April 13, 2021
“Yesterday I was clever, so I wanted to change the world. Today I am wise, so I am changing myself.” Jalal ad-Din Mohammad Rumi
Rumi was born in 13th Century Persia, and this quote highlights the difference between Knowledge and Wisdom. I suppose why I love the quote is because, collectively, we have gained incredible amounts of knowledge since the 1200’s, but I’m not sure we have made any new gains in Wisdom since then.
I try to seek out writers from previous centuries in a search for Wisdom. Since I am a market professional that seeks out trends (or observations), I guess there are two that I have been able to decipher:
1) It does not seem to matter which century a person lived in if they were truly wise; their wisdom it seems, is remarkably the same. Wise writers across the centuries give all of us a roadmap for living a peaceful, self-aware, and satisfying (not pain free) life. Some of the common themes: Love nature and all of humanity, Acceptance, Giving, Gratitude, Simplify. There are others, but they generally come back to love and gratitude.
2) Without a doubt, I am wiser today than I was 10 years ago. However, like many of us, I find it quite easy to get caught up in the noise of life. Therefore, I know I have a lot more work to do for my self-improvement!
As far as a practical application to financial markets for wisdom gained, it is in the ability to (hopefully) separate the wheat from the chaff.
So where does all this supposed wisdom leave my market thoughts and actions currently?
My big picture views on the state of the markets and government policies are essentially unchanged. Most governments around the world, led by the USA, continue to stimulate their economies. In the USA this has mainly been through transfer payments to individuals and businesses to offset the economic pain from lockdown policies. A great deal of money has been created with the help of the Federal Reserve. Historical analysis of markets and asset prices are not easily comparable to other periods because of the scale of the money growth. The fact that much of the economic pain did not materialize the way many government officials originally predicted has not stopped the spending; oddly, it seems to be getting bigger. The media continues to focus on Covid infections rising as if that is the primary risk to health in this country. I would suggest that Covid is not our biggest risk, but it certainly seems to be at the focus of both government and Federal Reserve officials. Are we improving as a society and an economy to give us all more time to become wiser? Questions that concern me:
Does the government need to be giving so much money to individuals and companies?
Are we creating disincentive to work and a culture of entitlement? Will that lead to a lack of gratitude?
Is the growth in sports betting really going to benefit society because it increases taxes?
Should the Federal Reserve really be getting more involved in policy agendas or should they stick to regulating the money supply and be a check on government spending/policy?
Are we respecting one another’s opinions so we can find common ground, or do we view the other side as the enemy? Is this constructive for all of society?
Whether or not current fiscal and monetary policy will lead to future productive gains is an open question (I doubt it), but for now the flames of fear still burn and they are being doused with a steady flow of dollar bills. Money truly is like water; it will find its way into all sorts of places. However, there are a few observations to point out, and a few changes we have made: Observations:
The Volatility S+P 500 index as measured by the VIX has finally fallen below 20. This is at or below pre-pandemic levels. Volatility is a measurement of risk in the market; generally, as the VIX declines, the perceived risk of owning stocks is also declining.
Anecdotally, there is a lot more discussion of inflation rising.
It is difficult to know what price rises are due to bottlenecks because of Covid and what price rises might be sustainable because of too much printed money.
Yields on 5-year US Government bonds are trading around 85bp now compared to around 35bp at the beginning of the year.
Anecdotally, market participants worry about these rising yields and their impact on equity markets. Most recently, I have heard much concern about tech stocks. However, tech stocks as measured by the Nasdaq are making new all-time highs in price today as I write.
Changes in our focus/opinion:
As mentioned, we remain constructive overall on equity market price appreciation globally.
We are now less focused (on a relative basis to the market) on REITS, Fossil fuels, Financials, and Travel because they have appreciated in price considerably in a short span of time.
We are less positive on fixed income generally (the reasons discussed in detail in our March note).
Focused changes on client portfolios are on individual names and sectors which we believe provide good earnings growth and protection against price increases over long periods. We are increasing our allocation to these opportunities.
As always, I welcome any thoughts and comments you might have.
Joseph Cardello, Principal August Wealth Advisors, LLC The Loft, 101 Franklin Street, Suite A
Westport, CT 06880 Direct (916) 461-9451 toll free (800) 985-9477
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