Weighing The Week Ahead: Stalemate?

Lyn Alden Schwartzer takes a close look at investing in Thailand via the iShares MSCI ETF (THD). She has a nice historical description as well as an analysis of investment fundamentals.

Index funds? Regular readers know that I am not a fan. Why buy the expensive along with the cheap? (See Chuck Carnevale above). Index funds overweight popular fad stocks. If you must invest in them, why not choose one that avoids this bias? Jack Hough (Barron’s) highlights reverse market cap.

Personal Finance

Abnormal Returns always provides interesting ideas on a wide variety of topics. I am a subscriber, and I read it daily. Each Wednesday’s edition includes a post focused on personal finance. This week I especially appreciated Michael Batnick’s The Big Risk. Using some themes from Jeopardy champion James Holzhauer (a former resident of our town and a favorite of Mrs. OldProf) he examines the short-term risks of stocks compared to bonds. He writes:

Stocks are clearly a risky endeavor in the short-term, but over longer periods of time, when you think about why you’re investing, what feels safe carries a hidden risk.

See the full post for analysis, charts, and some tips from Holzhauer. Perhaps he should read another post Tadas cited on Wednesday, Adam M. Grossman’s After the Windfall.

Gil Weinreich’s series on Seeking Alpha is ostensibly geared to financial advisors. The analysis is much broader than that. Most DIY investors will find it quite useful. This week I especially enjoyed the post, Your Money or Your Coffee. You will too. Gil takes a common current question about your investment returns from saving money on coffee. He cites some sources from each side of this debate – and there are two sides. He then notes the key principle: “The path to wealth and financial stability entails the active exchange of the transitory for the permanent.”

Spoiler Alert: He concludes that investors have room for “the occasional indulgence.” Whew!

Along the same lines, Ben Carlson discusses financial superpowers.

Watch out for…

Cornerstone OnDemand (CSOD). Gary Alexander has a nice post explaining why this possible value trap deserves its low price. It is a very good, very thorough job, serving as an illustration for investors. If you are not doing your own analysis, this is what to look for.

Troubled brokers. You should always use the FINRA site to check out a broker or advisor’s record. In fact, they are supposed to display the link on the site. This new regulation increases the obligations on “problem firms.”

Final Thought

First, a few random (but important) thoughts.

  • The twitter effects seem to be wearing down. This is both my own observation and other comments I have seen. The longer these issues play out with the stalemate continuing, the less attention algorithms and traders will give.
  • The typical causation blunder was seen in full force on Friday. Talking heads covering the Uber story debated whether the market was dragging down the IPO or vice-versa. No one even considered that they might be independent events! When the day closed with markets higher and Uber lower, writers stuck to their original stories, ignoring the evidence. This always happens when two events occur at the same time.
  • No one knows what the Chinese leadership is thinking or what is motivating their actions. No one knows what the President is thinking or what motivates his actions. Despite this, many newly minted experts weave plausible stories based upon how you or I might think. This is totally irrelevant. It is just a way of filling otherwise dead air.
  • Market-moving tweets provide the seeds for malfeasance. Any trader who had advance knowledge of these events could make a fortune in a few days. This week one day would have been enough. Market moving economic data is embargoed and released to everyone at the same time. People know when to watch for it. Are we comfortable moving away from this standard? It is easy to forget that there are losers on every trade made by anyone who might be front running the news. Please note that I am not suggesting this is going on, and I certainly have no evidence. I want to emphasize yet another public policy implication of the rise of social media. If we do not makes tweeting policy more like normal economic releases, we need several assurances.

    • A squeaky-clean White House and staff, consisting of people whose personal financial motives are secondary to the public interest;
    • Complete financial transparency, as we typically see with government employees;
    • Aggressive SEC monitoring of suspicious trades, one of their normal functions.

And finally, how to play the stalemate.

My own approach, and one that I strongly recommend to investors, is a focus on fundamental value with little attention to short-term movements. I elaborated on this in a webinar this week, joined by experts in different fields, all looking to the second half of 2019. Check out the free replay for my synthesis, charts, viewer questions, and the viewpoints of my colleagues.

And also, some longer-term items on my radar

I’m more worried about:

  • US debt and the debt limit. The Bipartisan Policy Center has a good update and links to prior analysis. The debt limit “X Date” (at which point the federal government cannot meet all obligations in full and on time) is now projected for October or early November.
  • International tensions. The US show of force in response to Iran and N. Korean missile tests lead the list. The investment implications of these events are unclear, but most find them unnerving.

I’m less worried about

  • Chinese sales of US bonds. This seems to be the latest scare topic. China has to do something with the money from the trade surplus. There is a huge appetite for bonds from other investors. A big sale in the short term would be costly for the Chinese.
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Disclosure: 

If you are an investor, you should be focused on your personal goals and how to get there. Politics and geopolitics are sideshows on that journey.

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Gary Anderson 2 months ago Contributor's comment

The fusion of some Democrats who oppose free trade and Trumo, who hates all trade, is a disaster. It will play out in time. Remember, Trump is implementing his campaign promises. He already said he does not want Beemers and Mercedes on American streets. Wall Street needs to see where this all is going.