Alchanati Campbell & Associates
Unprepared for retirement, time to prepare for a recession, the G-7 conference, investment takeaways, life hacks, life on Mars, and cryptocurrency.
The Market. With the VIX at a 131 day low, a lot of things that people feared in February when the first correction in two years occurred have abated. Earnings are great, trade wars are not viewed as so bad, and concerns about rising rates isn’t as pronounced. Summertime seasonality, dealer positioning and lower correlations among stocks should keep volatility lower. But there is increased chatter of a recession happening within the next 2 years and there is increased chatter of investors taking profits after this next earnings quarter.
The world is unprepared for retirement. The responsibility for preparing for retirement has shifted from the government and employers to individuals. Retiring at 65 is no longer financially viable for many workers. Many people are not doing enough to protect their long-term health and good health is essential for people’s ability to work longer and enjoy the retirement for which they’ve worked so hard. Many lack the financial literacy required to make sound decisions about their retirement savings and investments.
Time to prepare for the next cycle. Late cycle blooms typically mark the end is near. Volatile and plateauing asset prices precedes bear markets. There is nothing in the economic data to suggest that a global recession is near with global expansion still having more room to run being evidence to support this. Higher inflationary pressures caused by expansionary fiscal policy will eventually cause monetary policymakers to push rates higher and higher. Most responses to monetary tightening are consequences in the form of a recession.
G6 + 1 + Russia? The G7 Summit in Quebec kicked off today as trade tension between the US and its G7 counterparts come to a boiling point. Besides arriving late to the summit, Trump continued to stir controversy in an interview prior to his departure from the White House, saying that, “we have a world to run and in the G7, which used to be the G8, they threw Russia out. They should let Russia come back in”. The G7 kicked out Russia in response to the countries annexation of Ukraine in 2014. Despite this bombshell, trade is still the dominating topic of discussion. In response to new steel and aluminum tariffs imposed by the US, French President Emmanuel Macron said, "a trade war doesn't spare anyone", while Justin Trudeau called Trump's citing of ‘national security’ to defend his tariffs as “laughable". The summit promises to bring more controversy as it continues throughout the weekend. Check in with us next Friday for updated coverage of the G7 summit.
Investment takeaways for this current market. At current yield levels, US Treasuries are not cheap, but provide diversification benefits. Credit spreads start to widen well before equities peak. With credit spreads still tight, investors should focus on shorter maturities. Mortgage-backed securities look more attractive than low-rated corporate bonds which indicates a solid US housing market. Liquidity, diversification, and flexibility will be key to protect portfolios.
Life hacks. Do something newsworthy. Write everyday for years. Read a book, when finished, read another. Trust people and pay them well. Give compounding interest the decades it requires. Email people you admire and ask them out to coffee. Lower your ego and live below your means. Work harder than is expected of you and be nice to people. Deserve to be loved (something I need to work on). Realize the consequences of being unproductive.
Life on Mars. Well, not yet but several of the Curiosity Rover’s new discoveries lead scientists to believe it is more possible than previously thought. NASA’s new reports state that Curiosity has found a variety of organic molecules including carbon fragments that suggest they were part of larger compounds that support the existence of life. The rover also found evidence of a seasonal methane cycle in Mars, which may suggest there are lifeforms underground releasing methane as a waste product. What these two discoveries also show is that it is very possible that Mars once had an environment similar to Earth right before the first signs of life began to emerge. While these discoveries are exciting and may suggest there is or has been life on Mars, NASA continues to stress there is still no evidence that there has been ever been life on Mars. Unfortunately, Curiosity is not equipped to go searching for life as its official mission was to find evidence that Mars at one point could have supported life, which it accomplished at its landing site, a crater named Gale. In 2020 two rovers, one from NASA and one the European space agency, will be sent to Mars with the purpose if finding life. What does this mean for the world of finance? Evidence that Mars could support life could make permanently settling on Mars a real possibility. This would open up trillion dollar industries including space exploration, mining, tourism, terraforming, and just about any other industry you could think of when colonizing a new world.
Crypto replacing the USD. Over the past two years, cryptocurrency has seen an incredible explosion in popularity and value. This explosion has led many to discuss the possibility of cryptocurrency replacing the US dollar (fiat money). Undertaking the replacement of such a widely used currency will be no easy feat considering the interconnectedness of the globalized economy. The US dollar is the most widely used currency in the world and more of it is used outside the United States than within, so any replacement would have to be adopted worldwide. However, upon digging deeper, it becomes clear that the replacement of the US dollar throughout the world is not necessarily the biggest problem. What will be the toughest thing to disband is our web of debt and IOUs that pervades all of our institutions. Cryptocurrency was created to rid the debt standard and create a currency that could not be tampered with. If it were to become the currency of choice, banks and governments would have to change the way they use money and this becomes hard when looking at the massive debt that the United States and many other countries currently hold. If debt were to remain a factor while using cryptocurrencies, it would be much more regulated and secure. The use of smart contracts would force repayments automatically and keep track of who owes who. While this looks like a negative outlook for the replacement of the dollar, there are advantages to the implementation of cryptocurrency. One of the largest is the decentralization of money, which is a fantastic way of both combating the devaluation of money and creating a cheap expedient way of transacting with parties across the world. Because cryptocurrencies have a finite number of coins or tokens the intrinsic value of each coin increases as population increases. Lastly, the decentralization allows ordinary people to hold the power of their money, instead of institutions determining the value of money and earning interest on the money we allow them to use. Every person would have the power to be their own lender and the risk would be minimal with the use of smart contracts, as mentioned earlier. Since there are positives and negatives for this new technology, replacement will come when the benefit outweighs the downside.
Suicide rate extremely high, oye. The beloved Anthony Bourdain, a man of great culture, has passed away this June 8th, 2018. At the age of 61, Bourdain committed suicide by hanging in France. He is survived by his 11-year old daughter, Ariane. Our condolences to her and all of Anthony's loved ones. This news is following the passing Kate Spade, monumental fashion figure, on June 5th, 2018. The cause death was suicide. With both of these high profile tragedies, along with recent deaths such as Robin Williams, we thought it appropriate to discuss this escalating issue.
From 1999-2016, suicide rates have increased dramatically in nearly every state. 25 of the states saw increases greater than 30%, and only Nevada saw a decrease (-1%). While mental illness is obviously one of the huge factors in a person having suicidal thoughts, there also lays another, seemingly unrelated aspect. The economy. Put simply, money creates stress. People experience stress if, for example, they are unable to pay their rent. They could stress that they can't afford to send their children to school. The unfortunate dimension of this is that, often times, the stress is everlasting. In this day and age, it is increasingly difficult to move up in the world without some advanced education degree. Its certainly possible, just more difficult. People that don’t have a degree and are working jobs to make their bills don't have as many options to move up in the ladder. Thus, that feeling of "Oh my goodness, money is going to be tight this month" could be a continuous feeling. When that happens, people may feel like there is only one relief. To examine this, the infamous recession can be looked at. Prior to 2008, suicide rates in the county were rising about .12 deaths per 100,000 persons. When the recession began in 2008, that ".12" turned into a ".51". That 400+% increase is far to great to be coincidental. I'm no statistician, but I am confident that there is a causality here. Now, people like Bourdain, Spade, and Williams prove (on the surface) that money isn't the true factor in suicides, at least for wealthier people. This brings me to the last point: Money isn't everything, and never put it above the things that really matter to you.
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.