global markets

Keeping a Singular Focus in a Global Whirlwind
graphic shows a whirl of light points circling a blue outline of the globe

Clients, some of you have reached out to talk about the latest global developments and their implications for our work together. 

We’re watching the news carefully, like everyone else. The hopeful view, if there is one, is in the vibrant and quick response by NATO, the EU, as well as what might be called a Western alliance and our allies around the world. These organizations are responding to a situation which could clearly continue to escalate. And those American politicians and media platforms most influenced by Russia do not seem to have much sway in shaping public opinion overall, thank goodness. 

Ukraine was said by some to be a threat to Russia, for talking up increased ties to NATO and the EU: this is a pretense to reframe aggression as prevention. Putin is like the farmer insisting he doesn’t want to buy all the land—just what adjoins his own. If Ukraine were assimilated by Russia, then would Poland pose a similar threat next? And then maybe Germany and France in turn? 

Russia’s economy is small, as a share of global trade. The problem is in the raw materials and energy on which the rest of the world has come to rely. Ukraine likewise is a significant exporter of crops and natural resources. The disruption to these markets will probably exacerbate inflation; a recession may well result. (Remember, though, that one is always on the way.) If energy costs, for instance, continue to rise—and they could—it is hard to see how the sales of all other goods and services avoid shrinking. 

It is also important to remember that, technically, a recession is a decrease of any size in GDP for two quarters running. So if we had a quarter where we were at 99% of the record quarter before, and then did 1% less again the next quarter, that’s a recession. So we should never assume “what the next recession will mean” without some context and perspective. 

The crosscurrents in the markets have been vicious. We’ve made portfolio changes cautiously, of course. We always want to make sure we can meet your needs for cash flow while keeping your long-term goals in the picture. 

The key thing is, we can meet your need for cash flow without selling anything at a bad time. We can wait out a downturn whenever it comes, and we’ll seek to make the best of it by swapping into holdings likely to recover the fastest. 

No guarantees. But clients, you’re watching things; we’re watching things. Call or email me with questions or concerns.

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Keeping a Singular Focus in a Global Whirlwind – 228Main.com Presents: The Best of Leibman Financial Services

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We Are All Globalists

© Can Stock Photo / lucidwaters

Global trade and international relations have dominated the news lately. The president signed a pair of sweeping tariff proclamations and issued a number of statements about trade.

Each of us has been mostly free to buy the goods and services we choose, regardless of origin. Chanel, Honda, Burberry, Adida, Mercedes Benz, Nestle, Armani, Samsung, Phillips, LG, Toyota, AXA, Bayer…these global brands earned their position because enough of us voted for them with our wallets.

If you are of a certain age, you remember when ‘fruits and vegetables’ meant about a dozen things. Now the produce section features products from dozens of countries.

Trade is not a one way street, either. Within forty miles of beautiful downtown Louisville, the small town of Valley Nebraska hosts Valmont. The company began in the irrigation equipment business in 1946. Today Valmont does business in one hundred countries on six continents.

Likewise, the farms surrounding these towns help feed the people of many nations.

Many of the most iconic American companies like Caterpillar and Boeing produce for the whole world, too. As with those international brands, they earned their position by being valuable to their customers.

We could buy Fords instead of Toyotas. And people in other lands could buy Kubotas instead of Caterpillars. But what would be the point? The U.S. and the whole world has steadily gotten wealthier and more prosperous by doing business in a relatively free system of global trade.

Because citizens of each country may or may not choose to buy and sell equal amounts to other countries, so-called trade deficits result. You have a trade deficit with the grocery store—week after week, you are in there buying things. Yet the grocery store never buys anything from you. This is not a problem, is it?

Trade has made us richer and our lives better. Less trade will make us poorer and life more difficult. (A trade war and collapse of trade was at the heart of the Great Depression, after all.) We are watching current developments carefully.

Clients, if you would like to talk about this or anything else, please email us or call.

Spring 2017 Market Themes

© Can Stock Photo / photoslb

We look for promising investments by studying opportunities in detail, reading annual reports, SEC filings, analyst commentary, and doing our own arithmetic. Potential gains live in the gap between the unfolding reality and consensus expectations. The outcome of this study and thought is a list of investments we would like to own.

Although we look at individual companies, we often find themes in our list. This makes sense when you consider that undervalued companies are often found in unpopular industries.

Last fall we wrote about three of our market themes. Biotechnology companies, the evolution of the automobile, and natural resources continue to figure into our thinking. Other themes have emerged.

Consolidation has fundamentally changed the dynamics of the airline industry. It used to be that fierce waves of competition caused price cutting, which led to poor financial results and even bankruptcies. But there are not twenty players, or even ten any more. Consolidation and liquidation has reduced the number of major competitors to four.

The four biggies compete with each other, but more gently. Each knows that lower growth ambitions and stable pricing may lead to greater profits than higher growth ambitions and lower prices. This idea of a pricing oligopoly seems to explain the behavior of the airlines, which are booking record profits. We believe the market has not awoken to the new dynamics, and undervalues the stocks. We may be wrong.

The European equity markets have had one problem after another for more than a decade. An index of major blue chip stocks, the Eurostoxx 50, is lower than it was ten years ago. Meanwhile in the US, major averages have doubled. Dividend yields and prices are more favorable “over there.” So we have begun to include European equity exposure in portfolios.

The Buy List of thirty-some holdings reflects these themes and other opportunities we believe to be attractive. There are no guarantees on any of them. We can tell you we are excited about the prospects. If you would like to discuss your holdings or situation in detail, please write or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Stock investing involves risk including loss of principal.

Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.