Last night on Capital One's 3Q earnings call, their founder and CEO Richard Fairbank made some interesting comments about what the credit card company is seeing in the COVID affected economy. Fairbank has over 30 years experience and has seen many economic downturns so his perspective is invaluable. He said, "This is the biggest disconnect that I certainly have experienced in my three decades of building Capital One between what we see in the economy itself and the actual performance of the consumer, especially from a credit point of view."
Recall back to March when everything in the New York tri-state area closed in order to slow the spread of corona virus. Outside of New York, your timeline may have been different but the experience is likely the same. We stayed home. Kids learned remotely. The economy slumped. Jobless claims skyrocketed. Uncertainty was the only thing certain. This week, the S&P 500 hit a new highs. Wait, what?!
The bull market has paused for the past few days as fears of the coronavirus spread. The first case of the virus in the US has the media in a frenzy and now people are hyperfocused on the possible effects of the economy and investments. Should you be worried?
Last Friday, October 19th, Runnymede managing partner Andy Wang returned to The Reuters Building in Times Square to chat with news anchor Fred Katayama. In this segment, Fred asked Andy about a variety of subjects including market volatility, midterm elections, and sector rotation. Watch the segment below.
Last Friday, August 31st, Runnymede managing partner Andy Wang returned to The Reuters Building in Times Square to chat with news anchor Fred Katayama. In this segment, Fred asks Andy about a variety of subjects including trade talks, emerging markets, and why Runnymede likes service sector companies.
Yesterday President Trump surprised many of his own advisors when he announced that he would impose steel tariffs of 25% and aluminum tariffs of 10% on national security grounds. There are rumors that his top economic advisor Gary Cohn is so unhappy with the decision that he is on the brink of leaving the White House. The market voted a thumbs down on the decision as the Dow fell close to 1000 points before closing some of the gap on Friday. While the tariffs aren't yet finalized, many of our trading partners from Canada to Germany are seeking exemptions so it isn't yet clear how this will play out. If it is a broad based tariff, it would likely cause ripple effects in global trade and the end result is higher inflation.
This morning on Yahoo Finance, the top story is titled "Market experts are starting to see parallels to the financial crisis." According to writer Dion Rabouin, some market analysts and fund managers believe that the current environment is beginning to look like the early days of the financial crisis of 2007-2009. The key argument is that the volatility products that collapsed on Monday are similar to the leverage in subprime mortgages. Here is an excerpt:
On Friday, the Dow Jones Industrial average fell 666 points. The scary headlines followed suit. "Dow plunges 666 points -- worst day since Brexit" "Dow drops 666 points and posts its worst week since 2016" It's no surprise that over the weekend, I had several conversations and all of them were about the stock market drop (well at least until the Super Bowl began). Friends wanted to know what I think about the sell off. To sum up my answer, I will use a favorite Coldplay song: DON'T PANIC.
Warren Buffett believes that the corporate tax reform is very bullish for the US stock market, and more importantly, isn't fully priced in to stock prices.
"The tax act is a huge factor in valuation," he said on CNBC's "Squawk Box" on Wednesday. "You had this major change in the silent stock holder in American business who has been content with 35 percent... and now instead of getting 35 percent interest in the earnings they get a 21 percent and that makes the remaining stock more valuable."
Over the last few days, I've been listening to Wall Street firms talk about their expectations for the year ahead. Almost all of them have a positive view but it is the same standard presentation over and over. Most of them conclude that they prefer international stocks over US stocks because of valuation. While Europe is certainly trading at a lower multiple than the US, their growth is also expected to slow in 2018. Also note that European markets significantly underperformed US markets in the 2nd half of last year.
For Runnymede, we are certainly intrigued by the long-term opportunities in emerging markets because they have better fundamentals and lower valuations. In terms of the developed markets, we believe that investors aren't bullish enough on US markets. As I wrote a couple of weeks ago, Wall Street strategists have a target of 2848 for the S&P which I believe will be too conservative especially if interest rates stay low. Here are a couple of reasons why investors aren't bullish enough.
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