How long can you hold your breath? Can you hold it longer under water, or does the anxiousness of being submerged lessen your ability? Taking this analogy into the economic world of interest rates…when interest rates are at levels above inflation, defined as “positive real interest rates,” it’s akin to holding your breath underwater. Building further on this idea, are Artificial Intelligence (AI) stocks like an oxygen tank providing the financial markets the ability to keep swimming? How long can this condition last; how long will the oxygen tank allow us to remain underwater?
Category Archives: Monthly Commentary
Always the Same Pitch, Regardless of the Count? – February 2024 Commentary
In 1970, baseball great Ted Williams was quoted saying “a good hitter can hit a pitch that is over the plate three times better than a great hitter with a questionable ball in a tough spot.” And second, “Obviously you don’t just ‘guess’ curve or ‘guess’ fastball – you work with a frame of reference, you learn what you might expect in certain instances, and you go from there.” Perhaps it’s the coaching of my two sons’ baseball teams, but isn’t it interesting the parallels between sports and investing? Successful investors strive to identify “fat pitches” to hit instead of chasing bad ones. If playing basketball, it’s taking the “lay up” instead of shooting for 3-points. Why take increased risks by hitting pitches out of the strike zone, or shooting for 3-points? Why not seek the “fat pitch” or “lay-up” areas of the market that appear ripe for accelerating performance? After many years of repeated leadership, the most expensive areas of the market (mega-cap tech stocks) seem overdue for a break. They are priced to perfection, and thereby risky. Should you swing at the risky-to-hit pitch regardless of the count or game situation?
The Last Mile is Often the Longest – December 2023 Commentary
Shipping and logistics firms often cite that it is the last mile of delivery which is the most expensive and complex in coordinating. And seasoned runners report that it is the last mile of a race that often seems most difficult. Some may say the middle mile is challenging – too far to turn back and yet a long way to go. Nevertheless, it is that final mile which requires every drop of will power and can seem significantly greater in distance compared to earlier miles. As one who does not run long distances regularly, I participated in a Thanksgiving Day “Turkey Trot” with my family and neighbors, perhaps to justify eating too much and watching football later that day. It seemed do-able and fun when signing up a month before. And as we began, it seemed easy at first to keep pace with my 11-year-old son; but fatigue seemed to set in early. I’m certain there are other examples where the challenge seems to grow toward the finish. Might the same prove true with respect to lowering inflation without causing significant economic pain?Continue reading
Bond Vigilantes: Heroes or Villains? – November 2023 Commentary
Bruce Wayne and Peter Parker were seemingly ordinary citizens that took it upon themselves to correct wrongs they observed. To most, they were viewed as heroes but others felt they were disruptive and no better than the criminals they were squaring off against. In the last couple months, there is talk of bond vigilantes in the financial markets. Who are they – blamed for exacting pain on both stocks and bonds? Are they villains or heroes? The term “bond vigilantes” was coined by analyst Ed Yardeni in 1983 to describe the role bond investors played in disciplining governments by issuing bonds to finance spending, that looked irresponsible. At the time Yardeni wrote, “if the fiscal and monetary authorities won’t regulate the economy, the bond investors will.” With both stocks and bonds suffering a 3rd consecutive month of pressure and significantly erasing what were nice YTD gains to end July, let’s pose the question: are bond vigilantes a hero or villain?
“Too Many Moving Parts” – Nvest Nsights Q3 ’23 Newsletter
After a nice start to 2023, the market soured in the 3Q. Both stocks and bonds struggled against a backdrop of too many conflicting signals. Some data such as resilient employment and consumer spending suggests inflation is easing and economic recession may be avoided; but a contracting money supply, abruptly rising interest rates and energy prices, and uncertain government spending suggest economic pressure is building and is causing stock prices to contract.
Hamas’ attack on Israel over the weekend (on top of ongoing situation between Russia/Ukraine) seems to create additional fog in the short-run. We’ll continue to monitor what these developments may mean for the market. In the meantime, this quarter’s newsletter reviews:
- “Too Many Moving Parts” – we explain how many different moving parts not functioning together, can create a frustrating market environment with elevated volatility but no apparent trend.
- “New Reality” – Interest rates are now at their highest level in 16 years. While it feels unfamiliar, history would suggest rates at this level are not a bad omen for the future, but they do not make economic conditions easy either. How long might rates stay high if inflation is improving and what does it suggest for financial assets?
- “Flying Blind – Ecstatic Appreciation” – Bill offers quick reflection and appreciation for the opportunity to work with so many wonderful clients over his 45 year career. As throughout life, “Flying Blind” also offers relevant parallel as investors often feel foggy about the future.
- “The Wealth Feedback Loop” – the wealth effect can cause individuals to alter their consumption behavior, and we discuss why it is important to balance significant financial decisions with actual income rather than fluctuations in net worth due to market variables.
Click here for a Printer Friendly PDF which also includes benchmarking and data on investments widely utilized in our current tactical strategies.
Moonwalking, No More? – September 2023 Commentary
On July 20, 1969, American astronaut Neil Armstrong became the first person to walk on the moon when he stepped out of Apollo 11 in an area called the ‘Sea of Tranquility’. Scientists suggest that the force of gravity is 5 to 6 times weaker on the moon than here on earth. Would that make you feel like you were almost floating as you walk or run? By contrast, Bill recently enjoyed a bicycling trip in Nova Scotia, Canada. He shared that on several days the force of gravity was very much on his mind as the route often felt like a never-ending climb. More than half the group riders opted for e-bikes, or bikes that are assisted by an electronic motor. When climbs occurred, those on e-bikes used “turbo-assist” to zoom by with ease. This experience is a lot like investing – gradual ups, then downs; some rises were fast and steep followed by a fall. [On a bike, the rise was work, and ride down was fun; in financial market, the rise is work and declines are frustrating.] We generally don’t think about gravity; we take it for granted unless falling out of bed. Nevertheless, it does act on everything, unlike being on the moon.
“Mission NOT Accomplished & Might Could” – August Commentary
Might Could
“Might could” is a southern way of saying “might.” It refers to a possible willingness or ability to do something. Grammatical “experts” claim you cannot link two verbs – “might” and “could” – next to each other unless one is a linking verb. “Might” is informal and used with less likely events (“May” is formal and used relating to actions more likely to happen). “Could” is used to express ability and often refers to past actions. How about a few more southern phrases…”I’m fixin’ to”; or “pitchin’ a fit”; “more than one way to skin a cat”; “you could drive a preacher to drink”; or “as all get out.” [Special thanks to our own Diane Carpenter, Client Concierge, for recently sharing about “might could”; that’s often how commentary titles arise!]
“Lift-off! Do We Have Lift-off?” – Nvest Nsights Q2 ’23 Newsletter
With the midpoint of 2023 now crossed, we hope that your summer is off to a nice start. For the financial markets, things certainly appear better behaved compared with a year ago. In fact, the rebound over the last 9 months is now being labeled by financial media a “new bull market”… yet narrow enthusiasm from just a few stocks casts doubt on that idea. Below are links to access our just published Nvest Nsights newsletter articles, and your personal investment reports will be arriving soon.
- “Lift-off! Do we have Lift Off?” – provides a quick recap about how the 10 largest US stocks is influencing the appearance of broad index performance.
- “Quandary in the Quarry” – Economic indicators continue to signal slowdown is on the horizon? Can the current stock market advance continue and participation broaden?
- “Driving Hands-Free” – AI, or Artificial Intelligence, garnered big hype in the 2Q; the idea of automation everything inspires long-term hope for new gains in productivity, but also creates anxiety. Another form of AI, hands-free driving, can also be likened to how many approach investing… but is it safe?
- “Personal Finance Corner” – An update on how ebbing inflation is beginning to impact savers via iBond rates and what to expect if continued improvement occurs. Also, we briefly review how large or lumpy withdraws can be accompanied by unwanted surprises from Uncle Sam.
Click here for a Printer Friendly PDF which also includes benchmarking and investment data.
“Optical Illusions” – June Commentary
Harry Houdini, David Copperfield, and Penn & Teller are considered among the greatest magicians of all time. Magicians utilize a combination of sleight of hand, misdirection, and other techniques to create the appearance of executing seemingly impossible or supernatural feats. Recall seeing their tricks such as sawing a live person in half, escaping from an impossible predicament, or levitating (floating in air)? These skills are developed through practice, study, and the mastery of various techniques. The best magicians incorporate elements of storytelling, humor, and showmanship to enhance their performances and engage the audience. It is important to note that magicians are not actually performing real magic or exercising supernatural powers. Rather, performances are based on skillful techniques and principles of illusion designed to create a sense of wonder and amazement. The secrets behind their tricks are closely guarded, and the magician’s code of ethics often prohibits revealing the methods used to perform illusions. In essence, they try to “fool us.”
“When in Doubt, Zoom Out!” – May Commentary
Investing your life savings over time will be an emotional journey. Investors will find themselves exuberant by rapid growth in value at the start of a new bull market. And then become exasperated when bear market conditions erode gains and value in quick fashion. During years of managing investment portfolios, it most often feels like a slow random walk; sometimes like a walk in the desert that is boring. Since the onset of current bear market conditions 15 months ago, it is understandable for investors to get caught up in stress, anxiety and even unhelpful thoughts and emotions. Rainy days are never fun compared to sunny times. Comedian and actor Reggie Watts(1) shared this phrase, and Melli O’Brien(2), a mental strength coach, promotes the idea by sharing about a favorite practice called “when in doubt, zoom out.” When we become fixated on our anxieties and struggles, our problems and worries, or our insecurities, they can become very intense and overwhelming; even giant-like. Everything else gets overshadowed and hidden. The practice to “zoom out” from whatever negativity is creating issue, helps one see a wider perspective and thereby find some “breathing room” or much-needed mental space. Let’s develop this thought relative to our current bear market concerns or worries. Let’s “zoom out” on two topics influencing current and near-term market action.