Are Stocks and Real Estate Poised for a Bust

January 26, 2022

Are Stocks and Real Estate Poised for a Bust January 25, 2022 By Mitchell Anthony   The equity market has been going through an extreme period of volatility over the last few months as investors fret about whether a soft landing or a recession is on the horizon.  This volatility has everyone nervous because of substantial amounts of wealth that Americans have in our financial markets.  If there is a meaningful recession then markets undoubtedly will correct 20% or more from past highs. Conversely if there is a soft landing for the problems that we are having with inflation and growth than the markets will get back on a path to higher prices as soon as this becomes visible.  The market is clearly worried about inflation and much higher interest rates and as a result equity prices have already fallen 10 to 15% on equities and demand for homes has softened.  This equity correction seems overdone and it would seem that prices will stabilize very soon as we await more data on inflation.  We have never had a lasting substantial correction of more than 10% in equity markets that wasn’t driven by a substantial economic event.  We have not yet had an economic event and do not believe one is upon us now, however we do recognize we are close to the amount we are willing to lose from a previous high before making sales to protect our assets.  We also recognize that the equity Market has had a substantial move over the last two years (over 50% appreciation see figure 1 &2) that must be considered when identifying a stop loss point for the equity market.  We believe that it is not time to panic and sell equities aggressively and move to cash but will do so soon if selling persists. Read more

Will Inflation Wreck this Economic Recovery?

January 10, 2022

Will Inflation Wreck this Economic Recovery? By Mitchell Anthony January 7, 2022   2021 was a great year of economic recovery from one of the worst events that ever took hold of the global economy. The pandemic! Unfortunately there was some collateral damage and an inflationary cycle began that is difficult to understand.  More importantly expectations for inflation have risen dramatically.  Inflationary expectations have been anchored for over a decade at very low levels of 2-3%. However the CPI is currently measuring 6% inflation and the PCE (personal consumption expenditure index) is at 4.7%.  These high levels of inflation have not been seen in decades and many believe they will not be sustainable because they have been achieved through strong demand that followed a long period of deprivation.  These high levels of inflation has caused corporate leaders, business owners, and consumers to fear and worry that there is nothing ahead but significantly higher prices for the next few years.   As a result business leaders are acting in a defensive manner to prepare for this inflation by putting plans in place to raise prices for their products.  Likewise workers are demanding more wages to offset the inflation they believe lies on the horizon. This sort of thinking has caused inflationary expectations to become unanchored.  As this occurs it becomes challenging to re-anchor expectations for inflation back at low levels that are consistent with healthy economic growth without a recession and/or a sharp correction in asset prices. Read more

Irrational Exuberance in Our Markets

November 24, 2021

Irrational Exuberance in Our Markets By Mitchell Anthony November 23, 2021   Alan Greenspan’s infamous speech in 1996 hit the nail on the head when he warned the world about the irrational exuberance that existed in both the US economy and US financial markets.  For the most part corporate leaders and investors failed to take heed of the notice until it was too late. The exuberance centered heavily on greedy blind ambition as well as ignorance that drove capital into Internet and tech oriented businesses that had far too optimistic visions for their products and product cycles.  Some had no products or services at all that were rational.  The exuberance caused these businesses to invest heavily in human capital that they had to divest quickly thereof when the bottom fell out at the end of that dot-com cycle in 2000. The fallout from the tech sector dominoed into other sectors and caused a classic economic bust that led to one of the worst equity market declines on record.  Similarly the economic strength from 2002-2007 that preceded the great recession of 2009, saw greedy blind ambition drive over-consumption in the housing market into a state of irrational exuberance that resulted in a massive economic bust that took a decade to put behind us. Equity Markets and Real Estate Assets have surged dramatically over the past two years, with everything from cryptocurrency to meme stocks exploding in value, causing investors to wonder about the existence of rot in our economy? Could we be on the verge of another bust for the economy and the markets?Read more

Lingering Headwinds from Covid

November 3, 2021

Lingering Headwinds from Covid By Mitchell Anthony November 3, 2021   Covid 19 has affected the lives of almost everyone on the globe for the last few years. Thousands of lives have been lost and the personal agendas of everyone on the planet have been altered. Global economies have been wrecked as businesses have had to stop and start because of the pandemic. Most mature businesses and industries survived and some have been big winners while others have been losers.  As we start to see the light at the end of the tunnel we seek to understand what the lingering economic effects from Covid 19 will be for years to come.  How will consumption be altered and how will production of goods and services be changed.  What industries and businesses have found tailwinds from this pandemic that will linger and enhance their outlook for years to come.  Conversely what businesses and industries have headwinds that are lingering and dampening their growth prospects.Read more

Markets Fret Over Fear of Change in Monetary Policy.

October 5, 2021

Markets Fret Over Fear of Change in Monetary Policy. October 5, 2021 by Mitchell Anthony   The relatively steady rise in equity prices that we experienced the last 1 ½ years has shown some signs of stalling over the last month. The S&P 500’s recent peak was on or about August 31.  It declined about 4% in the first week of September and then quickly recovered back to its August 31 high by September 22. However, commentary from the feds meeting the third week of September caused fear and investors pushed the market down again to where the S&P 500 is now about 6% below the August 31 high. We saw a similar correction like this in March of this year as well as November of last year.  When investors fear the economic cycle is ending they sell stocks and they tend to sell growth stocks first because of their high valuations.  As a result technology has underperformed over the last month and value areas like energy, materials, and financials have done better but still have declined over 2%. Steady economic data combined with accommodative monetary policy got the markets right back on course during these previous corrections.  Will this correction have the same outcome? We believe so, however we are carefully watching the inflationary environment as well as the dynamics going on in housing for confirmation of our thesis that this market is being driven by Fed liquidity and expectations for modest earnings growth. We believe the Fed’s liquidity pump will remain on for several more years, combined with a strong consumption theme of housing and business and consumer services.  We believe the US economy will ebb and flow with modest to moderate growth. Asset valuations will remain very high as rates stay near Zero.Read more