The Disappearing Stock Market
There’s been lots of chatter in recent days about Tesla since Mr. Musk made the grave error of tweeting that he had a "fully funded" deal.
Having been audited before, I sure hope he has that in writing when the SEC comes to call.
That said, there is a larger issue that may be getting overlooked:
If an unprofitable company like Tesla can go private in what would be the largest ever "go-private" transaction, then there is no current publicly-traded company which is not at risk of being taken out.
In essence, we are watching the stock market slowly but surely disappear.
Stock buy-back activity this year is running at close to a $1 trillion pace and according to The New York Times, $754 billion in new stock buy-backs have been authorized this year alone, up a solid 80% from the same period in 2017.
In the first quarter of 2018, companies in the S&P 500 bought back a record $178 billion in stock.
Consider Apple: In the first six months of 2018, they bought back $43.5 billion in shares, a record for a six-month period.
According to Bespoke Investment Group, an average of 14.7% (and median of 19%) of the outstanding shares in the Dow Industrials have disappeared in buy-backs in a little over a decade with right at 90% of the Dow Industrials (27 of 30) are buying back shares.
Add the pac-man type action of shares being consumer by ETF sales, and you get a smaller and smaller pond to own the future of America in.
By the way - that's good news for long-term owners (read: investors).
The US Federal Reserve
Last for now, while the Fed is set to raise rates again at the end of September, don't be surprised if they pause afterward to let Turkey and their currency collapse be used as cover.
Yes, the Turkish lira has been collapsing for some time now and represents a real issue for European banks.
This further hints that the ECB may stand on pause as well in changing their quantitative easing stance beyond 2018.
But what’s really unfolding here is that any country where tariffs were imposed by the U.S. have seen their respective currencies weaken (Canada, China, the European Union, and now Turkey).
Cooperating on trade with the U.S. like Mexico took steps to do has left them with little to no currency erosion.
This latest "world ender" will indeed end, and will likely end sooner than most fear.
And when it doe the stage will be set for the next leg up the mountain. But that event always demands patience and the discipline to look beyond the emotional strain of the headline writers.
By the way, they don't care about your money.
Remain Optimistic About the Future
Small business sure is:
It has been said that economic growth is a function of two major factors:
1) Growth in the number of people working, and
2) Growth in the output of those working (i.e., the productivity of labour).
Corporate R&D / Investment is the seed corn of future growth since investment builds new businesses, creates new jobs, and gives workers the advanced tools necessary to increase their productivity.
We spoke often during the Obama years of the "capital strike" in place, where companies simply were not investing for future growth due often to a lack of belief in policies.
Something has been holding back the US economy and it might be as simple as a general unwillingness on the part of business to expand and invest in new plant and equipment.
Confidence is key, and confidence has, until fairly recently, been low.
The good news?
Slower means longer.
Risk aversion, by the same token, has been rather high. And that’s good for finding long-term value if one is patient and willing to take the tough trade.
Supply-side optimists believe that investment, hard work, and risk-taking are what drive the economy, not spending - the latter is the result of the former.
In our global economy, total spending can never exceed total production. Increased production (supply) is the key to increased spending (demand).
If the economy is going to grow by 3% or more then productivity is going to have to increase, which means investment is going to have to increase.
Increased investment is likely to follow from lower corporate tax rates, and from increased confidence and an increased willingness to take risk.
It is a positive cycle.
Thanks to the bulk of the new policies America has the essential ingredients for a stronger economy: lower tax rates on business and business investment, reduced regulatory burdens, and a more business-friendly climate in Washington.
Please try not to let "politics" cloud your view of what's good for growth.
The best is still ahead.
Today we need to embrace "what's next" and stay patient.
There is little reason to assume the market is "over-heating."
Even so, we should pray for a market swoon before the summer is out.
Remember: The long waves of change and improvements ahead are far better than anything we have seen yet.
And the tough trade is remaining confident over the long term, and the easy trade is being skittish, bearish and/or afraid.
When investing over time, easy never wins.