January 2021

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January 2021


“The market is going down!” “The market is going up!”  That’s absolutely correct—both are correct—but when will either happen? What’s next? To quote Macbeth from that eponymous play, “Ah, there’s the rub!” 

The expectation, frequently reinforced by the Federal Reserve, that interest rates, as well as inflation, will remain low for some time, augurs well for the longer term economic and market outlook. The shorter term is a different matter. Market fundamental value measurements, i.e., prices relative to earnings, revenue and earnings growth rates, book value, etc., are near or above historic averages. Only one of our favorites, dividend yield vs interest rates, remains in an historic positive range.

Let’s toss another ingredient in the market stew pot. (Sorry, Macbeth, that is a metaphor; We aren’t using a real pot or the witches’ cauldron). This one is volume. Daily and weekly trading volumes support a strong near-term upward continuation. ’New money,’ those dollars above the normal market dollar levels, much of which is attributed to inexperienced traders attracted by the IPO activity like the tech bubble era, is much like the flow of funds before the tech sell-off of 2000-2001.

Add all these facts to the stew, then season with well-read tea leaves, sprinkles of glass from a busted crystal ball, an oft-flipped coin, two ancient runes, and the shadow of a Ouija board. Stir well and voila! What do we have? A mess-just a mess that doesn’t tell us anything.

Conclusion? Your portfolio is well suited for this economic environment. The companies in your portfolio are among the strongest financially, with (I know we repeat this often, but it is well worth saying—and passing on to new, inexperienced ersatz investors/traders) strong balance sheets and income statements that support annual dividend increases. And as they have continued their journey through all kinds of markets, bull and bear and zig zag, they have rewarded us for our patience by paying us to own them. Love those dividends!

Stay safe, stay well.

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