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3rd Quarter News

From the outset of this year, we were skeptical of the market bounce that followed the Trump victory. We said those gains could not be sustained without concrete policy outcomes from Washington. To the contrary, investors have looked past the political confusion. Their confidence is driven by the fundamentals of economic and corporate earnings growth. In addition, the economic news from international and emerging markets has been better than expected at the beginning of the year.

We are amused by the term TINA which means: There is no alternative. It occurs when investors realize that equities are the only asset class with the prospect of reasonable investment return. The other term we like is “market melt-up” – meaning the investor stampede not to miss the rising tide.

That said, our skepticism remains. We are concerned the market is overbought. There is nothing structurally flawed like the 2008 crisis. But we are likely to see modest market pullback in the months ahead. Stock prices are quite rich. We do not believe the economic fundamentals support future year gains similar to what we have seen in 2017. Given the political obstacles, we are not betting or investing on the chances for success of the Trump tax cut package. We are prepared to manage in a subdued market environment for the next several years.

In this environment, our skills will be tested. Remember the fundamental of: “Buy low, sell high”? We will be looking astutely to find those buy-low opportunities – where they may exist.

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