Sound Advice

Sugar High and Then What? I cannot remember a time when I’ve seen such widespread disparity between what is happening in the economy and what is happening in the stock market.   We have record layoffs.  In a single month, nearly all of the jobs created after the financial crisis disappeared, at least temporarily.   The number of first-time claims for unemployment insurance has topped 45 million.  Nearly one in four working Americans has lost a job.  Given the devastation among weaker companies, it has been estimated that 10-15 million jobs will be lost permanently. If there is any good news, it is that the number of first-time filings has been declining, and the number of individuals who file on a regular basis in order to receive jobless benefits is about half the number of first-time filings.  In spite of this, the broader-based S&P 500 Index has already eclipsed 3,100, rebounding over 39% and the tech-heavy NASDAQ Composite has added more than 46%, rising to an all-ti

Rock and a Hard Place Regardless of your age, impressions from childhood linger.  As the first days of summer approach, we all remember the feeling that accompanied the end of a school year.  Yet as much as many of us would like to believe we again have the summertime freedom to do as we wish, the reality is quite the opposite. Although months of confinement and limitations on social interaction have increased our personal discomfort and severely impacted the business community, our current situation is not analogous to the end of any school year.  It’s quite the opposite. There is every reason to continue wearing face masks, social distancing, and avoiding close contact with others.  Nothing suggests that we can modify our behavior significantly or resume patterns of daily living we enjoyed only a few months ago. There are no meaningful advances in medical treatments.  At best, there are attempts to combine different approaches that might speed up recovery.  The hoped-for vac

Tuna Fish Some years ago, I had lunch with Bob Brimmer, an old friend and veteran adviser from Cape Cod.  We chatted about how people’s behavior as investors is often less rational than their behavior in most other areas where money is involved.  Bob gave an example, citing what we now refer to as the tuna fish principle.   Let’s say a can of tuna fish normally sells for $1.50.  If the price soars to $5 a can, very few people will be buyers.  But if the price plunges to 50 cents a can, it will sell out almost immediately. Yet with stock market investing, people do the exact opposite.  When prices drop, the last thing they are willing to do is buy, even though it’s probably the best possible time to get on board.  And (you guessed it!), as prices go higher, that is when they want to buy.  This is a sure formula for disappointment. Now that almost two and a half months have passed since March 23 rd , what seems to have been the recent market bottom, it’s easy to remember widesp

Economists “The First Law of Economists:  For every economist, there exists an equal and opposite economist. The Second Law of Economists: They're both wrong .” Only a few short months ago, during an online seminar for financial professionals, Joe Davis, Vanguard’s Chief Global Economist and head of Vanguard’s Global Investment Strategy Group, said there would be no recession in 2020.   Back in January, Jeremy Siegel, the well-known finance professor from the University of Pennsylvania’s Wharton School, waxed enthusiastic about valuations of stocks in the 20 times earnings range and he looked for even more annual gains ahead. They were both wrong. Approaching midyear, we are in a marked recession that is not going away anytime soon, despite the hefty, albeit temporary, rebound in market averages in April and May.  Five weeks or so from now, earnings reports for the second calendar quarter will start to be released.  The comparisons will be dreadful.   Despite relaxatio