What has become abundantly clear is that we live in a VUCA (volatile, uncertain, complex and ambiguous) environment with no sign of rapid change abating. So it is imperative for all investors to stay on their toes, poised to make changes to their core beliefs if need be. These days, market psychology shifts on a dime. Unless you have core beliefs guiding your strategy you will be whipsawed at every turn, losing money along the way. That why I emphasize that true investing is the only real way to create wealth as trading is a commission and loss generator.
There are contradictory comments day to day about the global economy, inflation, interest rates, and currency valuations. The conflicting data makes a challenging task even harder and explains why most institutional investors trying to be smart look so dumb. As I said in a Bloomberg interview a few years ago "the problem in investing today is that there is too much news." I stand by those words today. News travels quickly over many venues and trading takes place instantaneously from your phone, iPad, or computer in a nanosecond. No wonder we experience excessive market volatility. Remember the days of calling trading desks to execute and when volume was 10 million shares a day?
So, how do I continue to outperform all the major market indexes in this world? It is by having well thought-out and time tested core beliefs, monitoring economic and global statistics, understanding the inter-relationship between all the variables and being able to synthesize these findings. The result is a portfolio with the proper asset allocation. The bottoms up part of the portfolio is created through in-depth research, choosing one investment at a time within the confines of the overall schema, and controlling risk at every step. I recognize and take advantage of change everywhere, especially, how its impacts valuations and company performance. And finally, I know how to leverage the rule of compounding which begins with minimizing losses.
Most of the noise influencing the global stock markets came out of the United States beginning with Janet Yellen's speech on Tuesday ending with the unemployment data reported Friday. After her speech, I made a comment issuing a mid week blog. It is in "Yellen Says that the Fed Should Proceed Cautiously" where I responded that Yellen took a very dovish view, which we anticipated as, it was consistent with the Fed meeting the prior week. The conclusion of the piece was that our core beliefs remain intact and all the damage caused by comments by some Fed Governors the prior week would be reversed, as predicted. I want to add that she emphasized in her comments weakness overseas and a slowdown in domestic growth since December as the driving points in the more cautious Fed view and policy.
The employment data Friday was consistent with our view of an improving domestic economy: payrolls rose by 215, 000 in March; the unemployment rate rose to 5% as over 300,000 people entered the labor force (a key data point as nearly 3 million have entered the labor force over the past year pressuring wages); average hourly earnings rose 7 cents and are up 2.3% year over year; the average workweek held at 34.4 hours; the labor participation rate rose to 63%, a 6 month high; and job growth has averaged 209,000 in the first quarter, down slightly from last years average monthly gain. This was a very decent report supporting our view of continued economic growth in 2016 in the 2-2.5% annual rate of gain.
Other U.S. data points reported last week were: consumer confidence rose to 96.2; the S & P/Case-Shiller Home Price Index rose 5.4% in the 12 months ending January; Rebook sales exceeded expectations rising 1.5% year over year; pending home sales increased 3.5% in February, the highest level in 7 months; consumer spending increased only 0.1% in February, the third sluggish month in a row, while personal incomes rose 0.2% boosting the savings rate and finally the ISM manufacturing index increased to 51.8 in March from 49.5 in February.
All in all, it's hard to be bearish on the U.S. economy. Matter of fact, the outlook for the U.S. economy is pretty darn good. My concern lies with the Presidential race and the failure of any of the candidates to articulate a cogent plan to improve the U.S. economy and to enhance U.S. stature overseas. For example, rather than focusing on tax inversion, the candidates should focus on the reasons behind it as well as discuss the needed changes to our outdated tax policy created for another generation.