This week’s observations contain a series of contrary views on various topics that I believe are worth exploring. Enjoy!
1) Interest Rates — Is the 30-year bull market in bonds over (rates will continue to rise from here)? Or are interest rates headed to zero, as we’ve witnessed in Japan, Germany, and other economies?
The primary narrative I’m hearing (and have been hearing consistently since 2009) is that rates will certainly go higher from here; inflation is increasing — a view that is marginally supported by the CPI data released this week, as well as being consistently observed in corporate earnings reports; and interest rates on bonds, mortgages, and other instruments will continue to rise since the bottom that was reached in July of 2016.
In contrast, the non-consensus view on interest rates come from Dr. Lacy Hunt (who I have referenced on many occasions), and this week from Alex Gurevich, Lance Roberts, and Mark Yusko, with other contrarians in agreement. These purport that the current US economic environment is consistent with Japan in the mid-1990’s, particularly in terms of demographics and debt burdens, where interest rates have remained at or near the zero-bound since 1997, and deflation is a bigger threat than inflation.
2) SmartPhone Addiction — I had a suspicion, so I took this test and failed it miserably! So I’ve made some slight changes in my smartphone habits, and hope to make more. It’s a little contrarian to walk down the street today with your eyes looking forward (rather than down at your phone); and the twitch I experience when the phone is near eerily reminds me of Gollum’s “My Precious” from The Hobbit.
Just as contrarian investing helps us identify value in the markets, being a SmartPhone contrarian has real potential to exponentially increase the value we get out of life. If it takes me a little longer to reply to your message, know that I’m working on creating value.
3) Stock Market Direction — Everyone wants to know where the market is headed next. Was last week the first leg down of a severe market correction, or just a healthy dip on the way to a continued bull market? The best answer I read this week came from my colleague, Vitaliy Katsenelson.
By asking this question and pretending it can be answered in advance, one is gambling not investing. Rather than worrying about the direction of the broad stock market, Vitaliy urges that we “start treating stocks as businesses that (we) are trying to buy at a discount to fair value”. When investing based on thoughtful value assessments, declines in prices become an investment opportunity to build wealth, and we are no longer dependent on the continuation of a euphoric bull market.
In today’s market, value investing is the contrary view, and I firmly believe that patient investors who pay attention to value will be rewarded as the current cycle plays out.