Elections and the market

  After 18 months of waiting, investors will finally have their chance to vote both with their ballot on November 8th and with their money on November 9th. Given that this presidential contest has been one of the most unpredictable and volatile in modern history, many fear that the market’s response to the outcome will be equally as volatile. What should you do? The short answer is nothing. Long-time readers know by now that making investment decisions based on emotions are almost always the wrong decision. Selling or buying the markets based on next week’s election outcome would qualify as a highly emotional decision. You may argue that certain sectors, industries and even companies would most assuredly suffer if one or the other candidate won the White House. Hasn’t Donald Trump already promised trade wars while most economists predicting a global recession as a result? Just this week an open letter to the public signed by 370 economists warned that a Trump presidency would be “dangerous and destructive.” Hillary Clinton, on the other hand, represents “business as usual,” although she also has singled out certain sectors such as banking and pharmaceuticals as enemies of the state. She also insists she will resurrect Obamacare, a proposition that some believe will cost additional billions of dollars to fix. If one bothered to go back and research all the threats, reversals and changes the two candidates have promised the electorate over and over again, one might actually believe they have the power to single-handedly do what they have said. But simply saying something repeatedly does not make it so. And let me...

Why interest rates are moving higher.

After two years of warning bond investors that their days are numbered, the recent hike in global interest rates is making some of those smug bond babies stay up at night. They should. We are entering our ninth year without a Federal Reserve-inspired hike in interest rates. It has been over 25 years since bond prices have dropped by any appreciable amount. Given that time period, it is no wonder that bond bulls are taking all these warnings with a grain of salt. U.S. investors have been expecting the Fed to raise rates at any time. Most pundits think that a small September or November hike in short-term rates is in the cards. The problem is that the Fed has told all of us that a raise in rates is “data dependent.” Given that guideline, every trader on Wall Street is pouring over a range of numbers both here and abroad to try and determine the Fed’s next move. Recently, the economic data both here and in Europe has been encouraging. Some say too encouraging. Consumer prices in Europe, for example, have led some to worry that if price levels continue to increase, inflation could be a problem for the EU. Readers may recall that it was only in April that German sovereign debt was yielding 0.05%. Today, it is topping 1.00% and moving higher. In other countries, from Japan to the U.K., rates are higher than they have been for many months. But despite the run up in rates, bond interest rates are still abnormally low by historical standards. Take our ten-year U.S. Treasury note, a benchmark rate...

The Rise of the Smoothie

  The global market for smoothies is projected to hit $9 billion this year. Driven by a new health-consciousness among consumers, today’s on-the-go convenience of gulping down your vitamins and minerals is appealing to more and more of us. Expect that trend to continue. From a niche market in America in the Nineties, the industry here at home has grown to over a $4 billion market today, which makes the United States the dominat domicile of all-things Smoothie. The sector is forecasted to grow 10%/year for the next five years, according to Research and Markets Group, an analytical business group. Food chains, service restaurants, beverage companies and consumers, not to mention the dozens of smoothie franchises, have made the fruit and/or vegetable drink as ubiquitous in America as McDonalds or Starbucks. For many consumers worried about obesity, eating right and living longer, the convenience of gulping down your daily FDA minimum requirements of fruits and vegetables can be a strong selling point. It sure beats the pants off swigging down gallons of unhealthy soda. Most of us consider smoothies a healthy but a sweet snack consisting of fruit and possibly yogurt or other ingredients like peanut butter or soy milk. The most convenient (and cheapest) way to make the drink is by using frozen fruit. Frozen fruit sales in the U.S. now top $1 billion/year, which is up 67% from five years ago, according to Nielsen. Sixty percent of that fruit went into making smoothies, which is up from just 21% back in 2006. The making of smoothies goes back to the 1930’s, 40’s and 50’s with the invention...

What’s happening to the movies?

Have you noticed that American movies seem to be long on bullets and increasingly short on words? That despite flop after flop at the box office, the same movies are coming out with sequels? Get used to it because, increasingly, American viewers are a distinct minority when it comes to the box office. After agriculture, the second largest U.S. export is entertainment. Films account for well over $31 billion of those exports and the numbers are increasing exponentially. The international box office accounted for a small portion of overall revenues a decade or so ago, but times have changed. Now it’s a 60/40 split in favor of foreigners. China, with a population of over 1.3 billion is the largest market for filmmakers in the world. For a long time, foreign countries only allowed a certain number of American films to come into the country. The idea was that the embargo would allow local filmmakers a chance to show their stuff among the local audiences. In some locales that is still the case, but less so in the really big markets. Conventional wisdom in Hollywood has it that there is an insatiable international appetite for American-made genre movies, which are heavy on action, explosions, guns, special-effects and the like. They are correct. Foreigners love action movies, children’s movies, sequels, Academy Award winners and big production budget films in that order, according to recent industry studies. And stars are not as big a factor as they once were. To be sure, some late greats such as Stallone and Schwarzenegger can still command an audience but its more about the story line...

The election investors ignored

Last weekend Japan held “snap” elections, which gave Prime Minister Shinzo Abe the mandate to continue his pro-growth economic policies. No one outside Japan seemed to care. The Nikkei stock market index fell 1.6% and traders moved on. That may prove to be a big mistake. Granted, given the precipitous decline in the price of oil and the calamity it is causing in Russia (well-covered in last week’s columns), investors may be forgiven for focusing on other more immediate concerns. Still, I believe that now that Abe has a clear mandate to continue his pro-reform, economic policies, Japan’s prospects for next year have been elevated considerably. And don’t forget that Japan is by far the greatest beneficiary of those falling oil prices. Japan is technically in recession at the moment. GDP over the last two quarters was dismal. And the third quarter1.9% decline shocked observers, who were actually expecting a rise. Economists pointed to a national sales tax hike that hurt economic growth. Back in April, the sales tax was increased from 5% to 8%, which hurt consumer spending. After the election, Abe announced that another hike in the sales tax (to 10%) would be delayed, if not suspended. Readers may recall the “three arrows” of Abe’s plan. They are: radical monetary easing (well over a $1 trillion so far in asset purchases), extra public spending ($17 billion plus) and a much-needed program of structural reforms. The last arrow is probably the most difficult and yet to be accomplished. Abe will need all the support of a renewed voter mandate to accomplish these changes. It is the main reason...

Is there a doctor in the house?

A doctor shortage in America has been predicted ever since the first Baby Boomers started to retire.  Now, that shortage is coming into question as technology and non-doctor, medical professionals are stepping forward to fill the gap. The Association of American Medical Colleges predicts the nation will need 90,000 doctors by 2020 and 130,000 physicians by 2025. It is understandable how that organization arrived at that number. Just compute the proportion of Americans who will reach the age of 65 between now and 2030. Add to it the number of Americans newly-insured, thanks to the Affordable Care Act, and you come pretty close to those numbers. However, those figures simply represent the demand side of the equation assuming everything else remains the same.  To be sure, there will still be a shortage of general practitioners, those front line physicians who are our first stop in accessing medical treatment and services.  But a whole host of breakthroughs in medical knowledge, technology and treatment protocols are reducing not only the hours required to treat an aging population, but also the location of such treatment. As a result, fewer patients visit hospitals today and when they do, their stay is reduced by a variety of outpatient choices.  This pares down on the number of doctor visits each patient requires. In addition, many surgical procedures, thanks to advances in knowledge and technology, can be accomplished today through minimally invasive procedures that require less recovery time and therefore less doctor time. Take my upcoming knee replacement, as an example. I have only seen my orthopedic surgeon once and will probably not see him again...