Market Summary
The U.S.
The U.S. market is still in a correction or sideways mode, with both macro news and fears in evidence, as well as seasonal effects. We are neither as pessimistic as some news media have become, nor are we extremely enthusiastic at the present juncture. We still believe that while the post-2009 bull market has longer to run, and in the U.S., likely has some significant performance ahead before it is over, the near future will continue to be volatile under all the economic and sentiment pressures that have come to bear.
To us, it seems unlikely that the U.S. Federal Reserve will act decisively to counteract the slowdown that has begun to manifest globally, or to prevent one from beginning to manifest in the U.S. While there was hope at the beginning of his tenure that Fed Chair Jerome Powell would bring a more pragmatic mindset to Fed policy, his communication and behavior so far have more resembled that of his academic predecessors; nor does the firmness and clarity and comfort of that communication compare favorably to theirs.
Is the global economy as bad as media present? We doubt it. We see a weakening or decelerating world economy, rather than one definitively headed for recession. There have been previous episodes of such weakening during the current expansion. Of course we are now later in the expansion, so the situation bears particularly careful observation.
Currently, the U.S. remains a bastion of positive yields; the U.S. now accounts for the bulk of positive-yielding developed-world debt, both government and corporate. We believe that globally, investment dollars, euros, and yen will continue to seek out the U.S., as it offers both attractive, dividend-yielding stocks, and the lion’s share of the world’s big secular growth names, primarily in the tech industry. To us, this argues both for well-positioned, high-quality U.S. dividend yielders, and for U.S. growth stocks with real secular tailwinds and a credible and enduring growth story that will keep working “through thick and thin.” In our view, investors should avoid value stocks and cyclicals; they have underperformed, and we see no reason why that should change in the final innings of this long bull market.
Gold and Bitcoin
All of the global phenomena that we have been pointing out as catalysts for gold remain solidly in effect: geopolitical and economic uncertainty; negative interest rates engulfing now the actual majority of global government debt; central bank buying; and populist rhetoric that is increasingly hostile to capital. We believe that gold will appreciate further in 2019, and probably silver as well.
For crypto speculators, although we are deeply suspicious of market transparency even for bitcoin, we believe that increasingly, bitcoin, rather than other cryptos or digital assets, should be the focus of attention. Bitcoin remains in a volatile trading range around $10,000. It is not clear how bitcoin will behave in event-driven volatility — as a risk asset, or a risk-off asset, and speculators therefore should not rely on it as the latter.
Thanks for listening; we welcome your calls and questions.
