Alchanati Campbell & Associates
Stability, secureness, and independence. Every human strives for freedom. Freedom from debt, freedom from sick addictions, freedom from inequality, freedom from poor treatment, freedom from non-democratic countries, freedom to run and explore in the wild... And most are born into freedom; born with natural rights granted to them by nature or God that cannot be restricted or denied by any government or individual. But is anyone ever truly free? We are all governed by externalities. We commit ourselves to paths: professions, partners, schools, lifestyles; losing out on the opportunities that our third-dimensional selves are enjoying in other worlds. We will never be free, but for most, we’ll never be caged like animals or restricted to a preordained life. Who is free? People who live far below their means enjoy a freedom that people busy upgrading their lifestyles can’t fathom. Only the disciplined ones in life are free. If you are undisciplined, you are a slave to your moods and your passions. Free people can speak freely, but if you fear to speak, you aren’t free. What truly has the potential to shape us is our freewill, who we decide we want to be. And the only way to deal with an unfree world is to become so absolutely free that your very existence is an act of rebellion.
The Market. Argentina’s stock market dropped by 49%. The Consumer Price Index rose 3.4% in July. The US delays China’s tariffs. Germany’s economy is near a recession. When companies invest outside of their domestic markets, the most immediate risk that they are exposed to is exchange rate risk (cash flow and revenues are affected by the exchange rate). The Bank of Israel found that mutual funds that added “!” to their names had a significant decline in their net flows. WeWork filed for IPO. The two-year and 10-year yields inverted, causing mass selling and increased market volatility. This inversion was a signal for many people that a recession is in the near future.
Over-Tourism. The number of international tourist arrivals totaled 1.4 billion in 2018. Why the increase? People are traveling more. Disposable incomes have grown around the world, people are living longer, people are having fewer children, the world is becoming more peaceful and accessible, technology has advanced, booking vacations have become easier, transportation has become cheaper, safer, and more available, and tourism is a big portion of revenue for many countries. The tourism industry has reached $8.8 trillion in 2018 and supports 10% of all jobs on the planet.
Stockholders versus non-stockholders. The consumption of stockholders is more volatile and highly correlated with the excess return on the stock market. In the 1990s, ¾ of US families held no stock. The fraction of households owning stock increases with average labor income. Also, more educated households tend to own stock. According to a study done by N. Gregory Mankiw, stockholding families spend approximately 25% more capita on food than non-stockholding families.
Negative interest rates. Around $15 trillion of outstanding bonds worldwide now trade at negative yields. Rising life expectancy increases desired saving while new technologies are capital-saving and are becoming cheaper. This savings glut tends to push the natural rate of interest lower. A savings glut is when savings exceed investments. This depresses the natural real rate of interest. People value future consumption during their retirement more than today’s consumption. Meaning, they are willing to accept a negative interest rate and bring it about through their saving behavior. A slowing manufacturing sector increased trading tensions through added tariffs, and the tightening of the monetary policy are all adding to the uncertainty and to negative interest rates.
Rules of Thumb by N. Gregory Mankiw. Learn from the right mentors. Mentors determine your professional outlook in much the way that parents determine your personal outlook. Mentors give you your values. They teach you what kind of behavior to respect and what to avoid. Work with good co-workers. Have broad interests. Allocate time and crew. The cost of saying yes can become intolerable. Have fun. Find out what you like to do, and then find someone who will pay you to do it.
The new finance. There are assets whose average returns can not be explained by their beta. Returns are predictable over the business cycle and longer horizons. The dividend-price ratio and the term premium can predict substantial amounts of stock returns. Bond returns are predictable; a steeply upward sloping yield curve means that expected returns on long-term bonds are higher than on short-term bonds or the next year. Past winning funds seem to do better than average in the future, and past losing funds seem to do worse than average in the future. Times of past volatility indicate future volatility and volatility is higher after large price drops.
Why dividends are important. Over the long term, the return from dividends has been a significant contributor to the total returns produced by equity securities. Portfolios consisting of higher dividend-yielding securities produce returns that are attractive relative to lower-yielding portfolios and to overall stock market returns over long measurement periods. Stocks with high and apparent sustainable dividend yields that are competitive with high-quality bond yields may be more resistant to a decline in price than lower-yielding securities because the stock is in effect “yield supported”. The ability to pay cash dividends is a positive factor in assessing the underlying health of a company and the quality of its earnings. The payment of dividends has been declining and the repurchase of shares have been increasing.
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.