The global economy, including the United States, is muddling through with growth well below potential, but better than a year ago. The global consumer is the winner while the global producer is suffering from excess capacity, excess inventory and much lower prices. Lower prices for the producer means higher disposable income for the consumer as long as his income is at least constant and hopefully, rising. There are clear winners and losers out there due to this conundrum. It's not so hard really to construct a long/short portfolio in this environment if you use common sense and in-depth research.

It is most interesting to see how managements are reacting to this environment. If they bite the bullet and make the right strategic changes, they will come out stronger and their stock price will reflect it, but if they keep their head down and maintain the status quo, their business and stock price will erode away over time. The portfolio manager who uses historical analysis and doesn't listen to or see what is happening out there won't see the change. But the one with an analytical proclivity, an open mind and who puts in the hard work will see the change or lack thereof and construct a winning portfolio accordingly. This is an analysts' delight. My strength! This is a worldwide phenomenon, so you need a global perspective and knowledge. That's what we at Paix et Prospérité are all about.

The financial markets continued to move up last week on the "wall of worry" that we have been discussing in previous blogs. Our view was, and remains, that the Fed is out of the way until at least December, and most likely next March, and this has become the prevailing wisdom on Wall Street. You could hear the sigh of relief around the world. The global financial markets acted accordingly: stock markets for the most part rose led by China and the emerging markets; bond yields remained ridiculously low as fears of deflation override fears of inflation; commodity prices, including oil, fell for the week; the dollar held constant after falling over the last two weeks; a huge deal was announced in the beer industry; Dell bid over $67 billion for EMC which was under attack from an activist; and corporate earnings season began. Quite a busy week! Our portfolio continues to outperform by a wide margin.

I have spent a lot of time over the last year declaring that this is a market of stocks, not a stock market. Step back and think about this for a moment. Historically, investors rotated industry sectors based on where you were in the economic cycle. For instance, you would want to have the stable growers like food and drug stocks when the economy turns down and parenthetically you would want to own the economically sensitive stocks late in a cycle as capacity utilization increases to the point that prices increase accelerate and stick. Not now! What's different today? Globalization! The lowest common denominator, for the most part, sets prices. For example, Chinese steel imports have forced tremendous pricing pressure here and in Europe. Some nations don't have the same profit motive as we do and may be nationalized. It could all be about jobs over profits. Currencies play a major role here too.  It used to be that our high-energy costs penalized our chemical industry in competing globally. Not anymore as our feedstock costs are as low as any country, including in the Middle East. Products move globally, and if you don't have a competitive advantage either in price or technology, you'll lose out over time. It's our job to find them. We're pretty good at that.

Change can take many forms. Take a look at Amazon, Netflix and Uber as three examples whose business models turned their respective industries upside down. Just ask Wal-Mart and the networks. We will discuss all of this in more depth later, but you can guess where I am going with this. Do the work; don't follow the chart, as that is history; and find the future winners as your longs and the losers as your shorts. I waited over a year for Nelson Peltz to wake up the analysts and investors in GE. Be patient and let the thesis play out. Don't forget to maintain your liquidity and control risk too.

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