“I wanted the whole world or nothing.” Can your heart be mine? Sadly, this will be the last newsletter for 2018. We started in March with the simple idea of sharing what we learned each week with close friends and family. Market data, current events, economic indicators, personal inspiration… and we turned it into a passion and a love with a subscription base of 5,000+. The best things in life always happen unexpectedly. We hope you’ve enjoyed this as much as we have. People say that what we’re all seeking is a meaning for life. I don’t think that’s what we’re really seeking. I think that what we’re seeking is an experience of being alive. So let’s get to it:
The Market. Some call it a “clean rally”, I call it utter chaos and complete volatility. We should get used to these large swings in the market. Banks are getting crushed. Small cap stocks are getting crushed. Bitcoin was a bubble that popped. From September until now, $4 trillion has been wiped out from the US stock market. China’s growth is slowing. Debt worldwide hit $184 trillion ($86,000 per person). US debt is now totaling $21.9 trillion.
The 2019 forecast. The past is a great teacher, but a terrible master. From my opinion and current knowledge, this is what I’ve concluded: we will have an economic slowdown in 2019 and be in a bear market, but we will most likely not have a recession (a 20%+ drop in the market). We are currently at the end of the business cycle which is the expansion phase. To indicate that it is “the end” of the business cycle, the unemployment rate drops, consumer spending increases (debt increases), and the Federal funds rate increases (tightening). Now, what will cause the end of this expansion? We would have to see long-term rates drop below short-term rates, a decrease in real estate investments, a decrease in business investments and lastly, a decrease in consumer spending.
Portfolio construction and management for personal investing. I believe the first step in creating your own portfolio begins with defining the goals that you would like to achieve with your investments, setting a risk tolerance in line with these goals, and defining the time horizon this portfolio will have. The next step would be doing a bit of research on our current economic situation and deciding what strategies you will use inside of your portfolio. A portfolio is all about layering different strategies on top of each other, each with their own risk tolerances and investment criteria, which provides an easy way to completely diversify your portfolio amongst industries and potentially regions, reducing your overall risk. I’ve talked about a few strategies in previous sections, such as one that looks at equities with above average financials, and one that looks at equities with a good dividend yield, with little risk of being cut. After you construct your portfolio, you can use a site like portfoliovisualizer to backtest and find the metrics of your portfolio, such as the Sharpe ratio, correlation to the market, and the beta. After this, you need to define a benchmark you will use against your portfolio to gauge returns (the DowJ and S&P500 aren’t always the best benchmark to use).
“The difference between who you are and who you want to be is what you do” -Charles Duhigg. At Alchanati Campbell & Associates, we believe in being movers, people who get things done. We all have things we want to do, and we all need to start somewhere. The single best place to start is by turning your large daunting goals into simple daily habits. You don’t live off of inspiration, you live off of habits. If you want to write a book, then make sure you devote time to your book every day. Once you have a clearly defined daily habit, it’s only a matter of time before you reach your goals. A recent study from the University College London shows that it takes 66 days to turn a repeated task into a habit that you won’t think twice about doing. 66 days might seem like a lot, but it is easier than you think. Start by setting a daily reminder like an alarm on your phone. Now every time you get the reminder, you preform that task and stick to your routine. Our brains are naturally hardwired to keep routines, so the more you stick to your routine in the beginning, the easier it will be in the end. The reward for work well done is the opportunity to do more.
Love. I tore myself away from the safe comfort of certainties through my love for truth- and truth rewarded me. The only way to get people to do great work is if they love what they do. Most people would rather want love than have love. You have to love yourself in order to be loved. The way to love anything is for you to realize that it might be lost. Love: the appreciation of the virtues of a person’s beliefs and purpose. If you don’t love yourself, you will not love others. To the extent you give, you will love.
The Alchanati Campbell and Associates Team
Do you ever sit back in a chair designed by Mies van der Rohe and ponder about life, challenge, purpose and missed opportunity? Well, I can’t say I don’t…
The Market. Things are slowing down. There’s a feeling of inevitability that the latest correction will turn into something worse. Everyone knows it is coming. But a recession is nothing to fear. The down part of the business cycle is necessary. The US is now a net oil exporter (exports more oil than it imports). Trade tensions, US rate hikes and weaker global trade growth has hurt emerging markets. The #MeToo movement had a setback on Wall Street this week. Many are spooked by the movement and react by “avoiding women at all cost”. 155,000 jobs were added to the US economy in November, below estimates of 198,000.
From what I know. Life consists of everything we know and everything we are capable of knowing. There are secrets and new discoveries, but what we are able to know will be known and it will leave everything else unknown. Life is but a moment. It builds upon the past, but it could never be the future because the future is unknown. Life is about discipline and what you make of yourself. The only thing important is where you’re going, not where you came from. Life is about the connections you make and the connections you keep. Don’t dwell on the past and on the ones that you’ve lost, but remember whatever happens, happens rightly and what is destined to be yours, will be yours. Life is all about your inner voice: everything it says, everything it feels and everything it moves you to do. Master it and you’ll master your world.
3- and 5-year Treasury inversion. The spread between the 3 year and 5 year Treasury yields turned negative for the first time in more than a decade. For stocks, it means risks of a bear market. For the dollar, it means a possible decrease in value. For emerging markets, it means a bullish signal for future growth. For credit, it boosts companies’ marginal cost of capital and its harder to access long-term financing. But does the yield curve really forecast recessions? The real interest rate measures the rate at which consumption is expected to grow over a given horizon. If the difference between short-term rates and long-term rates are negative, then growth is expected to decelerate.
The Essential Marcus Aurelius. Yes, we are in a Roman philosophy phase (We wanna be Stoics). Rule over oneself and never to be “carried away” by anything. The struggle not to be overthrown by our emotions. Conduct oneself in a gentle and dignified way. The accomplishment of necessary duties without complaint. Nor can I be angry with my fellow man or hate him, for we have been made for cooperation. Perform every action in your life as if it were your last, putting aside all aimlessness and emotional resistance to the choices of reason. People are ignorant of what is good and what is bad, which is no less a disability than the inability to distinguish white from black. Our lives are but a series of choices. If something noble is to be done or said, do not judge yourself unworthy of doing or saying it. It is not the actions of others that trouble us but rather it is our own judgments.
Wealth inequality. In order to survive, any flowing system must evolve to increase its access to flow. If movement is hierarchical, then so is wealth. For example, our highway systems operate through a few large, high-capacity freeways and many small, local streets. Today, globalization continues to create an unequal distribution of wealth over the population. As time moves on, inequality cannot be avoided even with legislation.
The Alchanati Campbell and Associates Team
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.