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October 9, 2019

Route Zero through the Beltway

The year 2019 may go down as the year of zero for our nation’s capital, Washington, DC. It begins (and ends in his mind) with our President, as he continues to bait and bash the Fed chairman about getting interest rates down closer to zero. He is certainly not the first president to want low rates but definitely is the most outspoken. Speaking of outspoken, as the opposition begins to mount their presidential challenge in 2020, the talk is again zero, zero cost tuition, zero cost healthcare for all, and zero gas emissions. Not to be outdone, the hometown Redskins, jumping on the bandwagon, have a legitimate chance to have zero wins by the end of the year. Alas, Wall Street cannot miss a party and late last week the large discount firms embraced zero commissions. The Skin’s can’t go less than zero, can they?
August 27, 2019

The Race to Zero

Today we are going to talk about negative interest rates. In Japan, Germany, and France, to name the three big ones, interest rates are negative, which means their central bank will charge you for the privilege to hold and use your money. Currently, there is approximately $17 Trillion (with a T) invested in negative interest fixed income. So, you give me $1000 today and I agree to give you your money back in ten years, less about $5 per year as a cost to the investor. Amazingly, and for now, investing in ultra-low or even negative bonds has worked. If you buy a bond with negative rates, you just need it to go a bit further in the red…If this is a hard concept to get your arms around, you are not alone, because it has never acted to this extent in economic history. The talk is all about inverted yield curves and trade wars, but the huge, worldwide bond market is ground zero, and the race is on. Or should we say ground “less than” zero.
July 31, 2019

Platform Style

Platform is a business model that creates value by introducing two independent groups, typically consumers and producers, for a financial transaction. The companies that embrace this model, like Amazon, Airbnb, and Facebook, can rapidly scale their business in ways a traditional business (with pesky store fronts, inventories, etc.) cannot. This is how Airbnb in just 11 years could grow to 150 million users, in over 65,000 cities, offering 1.9 million listings at any given time. When looking for investment ideas, be sure to consider both the pros and the cons of the company in a world that is embracing the Platform like it was 1977.
July 12, 2019

Fun With Numbers

New York City has the highest population density of any US city with 27,000 people per square mile. Now that is a fun fact. For stock investors, numbers can be fun too, especially when markets are trading at or near all-time highs. The Dow closed above 27,000 for the first time this week and Wall Street loves round numbers. Not to be outdone, the S&P 500 traded above another round number, 3000, this week as well. To put it into perspective, a little more than ten years ago, at the Great Recession bottom on March 9th, 2009, the Dow and S&P were trading at 6,547 and 676 respectively. Cheers to the bull while it lasts!
June 27, 2019

Black Gold, Texas Tea

il prices were certainly in the news this past week as military tensions boiled up with Iran and a huge refinery explosion lit up the city of Philadelphia. Interestingly, even after Iran destroyed a US drone over international waters, the price of crude rose, but only to about $58 per barrel. Historically this type of overt aggression between the US and a Middle East country would have shot the price of crude up over $100 dollars a barrel or more. Why then, thankfully, is there such a muted reaction in the price of oil? One comforting notion, both to our safety and our economy, is that in 2019, the US may be a net exporter of oil for the first time. This is an important, if not largely talked about phenomenon. Refineries pose a separate issue, as the lack of investing in the US, puts them all at peak usage and none of them are getting any younger. As investors we need to understand the long term effects of energy independence paired with a dependence on aging refining infrastructure.