Rainbows and Unicorns

 – by Murray Sawyer, JD, President and CEO

As I write, CNBC is streaming this news note: “Amazon on pace for worst quarter since 2008.” That’s not Al’s Sporting Goods CNBC is talking about. No, no they highlighted a company that’s the very heart and soul of our retail economy.

It’s not just Amazon either. December’s S&P Index is on pace to have as historically poor a performance as any seen over the last eighty years, save of those in the Depression-30’s, or the two most recent crises involving the tech meltdown and financial-housing market bubble bursts. 2018 will come in with the worst equity performance since 2008 and it will almost certainly be negative. Can’t be rainbows and unicorns forever.

Our job is to preserve capital in down markets and help our clients enjoy the fruits of appreciation in up markets. Next year, we see more clouds than sun on the horizon.

That said, the economy is purring. GDP will grow at 3.25% for 2018, a full fifty percent higher than its growth average for the eight years following the 2008 recession. Unemployment is at record lows. Our job market today has been called the “best job market in a generation” by recruiting site, Glassdoor. The Index of Leading Economic Indicators has more green than red lights.

So what’s an investor to do? Which door should we choose? Our job is to preserve capital in down markets and help our clients enjoy the fruits of appreciation in up markets. Next year, we see more clouds than sun on the horizon. With apologies to Billy Joel, we believe “There’s a storm front coming. White water running and the pressure is low.” 

We do not think this is a good time to be buyers, contrary to our usual counterintuitive investment approach. Why? Because the market is acting out, not following its traditional norms. The yield curve is not clearly inverted and the economy is certainly not sending recessionary signals, still the market has been falling, and for most of the S&P 500 companies into correction territory (negative 10%+) or worse. We don’t think this is the bottom either.

What’s happening is kind of like this: You’re walking in the California sunshine of Santa Monica Boulevard on your way Urth Caffe, the place Randy and I think is the best coffee shop in the world when you’re hit by an unexpected squall. We don’t know how long it will last, but we’re providing an umbrella for the journey until you can plop down in your chair and enjoy that Spanish latte.

Keep the Faith!

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