Vector Money Management

January 31, 2020

Year End 2019 – Investment Update

Filed under: Market Comments — vector @ 4:28 pm

 2019 was a banner year for the financial markets with most indices having their best returns in half a decade, but some context is necessary.  The great returns are in no small part due to the gut wrenching     -20% “bear market” in the 4th quarter of 2018 which compressed stock valuations to bargain basement prices, bottoming on Christmas Eve.  Over the 2018 Christmas holiday the Federal Reserve made a subtle change of course on monetary policy that flipped the investing traffic signal from red to green.  So, 2019 turned out to be a two Santa Claus year for investors.  Another angle:  While the S&P 500’s total return for 2019 was 31.5%, the annualized return for the 15 months from the September 2018 high to year end 2019 was a more normal 10.1%.  Tech stocks once again led the market in 2019.  Apple (+85.7%) and Microsoft (+54.9%) topped the Dow Jones 30.  Advanced Micro Devices (+148%) and Lam Research (+114%) topped the S&P 500.  Other chip stocks of interest Micron Technology (+69.3%), Qualcomm (+56.7%), Tower Semiconductor (+63.2) and Impinj (+77%) all rallied as fears of a China trade war subsided.

Bull markets usually climb a wall of worry and there was plenty to worry about in 2019.  Tariffs and trade wars, an inverted yield curve with its foreboding of recession, internecine conflict in the nation’s capital, and global turmoil in Venezuela, North Korea, Hong Kong, and Iran.  A resounding reaffirmation vote for Brexit in Britain demonstrated again that change is in the air and how fragile the old establishments’ grip on power has become two decades into the 21st century.

It wasn’t just stocks that went up in 2019.  It seemed like everything went up – bonds, commodities, everything – except cash, which still returned little to nothing depending on the country and its central bank.  Ten years post the financial crisis and great recession, the interest rate environment is historically low and heavily managed by the world’s central banks.  Thus we have the very strange global phenomenon of $11 trillion in sovereign debt trading at negative interest rates.  This alone should give investors pause for concern.  Another anecdote:  In its year-end review the Wall Street Journal published a list of 116 bond and stock indices, commodities, and currencies from around the world ranked by performance.  There were 88 ups and 28 downs.  Of the downs, most of them {22} were currencies from across the world.   It is reasonable to conclude that a big part of 2019’s financial market gains were liquidity driven – cheap, plentiful money for those who qualify to borrow it.  And borrow it they did – whether it was corporate share buybacks, private equity acquisitions, or governments running deficits.  The central banks’ punchbowls are bigger and fuller than ever.  This is further validated by the 18% gain in gold, history’s oldest form of money.

As we write this letter, Iran is launching missiles into Iraq in retaliation for the death of the world recognized terrorist, Qassim Suleimani.  It is impossible to know how this situation will play out, but the oil market’s modest reaction to these dramatic events says volumes about how much things have changed over the past decade.  The power of fracking technology to reconfigure the world’s energy markets continues to amaze.  Thanks to U.S. frackers, especially in the Permian Basin, the world now has excess production of crude oil.

Ashby M. Foote, III  –  President                                                                                                     January 8, 2020

January 30, 2020

In times of stress Gold can be an important signal

Filed under: Market Comments — vector @ 10:47 pm

The coronavirus has caused havoc in China and caused health authorities around the world to ring alarm bells in hopes of minimizing what could become a global health crisis.  As one would expect world financial markets suffered spasms as news reports came out from China and the city of Wuhan.   It was one of those events when no one not even the authorities closest to the event knew what would unfold.  Would it be a worldwide contagion like the Spanish Influenza epidemic of a century ago that killed millions across the globe or could modern medicine and the latest DNA techniques respond with treatments that quarantine this latest viral outbreak?  No one knows at this time.  For investors it is easy to let emotions override the rational decision making process that should drive long term portfolios.  In the meantime watching the price of gold can be a useful barometer of fear in the marketplace.  Gold is recognized around the world as a safe haven and stable investment in times of great uncertainty and turmoil.  In this case gold shot up as the world’s stock markets sank on worse case fears.

Ashby Foote

Book Review – Indistractable: How to Control Your Attention and Chose Your Life

Filed under: Market Comments — vector @ 10:04 pm

Book Review | Indistractable: How to Control Your Attention and Choose Your Life by Nir Eyal

By: Ashby Foote

December 18, 2019

For sixty years, Silicon Valley has been a key engine of the U.S. and world economy.  That small stretch of land from San Francisco down to San Jose is where some of the brightest engineers and entrepreneurs invented much of what is today the world’s computer and communications network.  Their feats of innovation, productivity gains and wealth creation are the stuff of legend.

But the innovative output of Silicon Valley over the past fifteen years has taken a new turn and different course.  The chips, devices and networks are still getting faster, smaller and cheaper but many of the most popular applications (apps) that run across those networks and smartphones are headwinds to the  productivity that drives progress.  In short, some of the Valley’s newest big things have created an ocean of diversion and distraction.  To quote venture investor Peter Thiel, “We wanted flying cars and settled for 140 characters.”

Technology entrepreneurs learn early on that scaling up a business can be a quick way to create stupendous wealth.  Silicon Valley excels at scaling and social media platforms are the latest and greatest examples.  Enabled by the remarkable rise of the smartphone, social media platforms have now connected billions of people in a new era of 24-7 always on devices.  This is a very big deal and the consequences, both good and bad of this new digital pulsating connectedness, are still being sorted out.

Social media combined with the smartphone is a game changer.  Why – because the distraction of social media platforms is not an accident, but rather a designed-in feature.  Social media’s business models crave engagement to sell ever more ads and collect more and more private information about users.  That means algorithms and feedback loops that keep users coming back to check out likes, friends and comments that can perpetuate overuse and even cause addiction.

The power to ping and ding devices has turned smartphones into weapons of mass distraction.  It’s not just distracted driving that threatens us, it is distracted everything.  Walk across a college campus today and you will see zombie-like students strolling along — eyes glued to their phones.

It is this new virulent strain of distraction — a 21st century social pathology — that author Nir Eyal confronts in his important new book, “Indistractable: How to Control Your Attention and Choose Your Life.”  It is an easy and concise read about a critical topic of our time.

The author is well qualified to opine on the subject having been a writer and lecturer at Stanford on the interplay of technology, psychology, the work place and the home.

The book begins with keen insights on human psychology and how internal and external triggers can undermine our effectiveness.  The author provides a framework and some wise rules that if embraced can help readers better understand the drivers of their behavior and become better stewards of their time.  It is worth remembering that, in a world of abundance time is the final scarce resource.  Time stewardship is a key theme in this book.

Most importantly, “Indistractable” points out the perils and hazards of living, working and raising a family in an always connected world.

If you want to be more focused and indistractable, you should read this book.

 

Ashby Foote

18 December 2019