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.
Last August, Chris visited the Reuters TV set. Yesterday, I had the pleasure of dropping in at Reuters TV in Times Square to talk markets with anchor Fred Katayama. We talk bank earnings, S&P 500 earnings, and Costco.
The International Monetary Fund (IMF) raised its global growth forecast for 2017 and 2018 due to a broad-based recovery around the world. In its latest World Economic Outlook, the IMF adjusted their forecast up 0.1 percentage point to 3.6 percent in 2017 and 3.7 percent in 2018.
If you look at the headlines on a daily basis, you are often left wondering when the market is going to crash. However we are pondering a different question. Are we just at the beginning of a long secular bull market? We believe that it is a distinct possibility. When I graduated from college in 1997, the market essentially went sideways for over 11 years. After the Great Recession, the recovery has been slower than usual but the global economy is now rising in tandem. Here is a chart of the secular bulls and bears since 1900 and the pattern is quite easy to read. For our clients, we will go into more detail on this subject on our quarterly conference call. If you are not a client and are interested in tuning in, please ping [email protected] for the details.
I apologize for using the all caps EVERYONE but it is imperative for every American to take steps to protect their identities because of the Equifax data breach. It was by far the worst data breach in history because social security numbers, birthdays and addresses were exposed. This makes it essential for you to be on the offensive in protecting yourself immediately. You may have visited the Equifax website to see if you were exposed but don't trust the results because the site is virtually useless and Equifax should be ashamed of it (and the breach of course). ZDNet first reported that the checker was giving random responses! I tested it myself three times with the surname "test" and the social security numbers 123456, 234567 and 345678. Two times it said my data may have been exposed and lucky for test 234567, their data wasn't exposed?!?! Because of this, you have to just assume that your data was exposed and take action ASAP. You are better off spending 10-15 minutes of your time locking down your credit reports rather than spending many hours and huge headaches if your identity is stolen.
This week Warren Buffett made headlines by predicting the Dow Jones Industrial Average will surpass one million in 100 years. Given that the Dow is at 22359 at the close of Thursday, one million sounds like a big number however as Buffett said, "The Dow will be over a million and that is not a ridiculous forecast at all if you do the math." I agree 100% and in fact, Buffett is likely conservative in his one million prediction.
Yesterday the rhetoric between the US and North Korea escalated further with President Trump saying the US would "totally destroy North Korea" if forced to defend itself or its allies. He said that while the US "has strength and patience," its options would soon run out. This follows the president's comments from August 9th when he said "North Korea best not make any more threats to the United States. They will be met with fire and fury like the world has never seen ... he has been very threatening beyond a normal state. They will be met with fire, fury and frankly power the likes of which this world has never seen before." So far the markets have shrugged it all off, but can Kim Jong-un sink this long running bull market?
Yesterday the S&P 500 closed at a record high so it is unsurprising that you see headlines asking if the market is overvalued or is this a bubble? Many pundits are calling this stock market a bubble and predicting doom. In Bank of America Merrill Lynch's August fund manager survey of global investors, a record 46 percent of fund managers said that U.S. stocks are overvalued. In July, Goldman Sachs research highlighted "elevated valuation on almost every metric" in its weekly report on markets.
Today almost all of the headlines are about Apple's iPhone launch and that is well deserved. I've been a iPhone user myself for 10 years and am excited for the new phone (but not the rumored $1000 price tag). Since the iPhone news will be covered by a million different sites, let's look at the other side of the globe where China is a very different market and one changing at breakneck pace. Did you know that last year, Chinese consumers spent $5.5 trillion (yes Trillion) through mobile payment platforms? To put that in perspective that's about 50 times more than their American counterparts where Apple pay just hasn't caught on. So why is China succeeding where Apple is not? Let's take a look at China's mobile payment market.