Global Time Out

So, first of all, let me assert my firm belief that the only thing we have to fear is...fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.                 Franklin D. Roosevelt (Inaugural address March 4, 1933 during the depth of the Great Depression)  The spreading coronavirus has led to a panic across our society.  Schools are closed, supermarkets overrun with shoppers and the financial markets have sold off.  Leadership has also been weak as countries have blamed each other rather than working in a coordinated fashion to understand…

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Coronavirus and the Markets

When the coronavirus (Covid-19) first hit the news, the markets shrugged off the outbreak, assuming that China’s aggressive efforts to quarantine Wuhan would limit the spread.  This assumption fell apart rapidly over the past weekend as cases appeared in South Korea, Italy and Iran.  In keeping with other periods of stress, stocks have fallen sharply (7-8% in the last few sessions as of this writing) and quality bonds have rallied as investors seek safe alternatives for their assets.    None of us are contagious disease experts, but our reading suggests that this virus has spread to all 5 continents and that reports of new cases are likely to continue…

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Investment Commentary – Fourth Quarter, 2019

Rising Valuation Multiples The US stock market had an especially strong year, with the broad indices up roughly 30% on a total return basis. As discussed in previous commentaries, the rise in the market was more due to multiple expansion and less due to earnings growth. In fact, the S&P 500 started the year with a trailing twelvemonth price/earnings multiple of 16.5x and it rose to 21.6x by year-end. This 30% multiple expansion mirrors the 30% market appreciation almost exactly. In other words, there was a dramatic increase in what…

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Repo Stress

Volatility returned to the stock markets in August after the broader indices all posted double digit returns through the first seven months of the year. While the overall market environment appears benign, there were troubling developments in the short-term lending repurchase (repo) market. This event received a lot of attention because it came as a surprise to the Federal Reserve (Fed) itself, and it stirred memories of the kind of emergency measures the Fed took preceding the Great Recession. The Fed has intervened appropriately, but the turmoil highlights a fragility…

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Valuation and Breaking Down S&P Returns

The Standard & Poor’s 500 has returned +18% year to date through the second quarter of 2019. This was the best first half showing for the S&P in 22 years. This performance stands in contrast to the darker mood that prevailed seven months ago when the market completed a painful 20% sell-off. We’d like to report that these returns year-to-date are the result of improvements in earnings growth expectations and the macro-economic outlook. While that would be a true feel good story, it would not be accurate. Returns this year…

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