When Bad Things Happen

By Mark Eshman, Chairman & CIO at ClearRock May 31, 2019 Insights

One of my favorite quotes from legendary Wall Street guru Byron Wien is “bad things have a way of not happening.”  His simple wisdom rings true today despite today’s millisecond-by-millisecond breaking news cycle.

CNN Money: Longest Bull Market Run in History.

It’s tough to argue with the evidence supporting a continuation of the longest bull market run in history.  Unemployment and interest rates are low, GDP growth is solid, inflation is at a reasonable level, and corporate earnings are growing.

And a “bad thing” like a protracted trade war with China is improbable since both sides can resolve the current skirmish without “losing.”  It’s clearly in each other’s best interest to do so.  It’s also likely we won’t repeat the Iraq War disaster with a similar incursion into Iran.

Yet as much as I respect Wien’s wisdom, I would argue that “bad things” don’t have to happen for the economy to slip back into recession.  Consider these facts:

  1. US Industrial Production and Retail Sales numbers have slowed.
  2. The yield curve has inverted. This almost always happens before a recession.
  3. Stock markets outside the US have begun to turn down.
  4. Housing sales have slowed.
  5. While the broader US stock market valuation is not excessive, there are increasingly growing pockets of speculation that can foreshadow economic excess. Case in point: a plant-based burger company with $80 million in revenue went public and now has a market valuation of $5 billion (with a “b!”)

After living through 36 years of advising clients on preserving and growing their wealth, I can attest to the fact that trees still do not grow to the sky. Before the next recession comes, clients need portfolio protection.

I feel strongly that the best way to protect wealth is through broad diversification.  An equity-oriented portfolio will continue to be the best long-term way to grow your portfolio, but owning bonds and inflation-protection such as real assets and TIPS as part of a diversified portfolio will help smooth out the bumps along the way.

Mark Eshman

Please  remember  that  past  performance  may  not  be  indicative  of  future  results.  Different  types  of  investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this  newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s),  or be suitable for your portfolio. Due to various factors, including changing market conditions, the content  may no longer be reflective of current opinions or positions. Moreover, you should not assume that any  discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute  for,  personalized  investment  advice  from  ClearRock  Capital,  LLC.  To  the  extent  that  a  reader  has  any  questions regarding the applicability of any specific issue discussed above to his/her individual situation,  he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current  written  disclosure  statement  discussing  our  advisory  services  and  fees  is  available  for  review  upon  request.


Author Mark Eshman, Chairman & CIO at ClearRock

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