Just One Opinion

Today we'll provide an opinion - just one opinion - regarding a possible bigger trend in the markets. For sure, it's an educated opinion. Educated because, well, training and some knowledge of history can lead to an educated opinion. Simple as that.

Training comes from various sources. For example, you can receive training from an employer, either in-house or provided by hired consultant/trainers. Various professions require ongoing classes or training as part of continuing education. The quality can vary from boring and uninformative to stimulating, even inspirational (rare, but it happens).

Then there's individual initiative. You connect with reliable sources, read, study, research, analyze, etc.You gain a much more comprehensive level of real understanding of your industry and/or profession.

And, of course, there's experience. You get a job with an organization either as a credentialed specialist of simply starting at the bottom and working your way up over time. In the course of this, you actually engage with customers and clients. 

You get the point.

So with bits and/or chunks of the above having been accrued, we come to today's educated opinion about markets - with a mini-comment about the economy.

It's a good time to offer said educated opinion. Not much is going on in either the markets or the economy. Of course, pundits and gurus offer a never-ending slew of views about both what's happening now and what we can expect in the future. And if you follow any of this, you know that said opinions are all over the map: the markets going to correct or crash; the markets going to the moon. Same for the economy: it's booming; it's ready to collapse.

And everything in between.

But again, whatever is going on and whatever is going to happen have each been doing whatever they're doing in a rather quiet, calm manner. Which means there's no undue emotion to gin up totally irrational opinions or reactions to same.

OK. Here's the educated opinion with some comments.

There are reasons to consider a potential change in investment strategies. These are based on major reversals in two powerful mega-trends that have dominated investment strategies since roughly 1980. During the decades since, both stocks and bonds entered long-term (a/k/a “secular”) Bull Markets. It’s clear that the great Bond Bull Market has ended. As for Stocks, they have held their grip after an initial downturn that began in 2022. While this may or may not be a death grip, it’s more than likely that the long-term rise that began in 1980 will be tempered for quite some time.

This would call into question investment strategies that heavily rely on capital gains, i.e., the prices of stocks going up. Such strategies were developed during these bullish decades. Most investment advisors employ them. And with interest rates suppressed since the 2007-2009 financial crisis, relying on prices rising had become by far the dominant approach for most investors.

But as those stock and bond mega-trends began to reverse interest rates sprang to life. Receiving income from investments has begun to make a comeback. With this we may very well witness the return of the traditional distinction between speculation and investing.

Historically – certainly before the 1980s - it was understood that speculators bought items they believed would rise in price in the near term. When the price rose, they would sell. Investors, on the other hand, had longer time horizons and expected a return on their investments in the form of dividends or interest.

With this brief overview of speculation and investing in mind, our firm has considered alternatives to our strategies that would incorporate investments that rely more on income than on capital gains to provide a decent return. Beginning next quarter we/re planning to introduce these strategies. They can augment or, in some cases, fully replace, the current reliance on capital gains.

Now for a note regarding some “Big Picture” related to the economy: With our government’s frenzied fiscal policy (spending like there’s no tomorrow) and our central bank’s (The Fed) loose monetary policy, something has to give. We don’t exactly what or exactly when.

To those who have staked their economic and financial future on “AI” (artificial intelligence), we would simply remind them that the years of the Great Depression were a time of stunning technological innovation. It’s a simple reminder that technology may or may not possess the magic bullet to “save” our dysfunctional economy and markets now any more than it did then.

So there it is - just one opinion.