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?

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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?

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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→

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 3^rd 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?

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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.

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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!]

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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.”

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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.

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Buying USA

This commentary offers three ideas with a common theme centered on valuation.  We monitor various economic, market and political research to understand the current financial market backdrop.  We hope these topical writings share our thinking about investing in today’s environment.

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Do you know, or ever meet, a Mr. Kadiddledopper?  If so, you’d surely remember.  He is a man of opposites.  Kadiddledopper is a guy who lives in a small town, whose house looks badly in need of painting; yard needs mowing; landscaping is overgrown with tall weeds woven in; and a broken picket fence with peeling paint.  Even his clothing announces a reclusive personality.  The town folk don’t know how to relate to him.  Mr. Kadiddledopper speaks in opposites.  Understanding his talk is challenging and confusing.  “Bye. Sure is cold today,” he says when greeting you on a humid 90 degree day.  Caution when following his directions – turn left when he says go right; stop means go, and go means stop; up-town means down-town.  When he answers “no,” he really means yes, but a most peculiar exception is “Yes” always means yes.  Is there such a real-life person?  Not sure; I created my fictious guy for humorous “fun” with young grandkids.  Ever struggle with a toddler who says “no” to everything?  Try instructing them that “no” means “yes,” and “yes means “yes.”  You may still be frustrated and certain that opposites don’t work.  “Don’t try it” with your spouse, and definitely not in public!  You will discover it’s easy at first and gets harder with practice.  [Italics will denote opposites to avoid confusion.]

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