Newsletter Follow Ups

Market Views April 2024 — Follow Up from our letter one year ago

"Some uncertainty about the ability to restrain inflation is being reduced. The risk of recession, however, is trending up due to the retrenchment of credit, partly due to the failure of two ‘medium size’ banks. There is stress in the banking system to be sure, but this too shall pass."
- The stress in the banking system did indeed pass and, surprisingly, without a recession.

"Housing is being challenged by higher interest rates, but housing is far from crisis today. There is no new technology that will take the place of the home. China is not a threat to US homebuilding. Nor is Amazon. In the case of Lennar we were able to ‘arbitrage’ the time horizon of investors."
- Home sales dipped due to higher interest rates but pent-up demand only increased making a future rebound almost certain. We held our position in homebuilder Lennar whose stock rose 71% over the last year.

Market Views January 2024 — Follow Up from our letter one year ago

"We continue to believe that inflation has peaked and will continue to come down, but more slowly than the Fed desires."
- Inflation did indeed peak and while it didn't come down as fast as the Fed desired, it dropped quick enough to restore confidence.

"Corporate earnings will come down and a "normal" recession is likely. A recession or not, our Focus List still has a long term 10% annual return potential"
- No recession, but we were not worried about the impact of a recession on long term returns, but more concerned about inflation which improved steadily helping boost the prices of both stock and bonds.

"The Fed will continue to raise rates barring a surprise on the inflation front"
- They did indeed raise interest rates, four times until past mid year.

Market Views October 2023 — Follow Up from our letter one year ago

"It makes more sense to seek out information that refutes your beliefs than confirms them. This is because you are already biased to look for confirming evidence."
- More important than ever. If only voters would take this to heart.

"Higher interest rates can help reduce inflation before it gets out of hand. Having higher interest rates at a level well above zero gives the Fed some ammunition to stimulate the economy when needed by bringing rates back down."
- Indeed the impact of higher interest rates has moderated inflation, surprisingly without a recession. Investors may appreciate the "ammunition" the Fed has now that was unavailable a year and a half ago.

"…our base case includes a mild recession eased next year by a Fed pivot."
- The mild recession risk has been pushed out until 2024.

Market Views July 2023 — Follow Up from our letter one year ago

"While we are optimistic that inflation will peak soon, we think labor and rents will keep inflation stubbornly higher than Fed targets for some time"
- The next CPI that came out for June of 2022 was the peak: 9.06%. And, yes, it has only slowly declined due primarily to rents and wages. Wages have increased y/y near 7% since the beginning of 2022. And home prices according to the national Case Shiller index dropped only -2% from 6.22 to 6.23 despite mortgage rates rising over 7%.

"Sentiment – both investor and consumer – is VERY negative, which is more consistent with being close to a market bottom"
- After being down 20% in the first half of last year, the S&P 500 has recovered that loss over the last year rebounding 20% back.

"…technological innovations that kept inflation low for 30+ years continue unabated. Technology begets technology."
- Game changing AI app ChatGPT was launched four months later. 

Market Views April 2023 — Follow Up from our letter one year ago

"Our view is that inflation will remain stubbornly high (rent and wage increases are not transitory) and interest rates will move higher"
- Inflation has moved down some but only very slowly. The Fed has expunged "transitory" from its vocabulary.

"… we wish to hedge against higher inflation/interest rates. We will continue to do this by 1. avoiding long term bonds 2. holding equities that benefit from higher interest rates, such as our insurance holdings, 3. avoiding high p/e long duration stocks …"
- All aspects of this strategy worked in our favor which contributed to the FL holding steady in a market that was down -7.7%

"Avoiding Common Mistakes - could be the key to long term returns. Trading rather than investing (is one)."
- Note that all the stocks in the FL, but one, a year ago are still there. We are investors, not traders.

Market Views January 2023 — Follow Up from our letter one year ago

"There are no factors more important to the outlook for stocks and bonds than the level and direction of interest rates."
- The Fed raised interest rates seven times in 2022 and look what happened.

""And while a major change in interest rates can impact the whole market, it will impact "long duration", high multiple stocks more, all other things equal."
- Long duration, high multiple stocks, such as Zoom, Tesla, Docusign were down over 60% in 2022.

"Our strategy is two-fold: 1) include some stocks whose earnings benefit from higher interest rates and 2) avoid long duration high multiple stocks."
- Unum and Allstate benefited from higher interest rates and were UP 46% on average. We avoided all very long duration stocks which as noted were down more than three times the market average.

"As noted for some time now, bonds are not interesting. Ten year UST yielding around 1.6% are not only low, but are WAY below the current inflation rate and even below the expected longer term inflation rate."
- Bonds broadly were down -13% for 2022. Long UST were down over -31%!

Market Views October 2022 — Follow Up from our letter one year ago

"...one (factor) is impacting our long term investment strategy: the potential for higher interest rates."
- This potential was realized in spades with the expected impact.

"As you know Congress has to raise the debt ceiling from time to time . . .we are counting on this "groin kicking" process(arguments over the debt ceiling), which has been put off until December, to blow over before our next letter."
- Blow over it did.

"Sometimes we can take advantage of two attributes at once: a bargain priced stock which offers a hedge against a key uncertainty. We are adding Allstate to the FL."
- The S&P 500 is down -12% over the past year; ALL is UP 4%

Market Views July 2022 — Follow Up from our letter one year ago

"First the obvious: the economy is opening up in earnest with pent up demand; fiscal policy is distinctly stimulative...All the while, the Fed is intent on keeping short interest rates near zero."
- Well guess what, much higher inflation ensued.

"In the capital markets the yield on the 10 year UST has held steady at around 1.5% and the stock market has advanced to new highs. Do investors not care about inflation and potentially higher interest rates? Trust me, they care."
- We are seeing that in spades this year.

"… given the current situation of both stimulative fiscal AND monetary policy in the face of an already recovering economy, we prefer some hedges against the scenario of more persistently higher inflation and higher interest rates."
- The Fed now admits it was too easy for too long.

"It's better to miss the party than to suffer the hangover."
- Yup.

Market Views April 2022 — Follow Up from our letter one year ago

"The health outlook is much better which means the economic outlook is much better"
- Notwithstanding the Omicron wave, the virus is now on the run and the economy and the stock market grew well above average in the last year.

"The tide has been going out with rates falling for 40 years. While the wave may reverse for a awhile, we believe the dominate tide has changed and will be pushing rates higher for at least a decade."
- Interest rates have been rising since last August with more increases expected.

"Thus, the recommended portfolio strategy is to underweight long bonds, overweight equities and alternatives that can be hurt less, or even benefit, from higher interest rates and inflation."
- The S&P 500 is up over 15% over the last year. The aggregate US bond market was DOWN -4%.

"The nature of politicians is to not to reduce debt but to issue more debt to pay off previous debt in lowered valued dollars."
- Politicians have not changed their stripes in the last year.

Market Views January 2022 — Follow Up from our letter one year ago

"Look to April for life to feel more normal"
- Well it did feel normal there for awhile as cases plummeted only to rise again.

"Pent up demand should propel the economy forward." GDP surged x% from a year early by summer."
- US GDP surged 10% by summer. from a year earlier

"A sharp rise in inflation could prompt the Federal Reserve to raise interest rates which could be a serious challenge for asset prices."
- Inflation has certainly taken off and the Fed is contemplating a faster tamper than originally planned. Omicron may temper that hawkish stance, however.

"Of course, the most surprising surprise would be one that is not even on the radar."
- Arguably a new variant should not have been a surprise but the contagion rate of Omicron is.

Market Views october 2021 — Follow Up from our letter one year ago

"We expect $2 Trillion or so of additional stimulus to be forthcoming which will be welcomed by investors and main street alike."
- Stimulus was showered on the economy. Stocks rallied and employment rose. (Now talk of more.)

"Developments on the health front are mixed, still"
- Indeed. The virus has been throttled but not extinguished.

"Our worsening relationship with China remains a concern as well as the impact of the pandemic's second wave - and we WILL have a second wave."
- Unfortunately, the tension with China has only increased. And the pandemic is arguably in it's FOURTH wave some places.

"Nevertheless, our position remains cautiously optimistic with equities as our asset of choice long term."
- With the advent of the vaccine stocks marched higher over the last year.

Market Views JULY 2021 — Follow Up from our letter one year ago

"A Trillion Here, A Trillion There - is tonic for asset prices"
- Indeed.

"We are likely to muddle through the health care crisis but it will be messy and inhibit growth into 2021"
- After some muddling, finally in the fall the vaccine roll out began and the US seemed to get its act together -- if later than it should have.

"My best guess is that we will see something resembling a reversed 'square root' (shaped recovery). That is, a sharp rebound but not up to where we were in February, and then slow growth from there."
- We are seeing the sharp recovery. It remains to be seen if it is sustainable. But continued government support looks likely for this year.

Market Views April 2021 — Follow Up from our letter one year ago

"We will recover but the path and timing are extremely murky."
- Indeed.

"Until we discover a vaccine – at least a year out – a series of practical measures could allow most of the country to resume productivity."
- The vaccine discovery was faster than anyone expected. However, practical measure fell short as the country clumsily opened and shut down with and without mask mandates.

"If the market has bottomed and we get back to work soon with an effective therapy, then I am fine with missing some of the upside. However, taking the long term view, I would venture equities will trounce bonds."
- Some of the rebound in stocks was missed but equities trounced the bond return of just .7%

"If we were to recover quickly after a bruising recession, it would be due to the impact of trillions and trillions of Federal aid."
- The aid was crucial in keeping many businesses and families afloat, not to mention boosting the stock market.

Market Views January 2021 — Follow Up from our letter one year ago

"Now is a good time to start to do some reaping."
- True, but not that we had any idea that we were on the verge of a global pandemic.

"It appears that the Fed will do whatever it takes to support the market"
- The Fed showed that in spades during the collapse of the economy following the outbreak.

"Consensus expectations for the New Year are usually not full filled."
- 2020 proved that again.

"The threat of military conflict is usually overblown."
- The skirmish with Iran was short lived.

Market Views October 2020 — Follow Up from our letter one year ago

"In recent days 'impeachment risk' has been reintroduced. This writer would say that this is NOT a large risk to investors"
- The market moved ahead despite a particularly contentious impeachment trial.

"Could US Interest Rates Go to Zero? yes, indeed."
- Short rates did indeed go to zero. However, clearly at the time of this writing there was no anticipation of a pandemic driven interest rate response.

Market Views July 2020 — Follow Up from our letter one year ago

"How important are interest rates? Very, very important."
- A key driver in the recovery in stock prices from the March low is extremely low interest rates.

"How important is tax policy? Very."
- While there was no change in tax policy since shortly after the last administration change, we are likely see some changes next year to pay off debt.

"The impact of raising the national debt is a problem for someone down the road."
- Yep.

"Expect in the next year a global pandemic which will cripple our economy."
- Just kidding. Was clueless about the coming pandemic.

Market Views April 2020 — Follow Up from our letter one year ago

"Meanwhile, slowing global growth, continued trade worries and fully priced stock values give us reason to be less than ebullient notwithstanding our belief that the bull market could still have more innings."

"Old age doesn't kill bull markets - euphoria does."
- And pandemics. Did not see this coming.

"So low inflation may be with us until the government moves to monetize the debt some years in the future."
- This is even more evident today.

Market Views January 2020 — Follow Up from our letter one year ago

"Though we are always concerned about recession risk this long into a recovery, we are more sanguine about the impact of a garden variety recession."
- No recession materialized and we see no signs of one in the near future.

"Hopefully a trade deal will be struck before long."
- We got a trade deal "light" which settled tensions and allowed markets to elevate.

"We still lean toward equities and alternatives."
- The S&P 500 outperformed the Bloomberg bond index by over 22% in 2019.

Market Views October 2019 — Follow Up from our letter one year ago

"... tariffs so far have not been significant enough to derail the economy.  ... the real risk is a meaningful reduction in trade due to price or to supply chains disruptions."
- Companies report reduced trade with China and supply chain issues.  US exports to China are down 24%.  While tariffs have yet to derail the economy, they are taking their toll.

"Bonds don't have more fun."
- Well over this past year, they actually did.

"The 10 year UST bond is yielding 3% which is less than 1% after inflation. This return is not very interesting, especially given the risk that some day the US may monetize its $21 trillion debt driving inflation higher."
- The US 10 year has plunged to just 1.7% yield. - even LESS interesting.

Market Views July 2019 — Follow Up from our letter one year ago

"It appears that investors have become inured to protectionist rants and are awaiting more meaningful signals before running for cover."
- Stock and bond prices rose over the last year.

"The House will likely flip to Democrat control come November. This will mean gridlock until 2021."
- Even a popular infrastructure bill has yet to pass.

"...bull markets do not die of old age..."
- Indeed. This one has broken the record and is still intact.

Market Views April 2019 — Follow Up from our letter one year ago

"Trade tariffs are not the answer"
- Tariffs were indeed levied. Negotiations ensued. Our opinion is unchanged.

"It's not that the risk in intermediate term bonds is high, it's just that the return is minimal."
- Intermediate bonds turned in 5% for the last 12 months which isn't too bad. But stocks returned 8%.

Market Views January 2019 — Follow Up from our letter one year ago

"Thus, most of the $1.5T tax cut will benefit investors, if not the average worker. In the long term, average workers will need to to see some benefit by new policies not yet enacted or a political backlash could ensue."
- The jury is still out on this. If the "benefit" helps no one, then the backlash will be from all sides.

"Trends are currently positive but obviously the environment could change. Hence, though we are leaning toward opportunity, we would advise some hedges."
- US stocks were up some 9% through Q3 and the environment changed.

Market Views October 2018 — Follow Up from our letter one year ago

"The global economy is moving in the right direction currently.  There are no conditions present which portend a recession.  Thus, we remain tilted toward equities with some hedges."
- The global economy expanded over the last year and US stocks were up 18%.

"In due course volatility will return. It takes a recession to take the market down 25% to 35%. But a 5% to 10% correction could come at any time for no particular reason other than upsetting complacency."
- Four months later volatility spiked and the S&P 500 sold off by 10% in two weeks.

"Alphabet's (Google) dominant position and considerable human capital give it a greater chance to take advantage of advancing technology rather than falling victim to it."
- Alphabet is up 24% over the last year and remains in a  dominate competitive position.

Market Views July 2018 — Follow Up from our letter one year ago

"... large caps should continue to do relatively well, especially on a risk adjusted basis."
- Large caps as measured by the S&P 500 returned 15% in the last 12 months, trailing the Russell 2000 small cap index which returned 18.5%, with all of the Russell out-performance coming in the recent two quarters.

"While this conflict is disturbing, gridlock can be a blessing if it keeps us from exploding the national debt with unfunded spending programs or provoking a trade war with an ill advised protectionist policy."
- Congress passed a $1.5 trillion tax cut without offsetting spending cuts. The Trump administration has pursued trade tariffs unilaterally under the premise of national security.

"Despite the distraction in Washington, global growth remains the key factor in the outlook and at the moment global growth continues to edge higher."
- Global growth continued and the US stock market advanced 15%.

Market Views April 2018 — Follow Up from our letter one year ago

"The odds of meaningful tax reform this year have fallen from 80% to 50%"
- "Meaningful" and "reform" can be debated. But there was indeed a $1.5 T tax cut enacted in December of 2017.

"If the large global economies begin to pull ahead in unison, we could see a second wind to the economic expansion and more upside to stock prices."
- The major global economies did indeed bend up in unison for the first time in a decade and global stock prices worked their way higher.

"...with the highly polarized political environment and high stock prices, the chance of something sparking a market pull back larger than we have seen in the past two quarters as we approach mid year is high."
- It wasn't until Q1 2018 that the US stock market corrected 10%.

Market Views January 2018 — Follow Up from our letter one year ago

"IMHO the reason the stock market has moved higher since the election has less to do with confidence in the new president than in the implications of the surprising GOP sweep of all three branches of the government"
- Trump's approval rating is at a record low but the market is at a record high. Opinion unchanged.

"With the Republicans in charge it is now quite likely that we will have some form of tax reform with lower corporate tax rates"
- Corporate tax rates were slashed to 21%. This and a bending up of global growth were drivers of stock market strength.

"Bottom line: the odds of the 'good', such as tax reform, are high. The odds of risking a trade war are low."
- So far we have the 'good' without the 'bad'.  (When I say the tax bill is 'good', it is good for the stock market and wealthy investors. It may be neutral to even negative to the rest of the country.)

Market Views October 2017 — Follow Up from our letter one year ago

"We have two highly imperfect candidates running for POTUS. The stock and bond markets face complex challenges but if we were to isolate the impact of this year's outcome, a Trump win will likely be un-welcomed by investors."
- While futures sold off sharply on the news of the surprising win, the market closed higher the day after the election and has moved steadily higher since, as have many markets around the world, including Mexico and China.

"The good news is if Trump were elected, he would probably not even try to pursue all these policies. And even if he did, Congress would not approve, or at least not most of them. (If Mexico actually agreed to build a wall -- fat chance -- Congress might let them.)"
- So far this year no major legislation has passed Congress.

Market Views July 2017 — Follow Up from our letter one year ago

"We will need to see an improvement in US employment growth and GDP growth before we can see much in the way of robust stock gains over their interest rate driven value."
- Real US GDP growth edged up to 1.2% vs .8% a year ago.  But 2 million people have been added to the workforce. Clearly, while not strong growth, this modest growth has contributed to a double digit stock market gain over the last year while the 10 year UST yield moved up to 2.15% from 1.5%.

"Any further changes in interest rates either way will likely increase the volatility of equity prices."
- Interest rates edged up as expected. Though stock prices are up sharply in the last year the path has been relatively smooth without significant volatility.

Market Views April 2017 — Follow Up from our letter one year ago

"We have concerns, but oil prices are not one. If you can determine that the market psychology is focused on one variable (wrongly) then that is usually an opportunity to take a position in the other direction."
- The S&P 500 has bounced back over 14% since this oil price induced swoon.

"We expect global slow growth to continue. This is not a bad environment for stocks..."
- The Q1 2016 oil price collapse was not a precursor to a recession after-all. Global growth continued its slow progress and equity markets posted mostly double digit gains.

"Municipal bonds have value but plain vanilla quality taxable bonds, though not risky, simply don't offer an interesting return opportunity..."
- The Barclay's Aggregate Gov't/Corp Bond index earned about 1% in the last year.

Market Views January 2017 — Follow Up from our letter one year ago

"With inflation below 2%, the Fed is clearly on a dovish path and we are only likely to see a maximum of two hikes in 2016..."
- The Fed hiked rates once in December.

"...some terrorist group will likely strike the US or one of our allies in 2016."
- The above written right after the 12.15 attack in San Bernadino. 2016 saw attacks in Orlando, Brussels, Nice and others.

"While any of these items could cause the market to sell off, any decline would be limited if we began to see meaningful wage growth in the US. IF the job growth trends continue and the unemployment rate in the US drops below 5%, the ensuing labor market tightening should provide some welcomed wage growth. This would be a favorable development for the stock market"
- Real wage growth began to accelerate mid year up 2%; unemployment fell to 4.6%. Stock prices dipped 9% in February, but ended the year UP 9+%.

Market Views October 2016 — Follow Up from our letter one year ago

"Nevertheless, a steadily growing US economy, reasonable, if not cheap stock prices, and seasonality patterns bode well for a much better quarter than the one we just experienced."
- The S&P 500 indeed returned a much better 7.0% in Q4 compared to (-6.4%) in Q3.

"We are doubling down on an oil recovery by swapping Exxon for the more upstream focused Chevron."
- Chevron is up 35% since 9.30.15, not counting a 5% dividend. (Chevron was removed from the FL earlier in the year due to price.)

Market Views July 2016 — Follow Up from our letter one year ago

"... Greek citizens are facing difficult times. ... Greece is not that large relative to the European economy. Contagion is not likely."
- Greece continues to struggle but indeed bigger countries are now the focus. No contagion due to Greece has been felt.

"We do not believe the threat of higher rates warrants a full scale retreat from stocks. Nor do price levels justify an aggressive stance."
- The S&P 500 returned 4% over the last year..

Market Views April 2016 — Follow Up from our letter one year ago

"Investment environment not inhospitable - but higher prices will limit gains"
- Indeed. Low growth without inflation continued, but stock prices did not advance over the last year. Only the dividend contributed to return.

"Alternatives are, well, an alternative with double digit expected returns"
- The primary one we used, which was a real estate debt fund, earned 10% over the last year.

"We have maintained that the Fed is NOT behind the curve on raising rates and has the luxury to not raise them in June as many expect."
- The Federal Reserve did not raise rates in June nor September, but waited til December for the first increase. We continue to believe that the Fed is not behind the curve and will only very slowly raise interest rates.

Market Views January 2016 — Follow Up from our letter one year ago

"We believe we are in the downswing of a commodity "super cycle" which will bottom this year, but not fully recover for many years. This bodes well for the inflation outlook."
- Clearly the "this year" part was off, but we stand by the rest.

"With the US economy steadily strengthening, no inflation threat, and low return alternatives, large cap US equities remain the long term asset of choice."
- Large cap US equities was indeed the best performing pretty major asset class, though showing only a modest return.

"Among emerging markets only China looks interesting"
- As the Chinese proverb goes: "May you live in interesting times." Chinese stocks generally ended the year down just - 3%, though it was a rough roller coaster ride. This compares to -14% for a major emerging market index which would have performed much worse were it not for China.

"Last year, we cited 'clear sailing'. This is no longer the case with rising interest rates on the horizon."
- Indeed 2015 was not clear sailing. Choppy waters but no rising tide. Admittedly the prospect of the modest rate hike we had may not have been the only headwind.

Market Views October 2015 — Follow Up from our letter one year ago

"Their (ISIS) impact on the US investors will be limited as well..."
- The spread of ISIS a year ago was headline news and had spooked investors. ISIS has spread even further, but the impact on US investors has indeed been limited.

"Ebola will be contained soon, or we will have a problem"
- Likewise the spread of Ebola was headline news a year ago and impacted our market. This and other worries, such as ISIS, were put in context by the section heading of "What to Worry About and What Not".

"Of the political issues, Putin remains the main concern, not because of Russia's role in the global economy, but because Russia is a nuclear power."
- Still the case.

"However, 2014 should end up a decent year for investors."
- Stocks were up 13.7% and bonds up 6% in 2014.

Market Views July 2015 — Follow Up from our letter one year ago

"The Fed is Not Behind the Curve - on keeping inflation in check"
- Indeed inflation has remained low and no increases in interest rates so far.

"The long term implication of low growth and sustained low interests rates is 6% from stocks. Our portfolio strategy remains unchanged with an emphasis on equities"
- Over the past year the S&P 500 returned 7.4% and the Barclays Aggregate US Bond market returned 1.9%.

Market Views April 2015 — Follow Up from our letter one year ago

"With slow growth, steady Fed backdrop, we remain in "clear sailing" mode for now."
- Indeed growth remained slow and the Fed held steady as a rock. Stocks returned 12.7% over the last 12 months. Bonds trailed with a 5.7% return.

"Regarding the short term, note after April we move into the traditionally seasonally weak period for stocks going through October."
- The S&P 500 meandered sideways to down from May to mid-October, but rallied 7% in the last two weeks of October.

Market Views January 2015 — Follow Up from our letter one year ago

"Clear Sailing suggest there is no visible significant threat on the horizon for equity investors"
- This proved to be correct, but the market was distracted at times whether it be riots in Hong Kong or Ebola.

"… the recommended equity allocation by the average of all Wall Street strategists is 53%. . . That the strategists are cautious is not a concern. To the contrary, this is an indicator that there are ample funds on the sidelines to fuel the market higher."
- We haven't seen recent polls, but ample funds remain on the sidelines to take the market higher if the environment remains hospitable.

Market Views October 2014 — Follow Up from our letter one year ago

"We are currently in a government shutdown which is NOT a big deal"
- Do you even remember that we shut the government down?

" ... 2013 over all will likely end up a good year for equities, if not for bonds."
- 2013 equities,  though higher already by the time this letter was issued, finished Q4 strong and turned in 32% return for the year. Bonds suffered a negative -2% return.

Market Views July 2014 — Follow Up from our letter one year ago

"We are being bribed by the Federal Reserve to own stocks and houses. We have argued that it is smart to respond to that bribe . . ."
- The stock market barely sagged in the summer and worked its way much higher for the remainder of the year with return over 30%.

"In the very near term, bonds, especially munis, appear to be over sold in reaction to investor nervousness on Fed policy, rather than an uptick in inflation which would have been more fundamental.
- Bond prices rose slightly over the last 12 months.  Munis outperformed, turning in a total return of some 6%.

"In our global screens for value, selected Chinese companies show as having the most compelling valuations.
- An index of Chinese stocks traded in the US rose over 47% despite a slowing of growth in China.

Market Views April 2014 — Follow Up from our letter one year ago

"Our expectation... is that stocks will continue their rise topping out this spring, sag in the summer and regain their footing in the fall, ending with a teen's return for the year."
- The stock market barely sagged in the summer and worked its way much higher for the remainder of the year with return over 30%.

"... we expect economic growth to remain well below a more normal 4% growth.  As a result corporate earnings growth will also remain subpar.  Stock prices will rise FASTER than earnings growth..."
- The annualized real US GDP growth actually rose to 4.1% in Q3 last year but receded back to 2.6% by Q4. Stock prices did indeed rise faster than earnings growth.

"Within emerging markets, Chinese stocks are particularly interesting."
- Returns from emerging markets generally were negative last year.  However, an index of the some 180 Chinese companies listed in the US bounced up 60% in 2013.

"If you haven't heard of Alibaba, you will."
- Alibaba, China's internet giant, announced in March of this year plans for issuing its IPO in the US.  Alibaba is looking to raise $15 billion, which is just behind Facebook's $16 billion raise, the third largest in US history.

Market Views January 2014 — Follow Up from our letter one year ago

"The Pie is Growing - albeit modestly"
-The US economy did indeed grow but below its long term rate. In Q3, however, the GDP growth rate accelerated to 4.1%.

Stocks should outperform bonds and cash over the next five years, and probably this year.  Going forward bonds are not likely to do as well as they have for the last few years relative to cash. In fact, we do not find the risk/return relationship in LONG bonds attractive at all."
-Even after income bond returns were negative in 2013.  Long term US Treasury Bonds were down over 12%.  We still do not like long bonds.

"Chinese stocks are down 40% from their peak. P/E multiples are lower than here."
-An index of Chinese companies listed in the US bounced up 60% in 2013.

Market Views October 2013 — Follow Up from our letter one year ago

"We continue to avoid 'safe' long US Treasuries and most long bonds in general."
- Long T-bonds and long bonds in general showed losses over the last year.

"... we do not believe the 'offensive' advantage (of our Focus List) can continue - that is, out performing in a rising market" 
- Indeed the Focus List demonstrated defensive, rather than offensive, characteristics rising but not as much as the 19% delivered by the S&P 500 over the last year.

Market Views July 2013 — Follow Up from our letter one year ago

"Debt in the developed world - Europe, Japan and US- is the key challenge for policy makers”.
- Indeed. This will be the case for many more years.

"The real "fiscal cliff" is not the withdrawal of government spending, but a sharp rise in interest rates if bond buyers go on strike". 
- The economy has not been derailed by the "sequester", and it remains to be seen if bond buyers go on strike. The back up in interest rates this year has been sharp, but from such a low level  so as not to be a major dampening factor.

Market Views April 2013 — Follow Up from our letter one year ago

"When the S&P 500 has returned 12% in the first quarter of the year, it has never given up all those gains in the remaining three quarters. Never. That's a strong precedent and we do not think this year will be an exception ...(However) A pullback over the next few months seems reasonable to expect . . ."
- Stocks declined 10% from early April to early June before going on to new highs and eclipsing the 12% Q1 gain.

"Taking the long view, stocks appear to offer value, especially compared to US Treasuries."
- Stocks trounced US T-bonds last year. Our long term view is unchanged.

Market Views January 2013 — Follow Up from our letter one year ago

- Politics Still Driving Markets.
Not much has changed in that regard.

- Looking forward we expect stocks to show better returns than bonds.
2012 was not a bad year for bonds, showing a return just above 4% generally, but the S&P 500 returned 16%.

- Within stock sectors, European pharma companies are interesting at these depressed levels.
A year ago European stocks were at a nadir. Most European drug stocks rebounded. Sanofi, the one we chose for our Focus List, returned over 30% in 2012.

Market Views October 2012 — Follow Up from our letter one year ago

- Key Issue Remains: Debt in the Developed World.
Indeed.

- Diversification is Overstated as Remedy for Risk in Stock Selection
Heresy, we realize, for an advisor to say. However, see comments above re Focus List. The number of truly attractive stocks is limited. It will be interesting to see when, inevitably, one of the companies stumbles, if the portfolio can maintain its defensive characteristics.

Market Views July 2012 — Follow Up from our letter one year ago

“A Conservative Stock Portfolio Can Perform as Well as the Market - while offering hedge properties...”
- Indeed. This was within our "reach" as defined above. We were confident in this, hardly outlandish, statement. However, we were also suggesting that a conservative portfolio was the only correct strategy given the environment. Our strategy has not changed. When it comes to investing, the advice "Don't just stand there, do something" is more often the opposite of a profitable strategy. We often say, "Don't do something, just stand there."

Market Views April 2012 — Follow Up from our letter one year ago

"Clearly, we will be dependent on fossil fuels for several more decades and the curtailment of nuclear programs only exacerbates the problem. Thus, the rise in fossil fuel prices is likely to continue."
- Indeed. However, the recent jump in oil prices will cause a short term diminishment of demand and accelerate a shift to natural gas and alternatives.

"U.S. Treasury Bonds are at High Risk - not of default but of providing low returns"
- Well we still believe this is the case, but this warning was clearly pre-mature. Last year was one of the best performing years ever for long US Treasuries vs other asset classes.

"The adverse impact of natural disasters and the threatened shut down of the U.S. Government tend to be short-lived and would not be a reason to sell stocks in our view. If anything, over reactions to such events would be a buying opportunity."
- The impact of the nuclear disaster in Japan on our market was indeed short-lived. The real buying opportunity last year was in August during yet another Congressional squabble and the resulting downgrade of US debt.

Market Views January 2012 — Follow Up from our letter one year ago

"Stocks Due for a Pullback . . . the sustained rise in stocks, doubling from the nadir two years ago has made investors overconfident."
- US stocks proceeded to drop 17% from mid February to early August. This is an example of when the preponderance of investors was too bullish. Therefore, the proper response was to be wary.

"Munis Due for a Rebound"
- Most investors started the year very negative on municipal bonds. Though munis did not keep up with US T-bonds, Meredith Whitney's nightmare default scenario did NOT occur. On the contrary, muni prices DID rebound from their mid January low and moved steadily higher for the rest of the year turning in 10%+ returns.

"Quality Large Cap Global Stocks - remain attractive..."
- Indeed, except for perhaps CVS, all the seven stocks listed in our letter a year ago fit that description. While ours was a particularly well performing list, most US stocks that fit this description out-performed the average stock.

"Emerging Markets Have a Place in Portfolios .. . We prefer to add to them after a sharp sell off"
- Certainly August qualified as a sharp sell off. EMs have yet to fully recover. We think they will. This will be the subject of a future follow up.

Market Views October 2011 — Follow Up from our letter one year ago

"More debt pay down will limit GDP growth suggesting modest sales growth and therefore modest profit growth going forward."
- Indeed, this is still the case.

Market Views July 2011 — Follow Up from our letter one year ago

"Stock Values Improving -- at least relative to bonds"
- Stocks were up some 30% over the last 12 months while bonds eked out their coupon return.

"The recovery this cycle is likely to be less robust than past recoveries"
- to the chagrin of our politicians and deep disappointment to those out of work, this has certainly been the case.