present a more hopeful prospect for near-term negotiations.  As the conflict with China continues, it may contribute to market volatility during a period of typical seasonal weakness, particularly for U.S. exporters.  It may also negatively affect...
Read More →

Growth Versus Value:  Time For a Rotation?  

//
Posted By
/
Comment0
/
Categories
For the first several years of the post-recession period, U.S. growth and value stocks tracked one another pretty closely.  They began to diverge in 2014, and in 2017, that divergence accelerated rapidly. Source:  Bloomberg Finance LLP Does the recent faltering of tech tell us that a change may be coming — that growth stocks as a whole will falter and yield leadership to value? We don’t know, although we suspect not.  We prefer to look at stocks not in terms simply of value or growth, but in terms of “growth at a reasonable price,” or GARP.  Sometimes growth outperforms, but...
Read More →

Earnings Are Strong, And It’s Not Just Tax Cuts

//
Posted By
/
Comment0
/
Categories
Quarterly earnings are in full swing, affording investors one of their periodic views into the financial performance of a wide spectrum of companies, and the chance to hear some valuable anecdotal comments from company management about the state of their businesses, their industries, and the wider economy.  Here at Guild, we listen to a lot of company conference calls during this time — both for stocks owned by our investment management clients, and for bellwether stocks that can provide useful information about the current economic and market environments. Usually earnings season passes without really affecting the mainstream, non-financial news.  Facebook...
Read More →

“Patent Palooza”: The Financial Industry Gets Serious About Blockchain and Crypto Patents

//
Posted By
/
Comment0
/
Categories
Clients and readers have asked us to consider launching an investment partnership for accredited investors, devoted to cryptocurrency, blockchain, and digital asset investments.  There are few investment advisors willing to assist their clients in this area, and we are evaluating this request.  If you are an accredited investor and you are interested in such a partnership, please contact our office. Slumbering cryptos, which have been stuck in a trading range since the steep decline from December’s highs, have awoken.  Bitcoin broke its months-long downtrend, breaching the $7000 mark, and then the $8000 mark in short order. Source:  Bloomberg Finance L.P....
Read More →

Everything Getting Worse? Actually, Lots of Things Are Getting Better

We’re no strangers to contrarian analysis.  When the overwhelming weight of sentiment goes in one direction, we ask ourselves what potential pitfalls the consensus might be missing.  Often that puts us in the position of identifying weaknesses and potential problems that others have glossed over — sometimes because of a state of “irrational exuberance.” Sometimes, though, a contrarian view goes in the opposite direction: it means looking for the positive aspects of a situation, or the promise of positive future developments, that the crowd has missed because of an overly negative attitude.  Maybe we could call that attitude “irrational despair.” When it...
Read More →

Capex and R&D: Long-Term Growth Drivers Investors Should Love

//
Posted By
/
Comment0
/
Categories
The investor enthusiasm that began 2018 was based on the sense of a late-cycle acceleration.  The global expansion was hitting its stride, and this would bode well for capital expenditures and therefore, many thought, for U.S. industrials. Last week we discussed some of the reasons why the script has not played out as investors expected in January.  Caterpillar’s April earnings call [NYSE:  CAT] was misinterpreted by some analysts to suggest that the expansion had reached its “high-water mark.”  Anxiety about trade conflicts and rising interest rates, and fears of awakening inflation, have contributed to uncertainty about the current expansion’s durability. ...
Read More →

Surveying the Risk Landscape: Our Philosophy

//
Posted By
/
Comment0
/
Categories
Surveying the Risk Landscape:  Our Philosophy At the end of every letter we write, we sign off by saying “We welcome your calls and questions.”  Market turmoil and political events in 2018 have led to a number of questions from our readers and investment management clients.  As we answer these questions, it often serves to highlight the investment strategy and philosophy we bring to you each week.  This week, we thought we would share a few recent questions and our responses. Many of them focus on potential or perceived risks in the global economy and global financial system, with readers...
Read More →

Risks Dampen Investors’ Enthusiasm

//
Posted By
/
Comment0
/
Categories
European and U.S. Banks: Risks Dampen Investors’ Enthusiasm As the most cyclical of cyclicals, banks were supposed to benefit from the corner turned in early 2018.  Typically, in the mature phase of an economic cycle, as inflation and interest rates are rising, growth is kicking into higher gear, and economic enthusiasm is beginning to move towards exuberance, financials — companies who in various ways facilitate the credit expansion that is the lifeblood of economic growth — should outperform. 2018 hasn’t worked out as expected in a variety of ways.  Investors were optimistic about U.S. industrials early in the year, as...
Read More →

Introducing Guild’s Periodic Digital Asset and Blockchain Update

//
Posted By
/
Comment0
/
Categories,
Executive Summary   For 46 years, Guild Investment Management has had one goal: to help investors succeed.  We have historically focused on investing in stock, bond, currency, and gold markets in the U.S. and worldwide.  In recent months, clients and readers have asked us to consider launching an investment partnership for accredited investors, devoted to cryptocurrency, blockchain, and digital asset investments. There are few investment advisors willing to assist their clients in this area, and we are evaluating this request.  If you are an accredited investor and you are interested in such a partnership, please contact our office. 1.  Guild inaugurates...
Read More →

Global Divergence?  The U.S. Steams Ahead

//
Posted By
/
Comment0
/
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...
Read More →

Could the Bull Last Another Two or Three Years?

//
Posted By
/
Comment0
/
Categories
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...
Read More →

Summer Outlook for U.S. and Global Markets

//
Posted By
/
Comment0
/
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...
Read More →

Let’s Make A Deal, China Edition 

//
Posted By
/
Comment0
/
Categories
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...
Read More →

LIBOR is Dead — Long Live LIBOR!

//
Posted By
/
Comment0
/
Categories
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...
Read More →

Why Not to Worry About China

//
Posted By
/
Comment0
/
Categories
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...
Read More →

Gold’s Slow-Motion Bull Market

//
Posted By
/
Comment0
/
Categories
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...
Read More →

Recession Outlook Update

//
Posted By
/
Comment0
/
Categories,
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...
Read More →

Emerging Markets and Trade War Fears

//
Posted By
/
Comment0
/
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...
Read More →

The Global Reform Wave Rolls On

//
Posted By
/
Comment0
/
Categories,
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...
Read More →

The Global Reform Wave Rolls On:  Former Leaders Jailed in Brazil and South Korea 

//
Posted By
/
Comment0
/
Categories,
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...
Read More →

The Robot Apocalypse Isn’t Coming

//
Posted By
/
Comment0
/
Categories
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...
Read More →