WeWork’s Failed IPO is a Sign of a Healthy Stock Market

Can a failed IPO be a sign that the stock market is healthy?  Today WeWork announced that it will withdraw its IPO filing.  WeWork is a money-losing company with an inflated valuation and some of the worst corporate-governance abuses I have ever seen.  That it was rejected by stock market investors tells me we are far from the bubble days of 1999 or 2006. WeWork’s Shaky Business WeWork leases office space on a large scale, long-term basis and re-lets the space for short-term co-working rentals, particularly to technology startups.  This simple description of their business model shows its inherent self-destructiveness:…

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Investing and Politics Don’t Mix

Recent economic data is strong and the stock market recently hit all-time highs.  It’s amazing to think that in 2017 some people thought Trump was going to crash the economy and the stock market. Nobel-Prize winning economist Paul Krugman wrote Trump’s election would cause a global recession. Journalist Kurt Eichenwald famously sold stocks because he thought a Trump election would cause the markets to crash. Oh you think just the anti-Trumpers make dumb, politically biased statements?  Following President Obama’s election as the economy was crashing in the middle of the Great Recession, Fox News commentators tried to blame him for…

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Did You Get a Tax Cut?

There have been many news stories and social media posts about whether people received a tax cut or tax hike this year.  Much of the discussion focused on whether people received a change in their refund or whether they owed tax this year, but refunds and payments relate to tax withholding – how much was taken from a paycheck throughout the year compared to how much tax was actually owed.  While it is painful to have to pay when people are used to getting a refund, this has nothing to do with whether they got a tax cut or tax…

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Investing With Uncertainty

It’s one of the most common things I hear from investors: They are reluctant to invest because they don’t know what’s next. Uncertainty: It’s the bane of investors’ existence.  It’s also the pervasive background of the investors’ landscape. The last ten years have seen an endless stream of investor concerns: Double-dip recession Federal Reserve policy and hyperinflation European debt crisis Greek bailout US debt downgrade US government shutdowns Negative interest rates EU breakup (“Grexit” and “Brexit”) Trump election Trade wars There are many more I have missed.  Despite the uncertainty caused by each issue, all have been largely brushed off…

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Our Investment Strategy Does Not Depend on Timing a Recession

The following was adapted from De Novo Capital’s letter to investors: Most remarkable about the stock market in 2018 was how quickly the script flipped from strong economic growth to fears of a recession or even a full-blown financial crisis.  After a short period of volatility early in the year, stocks rose through the spring and summer on strong economic data until the fourth quarter when the sharp decline left few stocks spared.  After being up nearly 10% in 2018, the market fell 20% off its high putting stocks into a bear market before rebounding slightly into year end.  The result was the worst year for stocks since 2008. A…

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A Headline-Driven Market is a Volatile Market

  Stocks rallied on Wednesday with the S&P 500 surging 2.3% following comments by the Federal Reserve Chairman Jerome Powell that interest rates “remain just below” the neutral level for the economy, suggesting rate hikes may slow down. The market reaction is unsurprising since investors have been concerned about the Fed raising rates too quickly and cooling the economy.  The recent market slide that began in October was accompanied by Chairman Powell’s comments that rates were “a long way” from neutral, suggesting more rate hikes were coming. I can’t explain the Fed’s apparent switch in under two months.  Perhaps the…

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Complimentary Gourmet Meal!* (and Insurance Sales Presentation)

We received this invitation in the mail for a “Complimentary Gourmet Meal” and seminar, “Understanding Different Retirement Strategies.” Much like the free weekend to sell timeshares, the free meal and educational seminar is a common practice among salespeople in the financial industry.  The outside of the flier didn’t even say who was hosting, so right off the bat it was obvious they were trying to put the focus on the free food rather than the sales pitch. Inside, I saw exactly what I expected, that this would be a “workshop and Insurance Sales Presentation.”  At first, I was pleased to…

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Beware Advisors with Conflicts of Interest

Do you know how your financial advisor is compensated?  Is he or she incentivized to act in your best interests? Conflicts of interest are all too common in the financial industry, particularly when commission-based salesmen posing as impartial “advisors” make investment decisions that increase their own compensation. The New York Times recently highlighted a horror story of fee churning discovered by a daughter caring for her aging mother, who has Alzheimer’s: After about six months, she learned that the account, worth roughly $1.3 million at the start of 2017, had been charged $128,000 in commissions that year — nearly 10 percent of…

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The Strongest Consumer Environment in Years

Retailers are releasing earnings reports this month and for many stalwarts second quarter results were excellent: Walmart saw comparable sales in the US increase 4.5%, its best result in more than ten years. Off-price retailer the TJX Companies, owner of TJ Maxx, Marshalls and HomeGoods, saw comparable sales rise 6% with increased customer traffic as the primary driver. If one thought good results from discounters Walmart and TJX were a sign of a struggling customer “trading down,” Nordstrom saw comparable sales rise 4% in the quarter, its highest since 2015. The Home Depot saw comparable sales rise 8% in the…

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Are We Climbing the Wall of Worry or Is It Time to Be Cautious?

Bloomberg ran an article last week headlined “JPMorgan Says Clients Are Clinging to Risk Despite ‘Palpable’ Anxiety”: At JPMorgan Chase & Co., the bank’s clients are in the throes of that conflict. Despite concerns, they’re unwilling to stray from benchmarks and take on defensive trades, according to John Normand, head of cross-asset fundamental strategy at the U.S. bank. “The sense of anxiety is more palpable in client discussions and in the news flow than it is in investor positioning,” Norman wrote in a Thursday note. “As much as they sympathize with late-cycle risks, they cannot run such tracking error for…

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