- Once interest rates inch close to zero and discounted future cash flows are elevated in price, itâs difficult to generate much more return if economic growth doesnât follow.
- Equity markets should be dominated by dividend yields and the return of capital via share buybacks, as opposed to growth.
- In fixed income assets, we suggest that portfolios should avoid longer dated issues where inflation premiums dominate performance.
ââšRanking right up there with the myths about Santa Claus and the tooth fairy is the legend that pennies fall from heaven. This canât be true, a priori, because God wouldnât save pennies â nobody does! I know this for a fact because every weekend when Sue and I walk the neighborhood there is a fresh supply just waiting to be picked up on the blacktop. Here a penny, there a penny, everywhere a penny penny. Perhaps, I figure, it rained copper last night instead of H2O but no, theyâre just on the street, lying there like a bunch of cigarette butts that someone obviously didnât want to bother with. I will. As a matter of fact Sue and I compete for them. âJust think,â she said after beating me to the first on a three penny walk the other day, âthere might be twenty or thirty thousand of these just lying around the street in this country right now. Think of all the good luck someone could be having.â And that of course is why someone should believe in pennies instead of the tooth fairy. They bring good luck: more than horseshoes, four-leaf clovers, or even betting on birthdates when youâre playing Lotto. Very, very lucky!
ââšThereâs a theory that your luck depends on whether the penny is found heads or tails up. Iâve never been able to actually correlate that statistically. The competition is so fierce between Sue and I that the position of the penny goes unobserved as we push each other out of the way to be the official finder and therefore dispenser of the dayâs good luck. When Sue gets there first she rather smugly hands the penny to me for safe keeping â her shorts having no pockets and all. I accept it reluctantly, all the while scouring the area for what might have been a âshowerâ of copperheads from some nonbeliever the night before.
This brings up an interesting question. If someone throws away a penny, is it bad luck? Iâm not sure but Iâm not risking it in any case. Those âGive a Penny, Take a Pennyâ containers near your local merchantâs cash register should be totally avoided. Giving a penny comes so close to throwing away a penny on the street that it ranks right up there with black cats, cracked mirrors and walking under ladders. In addition to pennies, I have advice on nickels, dimes and quarters that you might find lying along the road. Donât touch âem. First and foremost, they donât bring you any luck, and second of all they have billions of germs all over them. Iâve never been keen on cooties in any form or fashion. I might risk it for pennies, but Iâm not about to pick up quarters no matter how profitable. Besides, how could any of you think that silver coated coins would be lying in the street in the first place? According to the efficient market theory, someone must already have picked them up. Find and savepennies. VeryâŚvery lucky!
Speaking of luck, the investment question du jour should be âcan you solve a debt crisis with more debt?â Penny or no penny. Policymakers have been striving to answer it in the affirmative ever since Lehman 2008 with an assorted array of bazookas and popguns: 0% interest rates, sequential QEs with a twist, and of course now the EU grand plan with its various initiatives involving debt write-offs for Greece, bank recapitalizations for Euroland depositories and the leveraging of their rather unique âEFSFâ which requires 17 separate votes each and every time an amendment is required. What a way to run a railroad. Still, investors hold to the premise that once a grand plan is in place in Euroland and for as long as the U.S., U.K. and Japan can play scrabble with the 10-point âQâ letter, then the markets are their oyster. Not being one to cast pearls before swine or little Euroland PIGS for that matter, I would tentatively agree with one huge qualifier:
As long as these policies generate growth.
Growth is the elixir that seems to make every ache, pain or serious ailment go away. Sovereign debt too high? Just grow your way out of it. Unemployment rates hitting historical peaks? Growth produces jobs. Stock markets depressed? Nothing a lot of growth wouldnât cure. But growth is the commodity that the world is short of at the moment, as shown in Chart 1. No country has enough of it â not even China â and many of the developed countries (specifically in Euroland) seem to be shrinking into recession.
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