Stocks at New Highs – Did You Panic?

The S&P 500 hit an all-time high this week, a stunning development in the face of the COVID-19 pandemic and related economic impacts.  All of the De Novo Capital accounts I manage hit all-time highs a month ago and have continued higher since. How did this happen? I will not try to explain here why the market ripped to new highs, although I have my theories.  Instead, below is what I wrote to clients in mid-April after stocks had their worst quarter in over a decade.  The market had bottomed a few weeks earlier, although we had no idea at…

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The Next Recession is Here

As we all begin our new social distancing routines, the economic impact is being felt immediately. OpenTable has been providing data on diners at their nearly 60,000 restaurants, and we can see the impact day to day. The data includes online reservations, phone reservations, and walk-ins and is viewable here: https://www.opentable.com/state-of-industry Dining trends started down in the beginning of March but have fallen off a cliff in the last few days. As of yesterday March 16, total diners were down 52% across the United States. Hard-hit states like California and Washington are down 70%. Ohio closed its restaurants Sunday night,…

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The Coronavirus Correction – What’s the Game Plan?

The US stock markets entered correction territory today, off 10% from the highs on fears the coronavirus is spreading.  What should investors do? First off, I have no idea what the market will do in the short term.  We could be bottoming, or we could go lower, I don’t know.  Be prepared for anything. What I do know is this: Prior to the outbreak, the economy was growing.  Stock prices reflected this. I know there will be disruptions to businesses, and it may be widespread.  The full extent is difficult to predict. I suspect that the coronavirus situation will get…

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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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