We are all born mad. Some remain so.
- SAMUEL BECKETT, Waiting for Godot

There are moments in life where you scratch your head and wonder, why would a person behave in such an outrageous way? In most circumstances, hopefully you are reading about them or watching it on television, computer, or the phone. In today’s society, people use their mobile phones as a way to potentially record an event which might be unusual. The numerous incidents this summer regarding the police, as well as the looting and rioting taking place across the country, were all captured and shared with cell phone cameras. Every day we wake up you have access to events where something is being done by someone which probably will alarm you. Maybe it’s how someone appears. It could be the behavior or an elected official or an official representative. Often it involves a person with notoriety, and in many cases their actions are purposefully outrageous as a way to call attention to themselves. The more of this we see, the more desensitized we become to these kinds of actions. Outrageous behavior becomes acceptable because it isn’t so outrageous when it occurs every day. It is in this environment where we currently reside, on many different levels. Specifically, let’s turn to the capital markets, and yes, stocks.

If there is such a thing as a normal market environment, a vast majority of market performance is typically concentrated in a few big winners. In very strong markets, the number of stocks which participate broadens out so many holders of equities benefit from capital appreciation. In difficult markets, there are very few companies which perform well, so the ratio of those that go up to those that go down will be in the neighborhood of 10-90 or 20-80. Government officials responsible for overseeing markets often react to poor markets by trying to make the economic conditions easier for participants. Over the last ten years, the main tactic used has been monetary policy and financial market involvement through the buying and selling of fixed income securities. With the 10 year Treasury bond at .70% and trillions of dollars of foreign bonds trading at negative yields (sub zero), relative to financial history, those interest rates are far below what the historical norm is. The low rates are defended by government officials with the belief that growth and inflation is minimal. The rock bottom borrowing rates need to stay low so participants will invest in growth related capital investment. Investors, always looking for ways to profit, flock to companies which demonstrate above average growth rates in revenues and profits. With so few of them meeting the high standards of large institutions, capital has moved to very few names, most of them residing in the NASDAQ. We all know the winners because there are not very many of them. Currently, if one looks at the businesses of those where the capital is going and compares it to the price the market is rewarding them, in many cases, ten or twenty years worth of future profits are built into those prices. Will their future growth justify the existing prices? I don’t know, but I do know the current situation is not sustainable. It may go on for a while longer. The internet bubble went on for quite some time. However, like a house built on a poor foundation, eventually, markets are not able to sustain too much capital going into too few companies. Eventually, participants realize owning assets at too high a price dictates selling, not buying. When we reach this point, I don’t know, but I think we are close, as lunacy is prevalent, just as Mr. Beckett predicts.

On the earnings front this week, it was pretty much good news across the board. On the retail front, Wal Mart, Target, Home Depot, and Lowe’s posted strong results, especially in their digital operations. L Brands posted better than expected results, especially in their Victoria Secret division. In the tech universe, Nvidia, Synopysis, and Alibaba all impressed. In the agricultural space, industrial supplier John Deere showed why they have long been considered an excellent company. The big question for the market as the summer winds down is whether society will get a vaccine from the pharmaceutical companies, and if so, when? Moreover, how many companies will earn approval from the FDA, and how quickly can production get ramped up? In the meantime, it does appear there is some hope that the virus numbers are starting to improve, especially across the Sun Belt and in the West.