● Invest in the Best: Applying the principles of Warren Buffett for long-term investing success
By Keith Ashworth-Lord
Summary via publisher (Harriman House)
This book concentrates on the investment style of Business Perspective Investing, as practiced by Benjamin Graham and Warren Buffett. It takes the reader through the realisation that the thought process involved when buying shares in a company is no different to buying the company in its entirety.
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The US stock market has been trading at or near record highs recently, a performance that inspires some analysts to predict that the long-running equity bull market is still poised for even greater heights. But viewed in context with the bond market, the relative return spread in favor of stocks is looking a bit tired. Is this a sign that the equity market’s recent surge is the last hurrah for the bulls? Maybe, but the relative-return edge for stocks could revive if fixed-income investing suffers because the 35-year slide in interest rates is finally poised to reverse in a meaningful degree.
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The question went viral this week after Paul Westra, an analyst at Stifel Financial Corp., raised the possibility in a research note. Bloomberg on Tuesday published a news story about the implied forecast, noting that the “this doesn’t just bode ill for restaurants, but could point to trouble across the economy as a whole.” The main takeaway, we’re told, is that the US could slide into a recession in early 2017. There’s only one problem: the possibilities for different macro scenarios between today and six months forward are close to infinite, thanks to the complexity of an $18 trillion economy and the constancy of an uncertain future.
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The Federal Reserve is expected to forgo a rate hike in today’s FOMC policy announcement and keep the target Fed funds at a 0.25%-to-0.50% range. But the recent increase in the effective Fed funds rate (EFF) suggests that a hawkish bias is bubbling.
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US economic growth is on track to post an encouraging rebound in this Friday’s “advance” GDP report for the second quarter. By most estimates, the Bureau of Economic Analysis is expected to report that output will rise by 2%-plus in Q2, well above the subdued 1.1% rise in Q1 GDP (seasonally adjusted annual rates).
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Summertime sizzle was on full display last week for US real estate investment trusts (REITs). These securities delivered the strongest gains for the five trading days through July 22, based on set of ETF proxies for the major asset classes. US REITs also continue to hold the top spot for the trailing one-year period.
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● Overcomplicated: Technology at the Limits of Comprehension
By Samuel Arbesman
Review via Publishers Weekly
Arbesman (The Half-Life of Facts), a self-described “complexity scientist,” presents a new framework for understanding and working with complex technological systems in this thought-provoking treatise. Arbesman argues that technological systems have become so complicated that not even those who design them fully understand how they work, nor do they always know what to do when their systems fail or return unexpected, possibly catastrophic results. He illustrates this through numerous examples of flaws or breaks in increasingly sophisticated systems such as traffic control, the stock market, machine translation, and medical devices.
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There’s a myth going around that tracking the business cycle is a waste of time for investors. On the surface, the reasoning sounds logical. By the time it’s clear that the US has slipped into a recession, it’s too late to tone down equity positions because Mr. Market has already incorporated this information into prices. But the historical record offers a different story–and a different lesson, namely: carefully monitoring recession risk can be helpful for sidestepping the worst of a stock market correction that unfolds because of economic contraction. Skeptical? Of course you are, and rightly so. In the tortured realm of the macro-markets nexus, we’re up to our eyeballs in conflicting and misleading commentary and analysis. But let’s cut through the noise and allow the numbers to tell the story.
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Upside momentum continues to favor utility stocks, which retain top billing among US sectors in the one-year total return column via a set of proxy ETFs. These companies have been strong all year, which is starting to worry some analysts. Brian Krawez at Scharf Investments, for instance, told Forbes this week that he’s recommending that investors steer clear of utilities because “they’re trading well above their historical averages in terms of multiples.” Maybe so, but the technical profile in this corner still looks strong. The positive momentum will fade eventually, although it’s not obvious from the rear-view mirror that the turning point is imminent.
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The first half of 2016 has been a rocky road for the US economy, but the macro trend has muddled through and continues to post growth that appears to be strong enough to avoid a new recession. The main sources for keeping the expansion alive: job growth and consumer spending.
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