Rich And Happy: Asset Allocation Daily

by: SA For FAs
Summary

Jeff Miller expects a robust year-on-year increase in corporate earnings for Q3.

ING Economic and Financial Analysis foresees a robust Q2 GDP report, and thus further Fed rate hikes.

Thought For The Day: The ranks of the happy span the socioeconomic spectrum. What is the common denominator among the contented?

Earnings Season

"Everything suggests a big increase over last year - 20% or so. The forward guidance last quarter was good, and the tax cut effects are playing out. This may not translate into higher stock prices unless the report is perfect. The market meme emphasizes trade war, strong dollar, and rising costs. Any company that highlights these themes in the outlook will see an instant reaction in the stock price." (Jeff Miller)

Copper - A Leading Indicator

​"A decline in growth-linked sectors such as Industrials, Materials, and Financials (NYSEARCA:XLF) relative to the S&P 500, in conjunction with widespread commodity declines and a flattening yield curve, should be sending clear signals about the current outlook of global growth. Dr. Copper has made his diagnosis and there are many supporting reasons to justify it." (Eric Basmajian)

GDP

"​As US consumers continue to splash the cash, we think the economy grew by around 4% annualised in the second quarter. This should keep the Fed on track for two further rate hikes this year." (ING Economic and Financial Analysis)

Strength of Economic Recovery

"The fact that the current recovery cycle has been weak is only one part of the story; however, that would be less worrying if not for the second part. Namely, that almost every successive recovery cycle in the past three decades has been weaker than the previous one." (Constantin Gurdgiev)

Momentum Strategies

"Unlike value, which does best in the immediate recovery after a downturn, Momentum appears to perform better during mid-cycle periods as the momentum of the economic recovery stabilizes with peak outperformance occurring late in business cycles." (Ploutos)

Factor-Based Investing

"The broad market itself really doesn't have factor exposure, right, because it has value and growth, and it has quality and junky stocks. It has large stocks, small stocks. It really has everything, so the broad market index is your baseline and then from there, you decide, how do you want to adjust that or what other things do you want to have. Do you want to have value exposure, or do you want to have more growth stocks or smaller stocks, etc.?" (Vanguard)

First-Half Performance

"Here's an overview of country performance in the first half. The US has outperformed every country, so diversification outside the US has not paid off in 2018." (Ronald Surz)

Mexico

"While his platform is seen as populist, AMLO's most recent pronouncements have seemed to be more open to free trade. So, overall, the markets may not have much to fear from the "populist" label when it comes to Mexico. We don't expect a radical change in terms of Mexico's fiscal position or central bank policy as a result of AMLO's win." (Franklin Templeton Investments)

Quality vs. Quantity

"Where we are all the product of our experiences, my beliefs were heavily influenced by having been sick for a year in high school, which led me to place a heavy emphasis on quality of life and happiness earlier than I think most people get there." (Roger Nusbaum)

Thought For The Day

In an article targeting financial advisors, Roger Nusbaum, quoted immediately above, discusses the advantages of a balanced life that does not overemphasize the financial dimension. Nusbaum arrives at this discussion through a tweet dividing wealth into four types - money, status, freedom and health - and suggesting that people ought to be "wary of jobs that lure you in with 1 and 2, but rob you of 3 and 4."

In general, I think this is good advice - especially in today's day and age when those with 1 and 2 tend to pay a big price in 3 and 4 (though I would add that those without so much of 1 and 2 are not always wealthy in 3 and 4). But more than that, in broad economic terms, the world's already developed economies do not seem to hurtling to giant leaps into even greater wealth, as they have in the past. Standard of living gains today seem to be fueled by consumer credit, a fickle basis on which to maintain a lifestyle; whenever the next economic cleansing period comes, over-consumers will be hurt badly - in their money and status, for sure.

And thus, now is a perfect time to get off that train if you're on it (via spending in excess of your earning). The truth is that there are people who have all the toys in the world - including mansions, beach houses and Ferraris - and who are miserable, while others who own little but the shirts on their backs and eat a little bit of food in their tiny apartments are quite happy. Naturally, some well-to-do people are happy and some poor people are miserable too. So what's the common denominator among the happy rich and happy poor? They're content with what they have. It is thus better to want what you get than to try to get what you want.

On a site that is about seeking alpha, it is indeed praiseworthy to push the pause button, as Roger has done, and make sure that overall life satisfaction is part of the equation. He concludes his article thusly:

"My exorbitant privilege is to serve both my clients with my day job and my community as the fire chief. I don't love one over the other, they are both a part of who I am. My hope for anyone reading this is that they figure out who they are and what they want."

If you too can complete a sentence that begins "My exorbitant privilege is to…" that you too are well on your way to such satisfaction.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.