June 5, 2020
The Trouble in Using Your Old Playbook
I have received a great many texts and emails today from clients and market colleagues highlighting the decline in the unemployment rate during the month of May in the USA. It was an extremely positive shock to market participants that remain beset with the gloom of Covid. To be fair to economists, it is a relatively useless exercise (guesswork) to try and make predictions on short term data in an environment with this much uncertainty, but this is their job and they go about prognosticating using the best tools at their disposal.
Pure investors and speculators have the luxury of reflecting their views through financial markets. We can analyze a unique situation, determine that the old relationships are breaking down, make predictions, and then act on those predictions by expressing them through risking money. For me personally, I find investing and speculating a way to express what I believe to be true without having to argue my point to change someone’s opinion. I am rewarded through financial gains if my views are correct, and I am penalized if my views are out of touch.
As I get older (and hopefully wiser), if I cannot convince someone of a different perspective, I expend less energy on trying to help them see my perspective. It is not because I care less; it is because I know my energy would be wasted on someone with a closed mind. I can fully appreciate this because of my own stubborn and defensive nature. I try my best to be open- minded, to direct my energy to those who can benefit from it, and I express myself by risking money in the market which has a way of recognizing insight or humbling you!
We tend to be more open and vulnerable when we are experiencing pain. As I say to my friends, if I know one emotion, it is pain. I do not offer that to people to make them feel sad for me. I want them to know that because I forge ahead despite the pain, I am rewarded with wisdom. All that really means is the ability to recognize how very little we know or control anything. That realization is very powerful because it allows me to be vulnerable and unafraid of being vulnerable.
It allows me to write these notes in a very personal way; it is part of my own therapy, and I have no fear of how they are judged by others. Some people have let me know how much they enjoy them, and that is nice to hear, but mainly it helps me on my own journey and with my own investing process.
I am lucky to have found a business that allows me to spend my time harnessing all the learned lessons and experiences of my life to help others. It is enormously gratifying to help families reduce their financial anxiety. For me, this business does not feel like work; it is what I am supposed to be doing with my time.
Getting back to the employment report The report confirms to me that people would bounce back from this pandemic, with the assistance of government much more quickly than originally perceived. As we reflect on where we are now compared to where we were in March, what is new? I don’t see a tremendous amount that has changed in actual fact. It’s really just an Adjustment of Perspective.
We now realize that all that cash that has been created will be used for something. Buying financial assets, earning more cash, spent, etc. So, prices have gone up a lot, as more of the population comes around to this view.
We now realize that perhaps Covid-19, as hard as it is, perhaps was not the worst event we could experience, and that this too shall pass. So even though the virus is still a problem, we discovered that can go on with our lives, albeit in a slightly different way.
I am not suggesting there are not serious problems to contend with in the USA and globally. The recent demonstrations on our streets draws attention once again to the frustration and hurt felt by so many of our fellow Americans. Social media and the media in general often paint a picture of black and white, right and left, but that is not the way life works. Despite the focus on the negative, I still believe people want to improve their lives and the lives of others. The hope is that we all treat each other with more kindness and compassion, and that we focus on our similarities instead of our differences. Life is not all bad and it is not all good; it is just relative, constantly changing.
What now in markets? Clearly market sentiment is more in balance now as bearish investors have been forced to capitulate on their views. However, most of my indicators continue to suggest defensive positioning, and I continue to remain positive on equities and higher yielding assets. I stay positive on international equities, as many currencies are attractive on an historical relative basis to the US Dollar. Our allocation to midstream energy and international energy, despite the dramatic rise in price, still offers attractive yields on assets that are essential to the continuing global economic recovery.
And just a word about how many bearish investors continue to put forth a view that financial assets do not reflect economic reality, and that by any historical measures, this bull market in equities is pricing in a recovery that will not come to fruition. Well, I do NOT think they are wrong, it’s just that for the time being financial markets have very little to do with our current economic growth (in my opinion).
The old playbook needs to be tossed out because the world has never witnessed a coordinated and unchecked monetary and fiscal response to a decline in global economic growth.
I believe the printing of our paper currencies is likely to push riskier assets to new heights as the opportunity cost of not participating becomes clear.
There will likely be a painful reconciliation that will take place in the future, but that is a story for another day.
Joseph Cardello, Principal
August Wealth Advisors
The Loft, 101 Franklin Street, Suite A
Westport, CT 06880
Direct (916) 461-9451 toll free (800) 985-9477
“Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA August Wealth Advisors.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. No reader should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence.”
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