Capital Ideas Newsletters


Playing Ketchup

March - April 2019

Whether it’s Jerome Powell or KRAFT-HEINZ, there is an abundance of backtracking taking place in recent current events. Even President Trump had a good day in some press outlets when Mr. Mueller announced, “No Collusion” – or as Muhammad Ali might have said, “A Collusion Illusion.”

The markets also backtracked on 2018’s year-end meltdown where every asset class, except baseball cards, experienced setbacks. The first quarter of 2019 has seen a total reversal of these negative trends as the Dow, Standard & Poor’s and Bond Index averages have all moved significantly higher as of this writing.

There is no tonic as potent as a benign Federal Reserve. If investors feel soothed by the prospect of the Fed coming to the rescue, markets can move higher. We must, however, be cognizant that at some point, low rates are just “pushing on a string.” We do not see that quite yet. If the big tech companies continue to make big money and deliver higher earnings, the averages, which are dominated by big tech, may move higher, dragging along the rest of the market.

Lower interest rates usually bring higher stock multiples, and more aggressive investors use the reduced cost of leverage to bid up asset prices. This trade, known as the reflation trade, has been going on since the financial crisis, and it seems like it will continue.

Many investors are concerned about a U.S. government debt crisis. As the deficit grows way beyond anyone’s wildest dreams, will the U.S. be able to finance its shortfall? Among economic concerns is the issue of a slowdown in global trade. This back drop, as well as falling indicators from the Conference Board, are fueling discussion of a possible recession in 2020. However, at this point, it does not seem imminent given the backdrop of positive growth, wage gains and lower interest rates.

One thing does seem to be on the horizon– higher taxes. They will probably be the solution to bring down the federal deficit. Politicians are unlikely to reduce spending, as it tends to be a losing battle with their constituents.

Hats off to Australia when it comes to corporate board diversity. Women comprised over 29% of the boards of their top 200 companies listed on the Australian Securities Exchange, up from 19% in 2005. In the U.S., the percentage is closer to 20%, but rising.

The tariff issues with China are still in negotiation, and its anyone’s guess when it will be resolved. Expect a boost to stock prices when this resolution takes place.

The dollar might weaken as a result of enormous supply which could be a positive for commodities and gold. We are watching this correlation very closely to evaluate further opportunities in this space.

As Spring takes hold, we are all comforted by a resurging equity market. The swiftness of market moves in the age of technology makes it more difficult for one to keep his eye on the long view. It is our goal to be setting our sights on the target always, albeit, keeping in mind that we are humans not machines. BIG fluctuations can be unsettling, especially on the downside. We maintain that the long view is the best view.

The long bull might be tired, but there has never been a more exciting period for innovation and technology. The rate of change is worth watching as it creates and destroys fortunes. Take nothing for granted!

Great Spring Lessons:

  1. Be impeccable with your word.
  2. Don’t take anything personally.
  3. Don’t make assumptions
  4. Always do your best.

We try to live by these!

Have a wonderful holiday.

As always,


Seymour W. Zises

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