TGIF! February 17, 2017

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment CounsellingTGIF!

The internet of things today connects devices to the web and they're always on. It's not just your phone and your iPad.

Innovation is a powerful thing. Human beings have consistently innovated throughout history, in pursuit of better ways of life.

Innovation is a powerful thing. Human beings have consistently innovated throughout history, in pursuit of better ways of life. It’s evolutionary. Today, there’s so much we naturally take for granted. Our ancestors didn’t have the same, handy devices at our disposal in this digital age. But of course, we have our own stresses and challenges that we deal with on a daily basis. Life is never perfect. But the greatest inventors are always striving for perfection. The invention of the wheel was a big one. Maybe the biggest. It sure made hauling things easier. Transportation took off. The oldest wheel ever found was in Mesopotamia, and believed to date back to 3500 BC. That sure was a game changer.

The internet of things today connects devices to the web and they’re always on. It’s not just your phone and your iPad. Cars, refrigerators, TV’s and air conditioners are all interconnected to the web and smarter than ever before. Disruptive innovation is making it happen. Companies that don’t innovate face extinction. A Tesla is not a car. It’s more like a supercomputer with wheels. Cars that use gasoline are far more fuel efficient today than they used to be. Will there be a time when they don’t use gas at all? Driverless cars are now the rage, and the future of self driving is very much in question. There will be special, assigned lanes for driverless cars that will be far more efficient, in terms of speed, fuel consumption and accident prevention. Will 6-year olds today need a driver’s license 10 years from now? Will people even need car insurance down the road? These are issues that will undoubtedly change the way we do things and disrupt companies that aren’t prepared.

None of this is new mind you. Innovative machinery and automation has been a driving force for centuries. Henry Ford used to joke that before the roll out of his Model T’s, people simply wanted faster horses. Our President had this to say: “The automation problem is as important as any we face. We must take advantage of every opportunity for technological development. But we cannot disregard the human values involved.”  That President was John F. Kennedy, and he said it in 1962. It still applies today. You could argue that existing global leadership is not set up for the new connected world. A case is being made that Brexit and the Trump victory are really about going backwards to a place more predictable and seemingly safe. It’s gut check time on planet Earth.

A common belief in Silicon Valley and at startups across the country is that any company designed for success in 20th century is destined for failure in the 21st. Every company today has to be a technology company or they face extinction. It’s grow or die. Amazon is an obvious disruptive threat. They have come a long way since just selling books. Amazon has changed how people shop forever and its innovative ways continue to disrupt the status quo. Amazon is competing with everyone. It’s great for consumers but scary for companies and employees. Jobs are hard to find in the digital age. In fact, most business models in Silicon Valley are job crushers. Contrary to what politicians think, the greatest source of job loss in the US has not gone to China or Mexico. Innovation and automation have eliminated jobs for decades. Robotic solutions are popping up everywhere and are stealing jobs from humans. Robots don’t take vacations and don’t require medical health care. Jobs that don’t require creative, innovative thinking, and provide a valuable, specialized service to customers are at risk. Robots get upgrades all the time. The last upgrade for the human brain was roughly 50,000 years ago. Disruptive innovation shocks the conventional immune system. The establishment fights change all the time. That is human nature.

One of the most exciting aspects of this disruptive innovation is in the medical arena. Handheld devices are about to beat doctors for accurate diagnosis. Artificial intelligence, such as IBM’s Watson, is having a profound impact on cancer research. The Memorial Sloan Kettering Cancer Center has partnered with IBM and has been “training” Watson for more than a year to develop a tool that can help medical professionals choose the best treatment plans for individual cancer patients. Clinicians and analysts are training Watson Oncology to interpret cancer patients’ clinical information and identify individualized, evidence-based treatment options that leverage the cancer center’s decades of experience and research. This is a fantastic example of human intelligence and artificial intelligence working together.

Innovation is the theme. It’s been the driving force in humanity since the very beginning. There’s a great deal of logic to Darwin’s term “Survival of the fittest”. That applies to physical fitness and intellectual fitness. It also applies to cultural fitness. The digital age has sped up the change, faster than ever before. New ways require new cultures. The world is more connected than ever before. Competition is fierce. Driverless cars and drone delivery will bring a great deal of ease and efficiency to our lives. But like all benefits, it comes with a cost. As an investor, today’s innovation creates endless possibilities for growth. As a father, it is a constant mental weight worrying what the job market will be like for my 3 little girls. Fitness matters. Stay fit America.

Have a nice weekend. We’ll be back, dark and early on Tuesday; we are closed President’s Day.

Mike

 

 

TGIF! February 10, 2017

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment CounsellingTGIF!

http://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/

Last week, I had the privilege of meeting former British Prime Minister David Cameron. It was a fascinating experience. David Cameron was the youngest British Prime Minister in 2 centuries.

Last week, I had the privilege of meeting former British Prime Minister David Cameron. It was a fascinating experience. David Cameron was the youngest British Prime Minister in 2 centuries.  He was 43 years old when he took office. Cameron served from 2010 until his abrupt resignation last year after the British referendum vote resulted in the United Kingdom’s decision to leave the European Union. Cameron campaigned hard to stay. He resigned his premiership feeling new leadership was required to take Britain forward in this new direction. Theresa May is his successor and has her work cut out for her with Brexit. The official British exit from the European Union appears set for the Spring.

I have so many takeaways from his talk, I plan to cover it in 2 reports.

David Cameron acknowledged that free trade is under assault. The fundamental benefits of globalization are undeniable. Unfortunately, it hasn’t helped everyone. Around the globe, the Middle Class has been left behind. That’s what the elections were about. The message was loud and clear in Britain. That same message rang true in America. Walls are going up. This is very dangerous in Cameron’s view, but it is understandable. Mass immigration and the refugee crisis overwhelmed the system in Europe and triggered an extreme response.  Cameron started off by quoting the old Chinese proverb: “May you live in interesting times”. Interesting indeed. It’s an exciting time but it’s a scary time. Many post-war norms are reversing.

Leadership and foreign relations are under great stress. Cameron offered a historical perspective that helped make some sense of things, to the extent possible. It’s important to take a step back and remember what’s happened the last few decades. He noted that protectionism failed in the 1890s and 1930s. Democracies thrived since Winston Churchill and Franklin Delano Roosevelt united against the fascist threat of Nazi Germany in the second World War. There were just 12 democratic governments throughout the globe back then. Today there are 170.

From Cameron’s perspective, business needs to show that globalization can help everyone. We need ethics and responsible capitalism. Transparency is key so people can understand who benefits from what and how. Who pays taxes. The tax code is so complicated that many companies pay very little tax. He also reminded us that today, immigration control doesn’t happen at the border anymore. The digital age requires modern solutions. Technological systems and software are the greatest tools for tracking and providing security. “We need clicks as well as bricks”, in Cameron’s words.

He’s not sure what to think of President Donald Trump, other than he is in office because he represents the complete opposite of traditional Washington governing. He hopes that Trump will engage the rest of the world and maintain loyal allies. Western democracies need to stand together. NATO should be cherished rather than criticized.

Cameron believes that Russia can have a friendly relationship with the West, but it’s impossible for Russia to be “like-minded”. The simple, deep-rooted fact is that Vladimir Putin believes that the collapse of the Soviet Union was the greatest tragedy of the 20th century. Conversely, the West believes it was one of the greatest. That is the issue and both sides will never find common ground on it. That’s where the mistrust lies. Putin is completely fixated on getting back to the leaders’ table on the global stage, and has basically achieved it. Putin is set on re-establishing geographic strength and leadership. Cameron believes that Putin is thoroughly enjoying the internal fighting within Europe and the United States. He said we need to listen to brave democrats in Ukraine and the Baltics. They are the ones that face the greatest risk under tremendous stress. Cameron spent considerable time with the Russian leader over the years, and said Putin is KGB through and through. The Prime Minister playfully said he turned down Putin’s invitations to go horseback riding and hunting in the Russian woods.

One of the most cherished experiences a British Prime Minister enjoys is a standard hourly visit with the Queen every week. He admires Queen Elizabeth for her calming demeanor and experience.  She has lived through 13 Prime Ministers and a quarter of US Presidents. She’s seen it all, and apparently little fazes her.

To David Cameron, values matter. We don’t need to be more like someone else. We need to be more like us. We the people matter. Jobs, family, neighbors and togetherness. He sees this period of history as another era of struggle and soul searching. But he believes in the Western way and he believes in the United States. He reminded us that Winston Churchill summed it up best when he said, “You can always count on the Americans to do the right thing, after they’ve exhausted all of the alternatives”.

Have a nice weekend. We’ll be back, dark and early on Monday.

Mike

 

 

TGIF! February 3, 2017

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment Counselling TGIF!

Bedell Frazier Investment Counselling TGIF!

The Dow closed back above 20,000 after Friday saw the best performing day of the year. The rally was sparked by today’s employment report which saw a healthy labor market pick up for January.

Jobs can often times diverge from the Stock market for quite some time, but ultimately the jobs market does matter as it’s a healthy barometer of economic activity. We do not consider these Job reports to be leading indicators, but rather offer us a good gauge of perspective. Two recent stretches come to mind: From ’98-’00 the jobs market created no net new jobs to our economy for 2 whole years while the markets raced up 36%! We call this a negative economic divergence. We saw it again from ’06 through the end of ’07 where the job market actually deteriorated substantially while the stock market raced up another 20%.

From February of 2015 through last month, the job market had been gradually slowing; creating almost a million less jobs at the end of 2016 vs the beginning of 2015. It’s just one of the many reasons we saw the early 2016 correction in the markets. These slow patches are pretty normal throughout history and only become a problem if they don’t improve. Our thesis going into year end was that the labor markets were set to snap back and improve in 2017 based on many healthy economic indicators we monitor closely.

Many of the economic barometers such as new manufacturing order production, inventories, supplier deliveries, service contracts all started to firm and begin to really strengthen into last Fall. Our experience has shown us that when our work here is strengthening it’s only a matter of time till it shows back up in a tighter labor market. That is exactly what we saw today, a good positive start economically to 2017 and a good confirmation that our Bull thesis is intact.

 

Bedell Frazier Investment Counselling

The Dow closed back above 20,000 after Friday saw the best performing day of the year. The rally was sparked by today’s employment report which saw a healthy labor market pick up for January.

SUPER BOWL FUN: With no Bay Area team in the Super Bowl this year we have been wondering who to root for this weekend. Since we are always rooting for the stock market we look toward the Super Bowl Indicator for inspiration. The Super Bowl Indicator came to life based on a column written by New York Times sportswriter Leonard Koppett in 1978. It says that a win by an original NFL team (before the 1966 merger pact) means the stock market will be up for the year. A win by a descendant of the AFL league means the stock market will go down for the year. Teams created after the merger count for their conference, National or American.

So what does this mean for Sunday’s game? Well if you have no pony in the race…The Super Bowl Indicator would say if the Falcons win, the market will go higher, and if the Patriots win the market will go lower. While this indicator has proven accurate 76% of the time in the past 50 years it is important to note that this correlation does not have a cause-and-effect relationship. And to be clear are we in no way using this in our investment inputs!!!

So, if you want to join in the fun and want to root for the market to continue its rally, stick with rooting for the Falcons!

By Mike Harris & Meredith Rosen

 

 

TGIF! January 27, 2017

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment Counselling

Bedell Frazier Investment Counselling

The DOW JONES INDUSTRIAL AVERAGE closed above 20,000 for the first time in history. On the surface, that is a very symbolic event and certainly worth celebrating. It’s a very cool thing. But realistically, the DOW is not reflective of the true US Stock Market. The DOW is just a price-weighted average of 30 mega cap stocks that don’t necessarily represent today’s overall Market. That role goes to the S&P 500, which is comprised of the largest 500 publicly traded US companies. The good news is the S&P hit a new, all-time high this week as well. So did the Tech heavy NASDAQ. This rally is finally broad based. That definitely matters.

But most people watch the DOW and track the DOW. You might be wondering how it all started. Well, in 1883, Charles Dow and Edward Jones, both journalists on Wall Street, created a daily newspaper called the Customers’ Afternoon Letter. It was a 2 page summary of the days Market news and activity. Over the years, the newspaper naturally grew and became the Wall Street Journal. Dow started tracking stock prices to show the readers whether the Market was rising or falling. In 1896, the DOW JONES INDUSTRIAL AVERAGE was officially born. It initially consisted of 12 industrial stocks. Its all-time low was hit that year at 28 points. In 1928, it increased to 30 stocks, which is where it remains today. But the stocks in the DOW have changed substantially over the years. Though General Electric is the only remaining original DOW component by name in the index, it was actually removed and added back in twice over the years. Today, Technology accounts for nearly a quarter of the DOW. It was less than 2% in 1999.

The DOW first reached 100 in 1906. The DOW rallied nearly 500% during the 1920’s, hitting 381 in 1929, before crashing. It fell down to 41 during the Depression in 1932, erasing 33 years of gains. Here are some other major milestones for the DOW’s history:

  • It closed above 1,000 for the first time in 1972.
  • It reached 5,000 in 1995.
  • It more than doubled in 5 years as the dot.com bubble inflated the Stock Market.
  • It first hit 10,000 in 1999.
  • It fell back below 10,000 in the year 2000 and 2008, before its sustainable move higher.
    It reached 15,000 in 2013.
  • And just this week, the 20,000 level was achieved on January 25, 2017.
  • It’s up over 200% since the March 2009 lows from the Financial Crisis.
  • It took the DOW over 100 years to reach 10,000. It took another 17 years to double to 20,000. The last 1,000 points took just 42 trading days to hit 20K.

History has proven that the Stock Market never moves in a straight line in perpetuity. All-time highs are a really good thing. But as we all know, that’s history. For us it’s all about where we’re headed. But understanding where we’ve been is a very helpful tool in anticipating where we’re going. As my favorite author and philosopher Mark Twain once said: “History doesn’t repeat itself but it often rhymes.”

Have a nice weekend. We are all over it. We’ll be back, dark and early on Monday.

Mike

 

 

TGIF! 2017 United States Presidential Inauguration

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment Counselling

TGIF! 2017 United States Presidential Inauguration

Today is Inauguration Day. The 45th President of the United States, Donald Trump, took the oath of office and immediately assumed the responsibility as leader of this great, but sorely divided nation. The transition of leadership is complete. The Obama years are officially over and the Trump years have just begun. It’s a moment in history. Trump asked 50 of Obama’s staff members to stay on for continuity. The next 4 years are expected to be quite different than the last 4 years. Our future lies ahead. What it will bring is full of unknowns. There are serious issues our nation faces, both at home and abroad. Policy change is indeed in the air. There’s a new world order. Power is shifting around the globe. Many Post-War norms are reversing. The 21st century is a different place. Change is hard. Change keeps coming. That’s the way of the world.

Presidential inaugurations haven’t always been on January 20th, nor in Washington.  George Washington was the only President to be unanimously voted into office.  He was sworn-in on a clear and cool day from the balcony of the Federal Hall in on Wall Street in New York on April 30, 1789. That was the location of the first Congress. George Washington was 57 years old when he became President. Washington was unanimously voted in for a second term. It was Washington who set the precedent of a 2-term limit for the Presidency to eliminate potential abuses of power. He was the only President not to occupy the White House. He lived in New York City at first before relocating the Presidential House to Philadelphia. His second inaugural address was the shortest in American history. It lasted less than 2 minutes.

Here are some other facts about Inauguration Day:

William Henry Harrison had the longest inaugural address. He spoke for about 1 hour and 45 minutes on March 4, 1841.

Teddy Roosevelt did not use a bible when he was sworn into office on September 14, 1901.

Franklin D. Roosevelt was the first President to have his inauguration ceremony on Jan. 20 in 1937. He also had 4 terms.

Donald Trump is the oldest President to be inaugurated at age 70. Ronald Reagan previously held that distinction at age 69. Teddy Roosevelt was the youngest President at inauguration. He was 42 years old. John F. Kennedy was second youngest at age 43.

The only parade known to have been canceled because of the weather was Reagan’s second in 1985. It was the coldest Inauguration Day ever, at 7 degrees. Perhaps that speaks to the times changing. 76 years earlier, there was a blizzard for William Howard Taft’s inauguration. The parade route had to be shoveled to remove the snow. But the parade went on.

John F. Kennedy gave one of the most memorable inauguration speeches in 1961 when he said: “And so, my fellow Americans: Ask not what your country can do for you — ask what you can do for your country.” These words still resonate with us 56 years later.

Our great nation has been through substantial challenges since the beginning. Opportunities always present themselves for improvements and better ways, which lead to better days.

Have a nice weekend. God Bless America.

By Mike

 

 

TGIF! January 13, 2017

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment Counselling

If you have a penny in your pocket, take it out and see if it was minted before 1982. I’ll tell you why later. Or simply jump to the end…

If you have a penny in your pocket, take it out and see if it was minted before 1982. I’ll tell you why later. Or simply jump to the end…

We are always looking for signals and indicators for where the Market is headed. In fact it is our passion as Market professionals. One such barometer for economic growth, both here and abroad, is the price of Copper. Why Copper you may ask? It’s not because we see Hall of Famer Brett Favre pitching the benefits of Copper socks. Copper is a very important industrial metal. It’s valuable with its relatively softness, and transmits both heat and electricity well. Roughly 90% of Copper is used today for electrical use and construction. When you’re building stuff, chances are you are using Copper. Because of that, Copper prices are a good indicator of overall economic health. It’s known to have a Ph.D. in economics and earned the nickname “Dr. Copper”.

Most copper mined today is used to conduct electricity, mostly as wiring. You see it with consumer electronics, appliances and in cars. It is also an excellent conductor of heat and is used in cooking utensils. Electric vehicles are on the rise. Conventional gasoline vehicles will be increasingly replaced with electric cars, which simultaneously reduces demand for oil and increases demand for copper. As our economy continues to reduce its dependence on oil, it continues to redirect consumption to Copper.

In November, Copper hit an 18-month high on the back of optimism for a comprehensive, bipartisan infrastructure plan. Copper is widely used in construction, manufacturing, transportation and power. An infrastructure plan to fix our nation’s roads, tunnels, airports and bridges will require a whole lot of Copper. Demand isn’t just picking up in the US. China’s refined copper imports surged nearly 30% in December, a strong indicator of economic activity. China has had a tough go the last few years as its economy has been transitioning from an emphasis on exporting to that of consumption. It’s population of a billion plus is consuming like never before. China is responsible for roughly 45% of global consumption.

So with increasing demand, supplies become an issue. And supplies just became an issue because just this week, Indonesia halted its Copper exports. Indonesia has the 3rd largest copper mine in the world. We expect this stoppage to be short-lived, but the price of Copper jumped in response. We think that the price of Copper is in the early stages of a multi-year recovery, and that bodes well for the global economy. Keep in mind, the World has generally lagged the growth experienced in the US the last few years. There is a lot of catch-up to be had. While the DOW and S&P hover near all-time highs, international stocks look like they have plenty of room to run. Dr. Copper is telling us the narrow strength is broadening.

If you’ve read this long, you might be interested in some fun facts about Copper:

  • The Statue of Liberty is made from 179,000 pounds of Copper.
  • The average home contains 400 pounds of Copper that is used for electrical wiring, pipes and appliances.
  • Copper is naturally antibacterial, so great for public door knobs and hand rails.
  • Copper is the 3rd most consumed metal in the US, behind Iron and Aluminum.
  • Copper melts at 1,981 degrees Fahrenheit.
  • Since 1982, pennies consist of 97.5% zinc, with just a thin Copper coating.  The Copper penny is a collector’s item.  According to the US Mint, it costs nearly 2 cents to make 1 penny.  There’s talk of actually taking the coin out of circulation.  So your grandparents were right when they told you to save those pennies!

Have a nice weekend. Our office will be closed Monday in honor of Dr. Martin Luther King. We will be back, dark and early on Tuesday.
Mike

 

TGIF! January 6, 2017 – Bedell Frazier Winter Newsletter

Bedell Frazier Investment Counselling - Winter Newsletter

Bedell Frazier Investment Counselling – Winter Newsletter

We see more gains ahead for investors in 2017. It will come with its share of Market turbulence no doubt. But still there is a lot to like about this aging Bull. After 2 years of an earnings recession, Corporate America is seeing an acceleration of growth again. The US economy is revving up too. Anticipated tax-reform, new infrastructure spending and pro-business policies in Washington have the Stock Market engines running again. They were actually moving even before the election. To understand how to think about 2017, it’s important to remember the year that just passed.

To download the complete Bedell Frazier Newsletter, please click here.

Bedell Frazier’s Annual ‘Twas The Night Before Christmas

Bedell Frazier Investment Counselling

Bedell Frazier 'Twas the Night Before Christmas

‘Twas 2 nights before Christmas, and all through the streets
Not a creature was stirring, not even Donald Trump’s tweets
The stockings were hung, by the chimney with care
With dreams of togetherness, dancing through the air

 

‘Twas 2 nights before Christmas, and all through the streets
Not a creature was stirring, not even Donald Trump’s tweets
The stockings were hung, by the chimney with care
With dreams of togetherness, dancing through the air

2016 was a year for the history books
The Stock Market hit a new height
The US economy is accelerating
DOW 20,000 is in sight

The Olympics turned out a success in Brazil
Global competition never gets old
It’s about achievement and good sportsmanship
Michael Phelps owns lots of Gold

The World lost the Greatest this year
Muhammad Ali was the king
He would float, sting and rope-a-dope
But his greatest work came outside the ring

The Cubs are World Champs again
It only took 100 years
The Broncos won the Super Bowl
Peyton went out on top amidst cheers
The British plan to leave Europe
Brexit got the votes
There are challenges o’plenty on the foreign front
Free Markets are building moats

Watson has moved beyond Jeopardy
He’s helping fight cancer now
Robots are the future and present
IBM shows us how

Amazon sells nearly everything
And they send it to your home
Transportation is so automated
Get ready for the drone

The rally brought healthy gains this year
Next year the Bull Market turns 8
The common theme has been skepticism
We investors think that’s great

Interest rates on the rise again
The price of money has gone up
Dollars are king currency
Is that good?  Market says yup!

The American spirit is peerless, time-tested and true
With perseverance and sound leadership, there’s nothing we can’t do
With crisis brings opportunity, history has shown
Success through ingenuity, it’s the fabric of our home

Now, Republicans!  Now, Democrats!
Now, Independents and others!
Our nation requires collaboration
We’re all sisters and brothers

To the top of the porch! To the top of the wall!
Now dash away! Dash away! Dash away all!

By: Mike Frazier

 

TGIF! December 16, 2016

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment Counselling

Before you open your wallet this weekend, you’ll want to read this: Money just got more expensive.

Before you open your wallet this weekend, you’ll want to read this: Money just got more expensive. Interest rates are higher than they’ve been in years. So is the Dollar. The Euro currency is down to $1.04, the lowest in over a decade. Interest rates and the Dollar both have a significant impact in our daily lives. The Fed raised the overnight rate for the first time this year and just the second time since the Financial crisis. Rates are no longer at zero. They’re finally moving higher, and in our minds, for the right reason.

Rising rates have also helped send the Dollar higher, particularly against the Euro currency. The strong Dollar enhances buying power overseas. It’s good for travelers. To put the Dollar/Euro move in perspective, imagine you went to Europe in the Spring of 2014. Let’s say you paid 300 Euros a night for a hotel in Italy. A dinner at a restaurant might have cost 60 Euros. The bottle of wine cost 30 Euros. Two and a half years ago, that 390 Euro bill would have cost $512. Today it costs $405, a savings of $107. Apply that to your 2-week trip and you are talking about a $1500 savings. That is a huge difference! That trip to Lucca is looking pretty attractive.

The flip side to the Dollar strength; it’s bad for American companies that export around the globe. So far it’s not derailing the rally, but it will have impact. Stocks are hitting new, all-time highs because growth has returned. Economic activity has been accelerating. Corporate America is lean and the American Consumer is spending again. Earnings and revenues are showing signs of growing again. The price of oil is around $50, a nice balance for producers and consumers; Not too high, not too low. Bonds have been hit hard with the rising rates. We have kept our bond maturities very short-term. The back-up in rates has actually made Bonds interesting again for potential purchase. We see rates going higher still, but the speed of the climb should slow.

Interest rates are the price of money. It’s the price you have to pay to get a loan. It is getting more expensive to borrow. You certainly see it in housing. 30-Year jumbo mortgage rates have jumped over 1% since the Summer, to around 4.5% today. It’s still really low, but going higher. Home Equity Lines of Credit are usually floating rates, and just went higher. That’s why it pays to lock-in at low rates. Monthly payments matter. You just buy less house and more interest. It all adds up. Interest rates influence many large purchase items that require financing, such as appliances and cars. Many of those 0% financing deals are in the rearview mirror. How about this: the average interest rate on credit cards today is a whopping 16.5%. That’s the average! It was 15% a month ago. There are some cards that charge as much as 20%. Credit card debt can completely bury people, which is why it’s so critical to pay those balances off every month. Please remind your friends and family over the holidays.

For you Quantitative stat fans, you may be wondering: At what point does the rise in interest rates HURT the Stock Market?

We have been running historical correlations between the pace in which interest rates just rose and the possible effect on the Stock Market. We found no statistical negative correlation between the two. Also of note, is the fact that default risk in the Bond Market has decreased substantially during this move up in interest rates. The credit markets are very healthy. This is a critical issue and it’s positive. The Fed raised rates this week because the US economy no longer needs aggressive support. It’s moving on its own, and showing signs of strength not seen in years. While Fed rate hikes can sound like bad news, they’re a vote of confidence in the economy. It is setting up for a very promising 2017.

Enjoy the weekend. The holiday spirit is here. We’ll be back, dark and early on Monday.

Mike

 

TGIF! December 9, 2016

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment CounsellingTGIF!

Bedell Frazier Investment Counselling TGIF - December 9, 2016

Bedell Frazier Investment Counselling TGIF – December 9, 2016

This week marked the 75th anniversary of the day that will live in infamy.  Pearl Harbor was attacked by Japanese fighter planes on December 7, 1941, which officially brought us into World War II and changed the world landscape forever.  Over 100 survivors returned to Pearl to honor the occasion.  4 of the 5 survivors from the USS Arizona were among them.  Most of them are in their 90’s, with a few over 100 years old.  One of the attendees, Jon Gordon, lives in Walnut Creek.  He referred to December 7, 1941 as the day “we were all called to save the world”.  They certainly were and they absolutely did.  America was united.  

3 score and 15 years later, the world remains a dangerous and challenging place.  But opportunity always presents itself.  Strong leadership is required.  It was the case in the 1940’s.  It’s the case right now.  Foreign relations are under great stress as global elections are leaning back towards nationalism.  Global leadership is essential.  It requires strength and resolve with diplomacy.  It’s also needed at the national level.  Today, America is deeply divided.

President-elect Donald Trump is demonstrating leadership and asserting himself in many areas already.  Clearly, not everyone agrees with him, but he is certainly leading.  His initial focus has been on business and trade.  He has directed his attention directly at China.  He’s also directed attention towards US companies, namely Carrier and Boeing.  Trump has shaken things up and disrupted the status quo. That is a powerful thing and often necessary.  One thing nearly all Americans agree upon is that Washington is broken.  Change was needed.  Change is here.  TIME Magazine named Donald Trump Person of the Year.

So far, the Market really likes what it sees.  There has been an explosive rally since the election.  All major indices keep setting new, record highs.  Seasonality is certainly playing a role, but the underlying strength seems very real to us.  Earnings growth has returned, with Q2 looking to be the trough from a 2-year hiatus.  Importantly, revenues are driving the growth, a true sign of demand.  The US economy has accelerated, now growing over 3%.  When you combine lower taxes and less regulation, it makes for a pretty nice brew for stocks.  The rally has caught so many off guard, and a lot of people simply don’t trust it.  What we see is a real rally and the strong likelihood that those that are underinvested and were positioned the wrong way are being forced to chase and drive this Market higher still. Sellers have been absent.  Investors are likely holding back on taking gains until the new year, when tax rates are expected to decline.

The Fed meets next week.  It’s a virtual certainty that a rate hike is coming.  Interest rates are finally rising for the right reason.  Under the hood of the US Stock Market is the cleanest, strongest engine we’ve seen in years. Importantly, leadership keeps rotating, and momentum is building.  It’s very healthy.  We absolutely expect some back and filling at some point to digest the big gains.  But we do see higher levels ahead well into 2017.

Have a nice weekend.  We’re all over it.  We’ll be back, dark and early on Monday.

Mahalo

Mike

 

 

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