Current Events
Mike discusses current events and how they could be affecting your investments - or more likely, your perception.
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WHAT TO KNOW ABOUT THIS MARKET SELLOFF
“History doesn’t repeat itself, but it often rhymes”. I believe there are lessons to be learned from a previous time when the market, during a good economic time, plunged to the worst down day percentagewise in market history. It was the first time that the market plunge spread internationally to the world’s stock markets. There are lessons to be learned from Black Monday back on October 19, 1987. On that day, the market plunged down over 22%! Black Monday is remembered as the worst market drop in history, but it was October 20, 1987 that had the potential to collapse the entire financial system. There is an old saying: “for…
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2020: DOW Down 2,000
Hello 2018. Yes, 2018, not 2008. The drop has been sharper, but it feels the same. Computers panicked! This drop has been caused by panicked computers, not humans. Between 60 and 70 percent of all stock trades on normal days are made by computers. They can read the news in a fraction-of-a-second, and they have a list of rules on what is good news and what is bad. When the news falls into “bad” parameters, the computers sell. They don’t just sell once, but many times, and they make money on fractions-of-a-dollar, and then cover their sales a short time later – wash, rinse, repeat. The algorithms are not built…
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The Coronavirus Is NOT The Great Recession
The coronavirus is not the Great Recession. The cause of the Great Recession was a financial crisis whereas the cause of the coronavirus is a biologic crisis. The “cure” for the financial crisis is not going to be the same as the “cure” for the coronavirus. The impact on the market of the Great Recession is not going to be the same impact as the coronavirus. It is best to understand the difference between the two and the difference in strategies. The Great Recession was a financial crisis. It was essentially a worldwide burst of a credit bubble that had been building since the mid-1970s. Prior to the 1930’s Great…
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What in the World is Happening to the Stock Market?
Did you know that 60% of the revenues for companies in the S&P 500 are generated overseas, outside the United States?[1] It is important when looking forward to stock market performance in 2020 and beyond to understand what is happening to the world GDP and world economy. This is the first of two eLetters in which I will give you my views on the stock market in 2020. The best analysis I have seen was done in 2011 and is, in my opinion, still valid today. Standard Chartered Bank, a large bank based in London, released a study in which they state that the world is in a “worldwide economic…
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What Is Factor Investing?
The latest fad in investing is “Factor Investing”, according to the August edition of Financial Adviser Magazine. Like a bad fad diet, these investment methods come around every few years (factor investing dates back to the 1970s[1]) and claim to have found a method for stock picking that will win every time. Factor investing relies on five genuine factors which are, according to academics, Value, Quality, Momentum, Size, and Volatility. When it comes to understanding investment methodologies, I find it helpful to imagine them along a line: I am an active investor. Does this top-down investment methodology work? I don’t think so; as an active investor with a bottoms-up approach,…
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We Are at War
The late Chuck Knox, the first coach to get the Seattle Seahawks into the NFL playoffs, had a saying: “You have to play the hand you are dealt”. In football, that is to say, you have a limited number of players, some of which might be injured, the weather may be working against you, the rival team may be more skilled, but regardless you must do your best with your team. This eletter is neither political commentary nor meant to be political in any way, but as investors, we must address the trade war between America and China. Understand too this is not an easy exercise or simple analysis; I…
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Predictions 2019: The Truth About China
Recently, China has been causing no end of concern for the American investor. The Trade War that sprung up between the United States and China has caused fluctuations in the market as the talks have gone well or poorly, and, as of this writing, nothing has been resolved. Investors are wary of what could come next. I believe there is a historical model that we can use to understand China’s end goals and the means they may use to get there. At the same time, we have a window into China’s longer-term approach by looking at what China has done in steel production and the impact it has had on…
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How Will This Bull Market End?
How will it end? Will it end in another Great Recession? Will it end with a bout of high inflation? Or will it just continue on and never end? The Great Depression of the 1930s, like the First Great Depression of the 1830s and the long-lasting Depression of the 1870s to early 1900s, was credit-related. During those economically stressful times, bank runs became panics. When a bank was in trouble, individual depositors, fearing the loss of their money, would rush to the banks to demand their money back. When the panic affected only one bank, that institution could sometimes borrow cash from other banks or sell their loans to raise…
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Beware!! The Unicorns Are Coming!
That’s right, the Unicorns are coming. As an article in The Economist[1]pointed out, we use a lot of animal names: bull, bear, dog, hawk, dove, lion, and – in the last few years – unicorn. Unicorns are private companies that are valued at $1 billion or more. Lyft recently came public valued at a $16 billion market cap. Uber has filed and more will follow: Airbnb, We Work, Pinterest, Slack, and a host of Chinese unicorns. I live in Seattle and remember when Microsoft came public. It was a small startup and already profitable, but nothing close to the size of a unicorn. Starbucks had just begun to expand outside…
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A Shocking New Trend
Last fall, CNN opened an article with the story of Jeff Regan, who received a phone call informing him that his 94-year-old aunt was being evicted from her home in an assisted living facility. The next day, he received legal notice of the eviction.[1] If the number one fear of most people is outliving their money, this is validation. Studies are showing evictions top the list of assisted living grievances. If you google “assisted living evictions” you will find lists of “How to Evict a Resident” and “How to Write the Letter of Eviction – including templates” and “How to Take the Legal Steps to Evict Residents”. It is becoming…