Newsletters
Rising Markets, Declining Fundamentals: Boosted by tax cuts passed at the end of 2017, the pace of growth in the US economy accelerated last summer, with real GDP growing at a 4.2% annualized pace in the second quarter, followed by 3.4% in the third quarter. After a decade of keeping interest rates super-low in what were intended to be temporary emergency measures, the Federal Reserve finally appeared ready to “normalize” interest rates.
The Great Unwinding: In our last letter we warned that investors had become complacent and that the unwinding of QE (a program whereby the Fed purchased trillions of dollars of bonds) could cause problems for asset prices. We cautioned that an inverted yield curve would be a bad omen for earnings growth and the bull market. Right on schedule, volatility shot through the roof and 5-year treasury yields fell below 1-year yields.
Ten Years After the Financial Crisis: QE Hangover Ahead?: September 15, 2018 marked the 10th Anniversary of the fall of Lehman Brothers. What initially began with falling house prices quickly morphed into a full blown financial panic. Federal Reserve Chairman, Ben Bernanke, and Treasury Secretary, Hank Paulsen, warned we might slide into a 1930’s style Great Depression without drastic action.
July 23, 2018: It was another tough quarter for value investors. The S&P 500 Growth Index returned nearly 4 times as much as the S&P 500 Value Index as the “FANG” stocks continued to soar. This group of four stocks now makes up roughly 10% of the S&P 500 Index and accounted for nearly 2/3 of the S&P 500’s return year to date.