Optimism

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There is so much to write about, I’m not quite sure where to start. Let’s begin with a stock market update (before we get to the more interesting topics). The stock market is off to a blazing start so far this year, rising around 16%, with many major indices close to all-time highs. Despite this surge, anxiety levels remain elevated, with more cash on the sidelines than one might expect given the performance of the market. In a nutshell, stocks continue to climb a wall of worry that seemingly knows no end.

Currently, there are two major concerns supporting this wall of worry. First, valuations are being stretched across various sectors, even though earnings growth has slowed significantly.  To put this in perspective, earnings grew 20% in 2018, while current consensus estimates are for only 4% growth in 2019. It remains to be seen whether this earnings slowdown is temporary or a precursor to a recession.  

The second concern, which is being advocated by several presidential candidates, relates to the threat of “socialism” or greater government control over our economy and markets. I would expect the market to react quite negatively should this political ideology emerge as a winning strategy in next year’s presidential election. As a side note, I was encouraged by a Wall Street Journal article, “Jamie Dimon’s Timely Warning” in which the J.P. Morgan CEO stated, “socialism inevitably produces stagnation, corruption and often worse.” I suspect that Mr. Dimon, not known for political activism, understands the potential risk to our economy from socialism. I hope that more corporate icons will also speak out against socialism in the months ahead. At the same time, business leaders at all levels should model behavior that deflates the need and desire for more regulation and centralized control. “Discipline yourself so no one else has to.” John Wooden. Sounds rather simple, doesn’t it…

So, after the strong start to the year and given the earnings slowdown and political risk, we have positioned portfolios more defensively. Our investment team is being disciplined and patient as it searches for opportunities across our portfolios. What we do may not make the headlines, but it’s a prudent way to balance risk and reward in these uncertain times.

Now for the more interesting stuff

Rebuilding Notre Dame… The entire world was mesmerized watching flames engulf the historic cathedral. Catholics around the world cried and prayed as did countless others. Soon after the blaze was extinguished, several wealthy citizens and businesses pledged millions toward rebuilding efforts. It seemed a patriotic and compassionate thing to do. Then came the criticism, which still befuddles me. Shouldn’t it be an entirely personal decision to which worthy cause one decides to donate money?  

The Last of the Doolittle Raiders… On April 18, 1942, 80 brave Navy airmen, led by General Jimmy Doolittle, flew 16 B-25s off the USS Hornet, and headed toward Japan. It was an audacious, some thought suicidal mission, but the first bombing of Japan was an enormous morale boost for the United States at the time. Lt. Dick Cole, the last living member of the Doolittle Raiders, died recently at the age of 103. We should try every day, to remember and honor someone who sacrificed for our country.

Tiger wins the Masters… What a comeback story it was at Augusta as Tiger Woods won his 5th Green Jacket, one less than the Golden Bear, Jack Nicklaus. Who doesn’t love to watch a comeback for the ages?

Virginia wins the NCAA Men’s Basketball Tournament… One year after being the first, and only #1 seed to lose in the first round, the Virginia Cavaliers beat Texas Tech in an epic final. The power of perseverance on display for all to see. 

Yes, we do live in interesting times. When disaster happens, we can rebuild, when a military hero dies, we can pay tribute. When a human being stumbles and through talent and sheer will, ascends to the top once again, we can acknowledge his greatness, and when a team believes in itself and its coach, and overcomes adversity, we can marvel at their accomplishment.

Despite all the frustration and animosity that is so prevalent today, if we look close enough, there are many reasons for optimism.

Michael Kayes, CFA

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