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2020 Preview

2020 appears ready to offer up another fascinating display of investor psychology battling the astute, manipulative and oft detrimental forces of poor investment tendencies caused by innate human biases. Investors will continue attempting to divine the proper border between risk and reward. Usually poorly. While hoping the expansive bull can stave off the bears and provide yet one more year’s solid returns.

The road ahead will hold much at which the average traveler will want to stop and stare. The continuing Santa Claus Rally. Bareknuckle politics. Secular rotation and mean reversion. Trade and economic uncertainty. Geopolitics and international intrigue. It’s all there, awaiting your perusal. Like an Oscar Nominated film. So enjoy this “review” of how the film may look, based on what we understand, right here and now.

What follows are not forecasts (a fool’s game) but a list of our expectations, as well as currently perceived opportunities and threats, based upon what we know today.

So let’s get into it. Continue reading

The Politicization of Everything

In his 2018 letter to shareholders, Warren Buffett sagely counseled, “If you mix your politics with your investment decisions, you’re making a big mistake.”

We’ve long recognized such wisdom. As markets care little for party politics. Preferring to focus on earnings, productivity, efficiency, and other achievement-oriented metrics that rarely resonate through the political spectrum.

Unfortunately, many have ignored Mr. Buffett. Allowing politics to invade their daily lives.

The Kabuki Theater of American politics, and its interminably caustic media coverage, has become like Norway’s summer sun. Omnipresent. Continue reading

The end of the world as we know it?

Neil Shearing, chief economist at Capital Economics, recently published a provocative and timely client note that we’d like to share with you. It provides a historical perspective on the deterioration of U.S.-China relations, and what could come next. The following provides an edited excerpt. Enjoy.

The decision last week by the US government to impose additional tariffs on imports from China shouldn’t come as a surprise. The political dynamics on both sides of the trade war made it more likely that the conflict between Washington and Beijing would escalate rather than recede. Indeed, we had already factored the new tariffs announced by President Trump into our forecasts.

However, lingering in the background is a more fundamental concern – namely that we may be witnessing the end of globalization. If so, the rapid increase in cross-border movement of goods, services, capital and people that has been the defining feature of the global economy over the past two decades may be about to reverse – with macroeconomic implications that would extend well beyond the narrow impact of tit-for-tat tariffs.
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Peace of Mind Requires Leaving the Herd

Winding your way down on Baker Street
Light in your head and dead on your feet
Well, another crazy day
You’ll drink the night away
And forget about everything
This city desert makes you feel so cold
It’s got so many people, but it’s got no soul
And it’s taken you so long
To find out you were wrong
When you thought it held everything
You used to think that it was so easy
You used to say that it was so easy
But you’re trying, you’re trying now
Another year and then you’d be happy
Just one more year and then you’d be happy
But you’re crying, you’re crying now

-Baker Street, by Gerry Rafferty
. . . . .

Jesse Livermore was an early twentieth-century investor who made and lost several fortunes. As speculators go — and speculation and investing are distinctly different pursuits — Livermore ranked among the finest. He made fortunes short selling stocks when everyone else was long during the crashes of 1907 and 1929. The consummate market historian, much of Livermore’s success was attributed to his dedicated study of the human condition.

Livermore wrote, “All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance and hope. That is why the numerical formations and patterns recur on a constant basis.” Continue reading

Socialism’s False Prophets

During 2016’s election, Senator Bernie Sanders fueled his candidacy by feeding a bill of goods to young people. Cynically capitalizing on their lack of knowledge and life experience. And hinting at utopian promises that the nation was in no position to deliver.

In so doing, Sanders secured roughly 84 percent of the thirty-and-under vote in key primaries like Iowa and New Hampshire.

Accordingly, it should not surprise to find that economic socialism seems to resonate with so many American Millennials. Disconcerting when you consider that even recently, being called a socialist in America was an insult.
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2019’s Potentially Market-Moving Motifs [Part II]

Last week’s missive featured the first of two installments detailing this year’s potentially market-moving issues and events. Providing analysis of ongoing domestic economic and political issues that could move the market winds (here). This week, we broaden our perspective. Moving overseas to consider the regions, issues and events that may influence investment markets before 2021.

While no such list can be exhaustive, we believe this two-part series effectively covers those topics meriting scrutiny. Nor should our list be compared with those contrived within most consumer periodicals. As ours emanate from the investor’s perspective. Not that of the average buff, political junkie or animal lover. We will not spend time on this year’s ballyhooed superhero flicks, favored dog breeds, nor top names for girls.

Last year, TIME magazine chose members of the media, or as they put it, “Guardians of the War on Truth,” as the most influential person(s) of 2018. Even as recent polls and surveys by Gallup, Pew and the Columbia School of Journalism reveal that public trust in the media continues to decline. Which is rather like Wall Street nominating itself as the year’s most influential person in 2009. Right after it helped usher in the Credit Crisis.
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2019’s Potentially Market-Moving Motifs

Renown wild man and physicist Richard Feynman said, “Nature uses only the longest threads to weave her patterns, so that each small piece of her fabric reveals the organization of the entire tapestry.”

Traditionally woven by hand on a loom, a tapestry comprises innumerable threads that, though individually hidden in the completed work, aggregate to establish whatever pattern or theme the artisan had in mind.

On its own, each thread remains indiscernible. Insignificant. Together, however, these threads convey a bigger picture. Capturing the imagination through its color, complexity, character and creativity. Adding up to a visual narrative that cannot be ignored.
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Sun Tzu and the Art of Trade War

In ancient China, a respected military strategist wrote a book in which he infused his lifetime of expertise. General Sun Tzu’s Art of War became a manual on aligning aspirations with capabilities. The strategist set forth principles, selected for their validity across space and time, and then connected them to practices, bound by time and space. The Art of War, therefore, became a compilation of precepts, procedures — and categorical claims.

General Sun’s treatise was written sometime between 771 and 476 BC. Giving the Chinese roughly 2600 years to perfect his art of strategic dominance. Of course, the Chinese always played the long game. Believing that, given their history, size and geographic positioning, they would always have a chance to be at or near the center of the earthly universe, if only they played their cards correctly.

“The nature of water is that it avoids heights and hastens to the lowlands…
If you attack your enemy where he least expects it — if you avoid his strength
and strike his emptiness — then, like water, none can oppose you.” Continue reading