Newsletters
Risks on the Horizon for Equity Investors: As I write this, the S&P 500 just crossed over 3,000 for the first time ever. In fact, the 18.5% return in the first half of 2019 represented the best first-half percentage gain since 1997. The current bull market was born on March 9, 2009. At more than 3,775 days old, this cycle has set a record for the longest stock rally without at least a 20% decline in the S&P.
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.