If I had been a passenger in the back seat, blindfolded, I still would've known exactly where I was at that exact moment. We all have our own well-traveled road. The one where you know every turn, bump, up, and down. I didn't need to see the "Exit 48 - Round Swamp Road" sign to know I was heading Eastbound on the Long Island Expressway. If the sign had been removed, I still would have seen it; the things we always see stay with us. And some things are fleeting. Like your children's faces. They go through life's stages, but on a day to day basis, we don't notice that they're growing. Changing. Selfishly holding onto their last remnants of being your little one; your greatest generosity is pushing them to their fullest potential. Taking them on a journey through stories and places. Validating their thoughts. Subtly adjusting their course, knowing as parents that we are on a journey of our own. But our urgency is greater because we know time is precious, leaving us minus another day to teach our boys and girls that the best part of our journey is the people we ride with. I could barely resist the temptation to drive too fast. Here we are, Exit 49. We were all looking out the windows after a full day of travel. My daughter broke the silence; "Dad, it's weird and it's not weird to be back here". Only 12, she has a lot to process, but I could see that she gets it, the greatest lesson I didn't even know I was teaching; no journey is preset. Your future is yours to claim. I replied to her that "sometimes a journey can lead you to the strangest places, even if that place is home".
Dusting off an old anecdote from 2010: "The real threat to commodities is when supply catches up to demand. Due to bone crushing drops in the price of gold, silver, oil, and other commodities in the '80's and '90's, mining companies either under invested in new production or shut down mines altogether. This has left the world with supply constraints. Now mining companies are running full-out to increase mining productions, which is a slow process. This is the real counter trend that bears watching. But there has never been a time in recorded history when production doesn't eventually catch up with demand."
Paradox I: The future of the free world now depends on Russia, Saudi Arabia, and Iran to cooperate on their greatest economic gift and their greatest weapon - oil.
Paradox II: A funny thing happened on the corner of Constitution Ave. and 20
th St NW; the Federal Reserve Board of Governors raised its benchmark rate for the first time in nearly 10 years and rates have gone down ever since.
Unintended consequences I: Boomers can't all just retire. The broken plan of earning 5% from safe bonds so they could live off the interest is making it economically feasible to delay retirement. Without room being made for new employees, millennials' careers are delayed as well. Growth in housing, investment, birthrates; the things that a leveraged economy needs to grow, are also delayed.
Unintended consequences II: China can't get out if its own way. Never in the history of humanity has such a large civilization developed in so short a time. Now, it is looking more like Japan. The One-Child policy has been repealed a generation too late. The citizenry is already used to spending more on itself. Sacred state-owned companies...zombie companies...kept on life support for no other reason than to employ non-productive masses of citizenry. Debt laden local governments managed by crony capitalists; elites thinking that if they have a Ferrari and a Rolex, that they are good at capitalism. But capitalism that isn't self-sustaining isn't the real thing. Their first export is their money, second is their wives and children, and third is themselves. To Central Park West.
Demographics I: Too much of everything both man-made and mined, that's the problem. Except for babies in the developed world. Central banks can print money, but they can't print people; not yet anyway.
Demographics II: Japan rose like a Phoenix from the ashes of nuclear fallout. Stunning was the rapid growth and innovation. Frank Zappa, poet and philosopher of the, time summed it best just before Japan peaked..."I'm turning Japanese, I really think so". It is scary and yet very realistic to believe that this archipelago tells of the eventual fate of every developed nation that has shrinking birthrates and low immigration numbers. The question is "which country is the next Japan?"
Lesson I: Barry, my branch manager from over 20 years ago, told me that in times of market stress, you better make sure your clients' wives have heard of the stocks you have in their accounts. It was great to learn from someone who was a product of another era; someone who came of age in the '60's and 70's. Today, the wives are often the clients and that expression goes to both sexes. Demographics and societal norms have evolved, the clientele is more diverse, to be sure, but the point was that he knew how to ride out a down market and he wanted to teach that to me. I don't think an algorithm will ever teach you that. Luckily, I still see Barry around town; last time was at Ben's in Woodbury. We always reminisce about the Lucent story. At the end of the tech bubble era, Lucent, the seller of the picks and shovels that were used to lay out the backbone of the internet, the "go to" tech stock, was as blue as a blue chip could be. He said to me in early 2000 - "I bet you that I could put in a limit order to buy that stock at 5 and not only will I get hit, but I'll probably still have paid too much!" The stock was at 102. It eventually went down to 1.
Lesson II: The primary driver of every bull market is different. Not to say "it's different this time", but to say that the driver is different each time. The '90's bull market was driven by the internet. The 2003 to 2007 bull market was driven by inexorable access to consumer credit. The current bull market that began in 2009 was driven by China. With Chinese GDP deceleration infecting global GDP and crushing demand for raw goods, that primary driver is over. The end of every bull market runs on fumes; the disbelief that something we got so used to could have ended, monetary policy shifts, and a rush of investor cash into a narrower group of large cap stocks. Then markets correct, the composition of the major indexes change, and a new primary driver emerges. That's what makes me optimistic. Or, as Barry would say, "there's always another boat."
I'm on the lookout.
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