This 3rd Week of September 2021 Thoughts
1. Buy the Dips
2. FOMO…Fear of Missing Out
3. There is NO Alternative
4. Look for the Bigger Better New Deal of the Day
The market is where it today…because of these 4 mantras that keep investors “all in.”
When you deconstruct the word, stag-flation, which one does the FED and Policy Makers worry more about? The first part…STAG, as in stagnant or the second part…flation, as in Inflation.
The Fed is ignoring inflation and is focused on the stag…keeping our economy moving. Policy…Congress…is worried about the nightmare of inflation that is higher than 5%.
There is no real “set in stone” definition of what a “bubble” is…whether it is in the market or the economy. There is a sentiment that seems to carry some weight…and the bubble can pop when there is a catalyst…such as PE. In the late 1999s…stocks were accelerating in price…but their earnings were rising as well.
More recently, we are seeing a forward PE that is more reasonable, as earnings are improving as Covid works through. We are seeing what Schwab’s Chief Strategis Liz Ann Sonders says that we are seeing “micro-bubbles”. Meme stocks, SPACS, IPS, Crypto…the most speculative “stuff” has in fact been stretched, and has been breaking.
Most of the PE based metrics, Shiller Cape, the 5-Year PE (past 3 years and the next 2 years), the Buffet Model…which looks at income…all show that we are expensive.
ONLY equity risk premiums relative to bond yields…and cheap yields making stock dividends attractive, keep stocks moving higher
“Good things take time, as they should. We shouldn’t expect good things to happen overnight. John Wooden.
I can remember just about every new investment fad I’ve seen over my 36 years. It started when Vanguard created Index Investing by building portfolios of index funds to earn the return of the market WITH the risk of the market. This is more fun in up markets.
The Art of Alpha was about doing better than the averages and who wouldn’t like that? Smart Beta sold investors on reducing risk by capturing market inefficiencies in a rules-based and transparent way?” What does that EVEN MEAN?
Robo-Advisors were “low-cost automated investment platforms that manage money using algorithmic execution with little to no human supervision so you can “set it up can then get to forget it.” So, replace humans with machines for a secure financial future?
Each new cool deal focused on reducing investment costs (a good thing); increasing return (a super good thing); reducing risk (my favorite); setting a strategy and relaxing (who doesn’t like simple?)
Today, Direct Indexing is the darling of the day: instead of having a portfolio of index FUNDS, you throw out the “fund wrapper” and own 200 stocks that combined, track a benchmark. A computer builds and rebalances the optimal portfolio and your Schwab statement would have 200 stocks in each account. The goal is to own companies and earn what the market earns but key here, is that you are good with market risk, often a bitter pill to swallow.
A consistent theme? The next new strategy to sell clients so advisors can focus on growing and managing their practice. I have a very good memory and each new fad made so much sense at the time, but over time, the fad faded and was replaced by the cool new deal of the day.
Today, I’ve built a collection of research tools that are that are human-centric: you and I will always be at the center of managing your financial life. As always, my goal is for less volatility, and to get through everything our market hands us.
The most discussed subject these days? Inflation and the escalation of chatter around rising prices that don’t look like that will continue til there is more clarity. Even though no one really saw this one coming a year ago, still speculation on what’s going to happen six months from now abound. Upward pressure on wages, supply chain disruptions/low inventory levels, and surging demand amid global economic growth have led to greater expectations of rising interest rates and tighter monetary policy ahead. This truly is the greatest risk to our economic recovery that’s still early and fragile.
😲 Why does this matter to you? The chart above says is all: inflation mentions on earnings calls are up 1000% compared to last year and it is analysts can talk about. The prospect of sustained price increases – accompanied by the eventual rising interest rates – impacts threaten to alter the surging recovery. Translation: volatile markets and worries of downside prices.
“Jelly” the designer says; “If you ask me, where humans go wrong is with their lack of patience. That, and their recently acquired taste for instant gratification.” So, make this your mantra: try hard, and when you fail, try harder and fail better.
😊 Why does this matter to you? I am very amazed that we have held up as well as we have…that we have not “broken” down more, before now. The worry, grief, loss, and polarized conversations can fill our news cycle can take a toll. So, print off the chart above. Put it on the fridge and your bathroom mirror. Do several every day!