Imagination
July
5, 2016
The search for yield was the lead story in the public
markets during the first half of 2016.
The broad indices were up slightly, with the S&P 500 up 2.7% during
the first six months, the DJIA up 2.9%, and Wilshire 5000 up 2.6%. The NASDAQ Composite is off 3.3% for the
first half of the year.
If it feels as if you’ve made no progress over the last
couple of years, it’s for good reason.
Since the end of 2014, the DJIA is up roughly 3.5%, or 2% annually,
including dividends, the S&P 500 is up 4.5% including dividends, or about
2.5% annually, and the NASDAQ Composite is down 2.2%. The Wilshire 5000 is also down over the last
eighteen months.
The international markets have been more volatile, with the
German and London markets off 10% through the first half of the year, and off
roughly 2% over the last eighteen months.
Asian markets have fared worse, with the Sensex off 4%, the Hang Seng
off 5%, and the Nikkei off 18% through the first half of 2016. The last eighteen months for the Asian
markets have been a bit kinder, but almost all the international indices are
off over that time period.
Intermediate term and high yield bonds, along with dividend
paying stocks, have been the “go-to” securities so far in 2016. The volatility early in the year, the uncertainty
caused by the British vote, and the continuing terrorist attacks around the
world, have many investors wondering what’s next. Telecomm and utilities stocks, both of which
typically pay solid dividends, have done well so far in 2016, with most up in
double digits.
On the economic front, GDP was up an annualized 1.1% during
the first quarter, with consumer spending up 1.02%. Business spending is flat, with
nonresidential investment down by 0.58% during Q1. Some observers (and we agree) suggest that
business spending will increase once we get through the current election cycle,
and there is clarity regarding tax and regulatory policy. The uncertainty around both has hampered the
economic recovery over the last several years.
At the macro level, there is good news, in that corporate
profits were up 1.84% in the first quarter, after several quarters of slowing
growth. At the micro level, many of us
around the world, and most of us in the States, have a quality of life
unimagined in past centuries, or even as recently as 100 to 150 years ago. And the future looks even brighter.
Here are some current and future opportunities that confirm
this wonderful life. Advanced genomics
will allow us to be more alert, and more active, at increasingly older ages. New materials will reduce the cost of jet
engines, fuel consumption, and pressurized cabins in a way that puts jet
ownership in the hands of more people.
Fracking has increased the available supply of oil and gas, reducing the
cost of fuel at the pump. Fuel cost, as
a function of household income, is at its lowest level in decades.
Solar energy cost-efficiency is improving. Many expect it to be price competitive at the
retail level within ten years. R&D
in robotics will ultimately result in many mundane, repetitive, or boring tasks
being handled by robots. And I could go
on. Yes, much of this is
disruptive. We can resist change, or we
can embrace such technological change, and even profit from it, if we choose.
Last Monday, we celebrated Independence Day, that day on
which we celebrate our independence from the British Empire. Our national anthem, the “Star-Spangled
Banner”, has an interesting backstory.
You may know it was written by Francis Scott Key, an attorney from
Baltimore. You can find one telling of
the rest of the story at https://youtu.be/bC18F9mOhsY. And, for one of the best renditions of the
song I’ve heard, check this a cappella version https://youtu.be/Vwxv-EZpb7U.
Quote of the week:
“America was not built on fear. America was built on courage, on imagination,
and an unbeatable determination to do the job at hand.”
Harry
S. Truman
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