19 Sep The Opposite
Buy low sell high, it sounds simple enough but most investors avoid this anxiety ridden route at all costs. Indeed, stocks are the one purchase item on the planet that buyers feel happier paying more for than less. Such a paradox pervades global financial markets of every stripe. Investors the world over continue to pile into bonds trading at all-time, never seen before, negative interest rates. Utilities, which offer relatively zero underlying growth have been the shining stars of this year’s equity market. Real Estate prices continue to rocket in London despite relentless warnings of Brexit fallout and it remains cheaper for me to fill my car with gas than my fridge with water.
These trends are not new, in fact they have been stubbornly the conundrum of financial markets for what feels like an age. Such persistence has led many to abandon time honored investment disciplines as if the world truly has turned on its axis. At C.J. Lawrence we enjoy the benefit of a library of investment history that dates back well over a century and principals that while not stretching back that far have navigated more cycles than most. To satisfy the regulators we avoid making explicit recommendations in our published work but with the weight of history behind us we can make bold predictions that are obvious but do not appear to be consensus. Ready: Interest rates are going to rise, energy prices will recover, economic growth will return to trend (likely higher for periods of time) and real estate yields will normalize i.e. increase. Of all of these events we are certain but time is the cruelest adversary and it is easy to go broke waiting to be right. However, we do suggest that we are closer to the end than the beginning of these trends and their turn will be monumental for asset prices.
So with a nod to George Costanza; investors who are frustrated and scared about global growth, fed policy, the upcoming election would be wise to bear hug fundamentals and survey what would happen should they take the opposing point of view that bonds prices look highly vulnerable at these levels, utilities are trading at unsustainable multiples, energy supply will be engulfed by demand in the coming years and should GDP increase to trend (3%) the stock market is going materially higher. We may continue on the same course for some time to come but the end of this particular low growth, low inflation, zero interest rate, zero earnings growth road will come and you had better make sure you are positioned for the right road when we reach that intersection. Time tested investment principals will reemerge and those investments that present true growth for the right price will always prevail in the long-term.
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