In China, a robot has passed the written test of their national medical licensing exam, an essential entrance exam for doctors, making it the first robot in the world to pass such an exam. While many people will worry about how this will affect jobs in the future, the initial impact should be extremely positive in assisting doctors to analyze data faster and more comprehensively than ever before. This could also help to reduce healthcare cost while improving outcomes.
We are just a week away from Thanksgiving and then the holiday season really kicks into high gear. While many headlines warn of overvaluation and Grinch predictions of market pullbacks, Runnymede remains bullish. Since last summer, we have been beating the drum on strong global earnings driving stock markets higher and higher. Nothing has stopped the above trend profit growth and now we are in the strong seasonal part of the year.
Black Friday and Cyber Monday are famous in the US for the big discounts and therefore big spending. In China, they created their own version called Single's Day -- on November 11 or 11/11, which began as a protest of sorts against Valentine's Day, propelled by college students in the 1990s. To show the incredible buying power of the Chinese consumer, in just the first two minutes of shopping, over $1 billion was spent at Alibaba alone and by the end of the 24 hours, Alibaba's sales hit a record of $25.3 billion, more than 40 percent higher than Singles Day 2016. Yes 40 percent growth! JD.com, the #2 retailer in China, sold $19.1 billion!
This week, Fitch Ratings warned that record junk bond prices combined with risky corporate bond issuance is creating "increasing uncertainty" and is raising the chances of a sharp turnaround in the European high-yield, aka junk bond, credit market. Thanks to massive quantitative easing by the European Central Bank, yields on Euro junk bonds have been dropping steadily since early 2016 when the ECB began buying huge amounts of corporate debt. The most popular benchmark for European junk bonds fell below two percent for the first time ever last week. This is flat out crazy as investors are taking significant risk for just a two percent yield, less than a 5-year US Treasury Note which is considered the safest bond in the world. Fitch warned that recent market calm and the distorting impact of monetary policy "obscure the true risk-return dynamics faced by investors."
President Trump made a safe pick for the next Fed Chair in Jerome Powell. This isn't the typical Trumpian move as he didn't make a non-traditional pick to replace Janet Yellen. We recently wrote about the possibility of John Taylor and viewed it as unlikely because Taylor would likely want to raise rates faster than the current Fed.
This morning I received an email in my inbox from Kiva that reminded me today marks my 10th anniversary since joining the incredible microfinancing online platform. To celebrate, I made my 2500th loan which went to the Sreyhach's Group in Cambodia. Sreyhach makes a living cultivating rice and she does extra works as a farmer to support her family. In her village there is no reliable access to safe, clean drinking water. Having a water filter at home will help Sreyhach safeguard the health of her family, save money on medical expenses and save time collecting fuel and boiling water. We are truly blessed living in the US and it is hard to imagine living in Cambodia where you are lucky to make $1/day. In addition, imagine a life where you have no clean water. I dream of a day that everyone around the world has access to clean water and at least their basic needs met.
President Trump is said to be considering tapping Stanford economist John Taylor as the next Fed Chairman. If Taylor gets the nod, it is possible that the Fed adopts the Taylor rule to set the Fed funds rates. The so-called Taylor rule is a formula that he proposed in 1993 for setting the federal funds rate -- the overnight bank lending rate used by the Fed to fight inflation or stimulate the economy. It challenges the Fed’s traditional reliance on the Federal Open Market Committee’s ad hoc judgment.
Today marks the 30th anniversary of Black Monday where the Dow Jones Industrial Average crashed 23%, the worst one day drop in stock market history. This afternoon, I had lunch with eight money managers that lived through it and they remember it like it was yesterday. One was working at a DLJ trading desk and he said that there were no buyers and as the market fell, their solution was to not pick up the phone. Another stated that it was so horrific that the only thought was to enjoy dinner while their credit cards still worked. They feared that the job losses would be enormous. Then it was my father Sam's turn to speak. He was managing the Bank of New York's pension assets and other institutions like the Dow Jones profit sharing plan. He had seen the writing on the wall in August of 1987. I recall that we were on vacation in Switzerland and he went to the front desk of the hotel to get his valuation runs which were faxed over from New York. Because interest rates were rising quickly, valuations moved from fairly valued to grossly overvalued and he made the critical decision to start selling. In the November 2, 1987 issue of Barron's quoted Sam saying, "I raised about 20% cash in the first two weeks of August. At that point, there were a great number of signs pointing to an imminent bear market... and by the end of August, my institutional accounts already went to 35% cash, and individual accounts went to about 55% cash." His economic model was spot on and not only was it right, but he took decisive action and made the bold call to move to cash when the market was still up over 40% for the year and hitting new highs.
On June 15th, Costco stock was trading at $180. The next day Amazon announced its deal to acquire Whole Foods which sent supermarket stocks and Costco shares tumbling. Investors feared that Amazon would destroy the supermarkets much like it did with bookstores and electronics retailers. If retailers don't adapt or have some kind of advantage, then they very well may fall by the wayside. However others will adapt and thrive. One such case is Costco who carries a huge value proposition that Amazon will struggle to combat.
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