September Update, 2019: History Repeats

As the summer slips away, most investors are eager to see some calm in the investment world. Between the trade war, Brexit, rate cuts from the Federal Reserve, negative interest rates, and worries of a recession, the news is getting monotonous. The only thing more predictable than the headlines is that the president of the United States has an opinion about all of it. Trump shares his commentary on Twitter, and each time he does certain investors lose their minds and madly buy or sell things. I suppose if you like watching that sort of stuff, fine, but I prefer watching paint dry.

Don’t get me wrong, we are paying close attention to the world and to your investments. But we simply don’t have a clue what is going on in the day trading casino that you read about on the front pages of the paper. Nobody does. These headlines serve well to sell papers but poorly to educate investors.

We find that the most interesting, useful news about a company comes from their financial reports and from independent research, which we pay for. We also read a lot of information that the governments publish each day. They share facts that measure different aspects of economic activity, which is useful in showing how the economy is really doing and, by extension, how business prospects are and are likely to be.

The good news about the facts is that they are mostly good. Employment is at a 50-year high. Companies are continuing to hire at strong rates of growth. Wages are rising. Consumers are spending at healthy rates. In fact, we’re seeing the strongest levels of spending since 2014. Personal savings rates are high. Business profits are at record highs. Bank profits are at record highs and banks are willing to lend money at very low interest rates. And because the economy is strong, banks are finding that customers are paying back their loans. What’s not to like?

Well, we are seeing signs that manufacturing and business investment is slowing and that’s not good for some businesses. The good thing, however, is that the profits of these businesses are still increasing. The interesting thing is that everyone is betting that it’s going to get worse and that’s why there are such bargains out there. A lot of very good companies are on sale right now because the majority believe everything is going to get worse.

The bogeyman theory goes that Trump is going to blow up the business world. He’s blown up his own businesses before so it’s plausible. The theory goes that he’s going to take the Chinese down if they don’t change their ways.

We wouldn’t bet on that and here’s why:

First, as the facts show and we wrote about recently, China just isn’t that big of a deal to America. The battle does put sand in the gears of global trade but it’s not the end of the world. And, the world is bigger than China. Second, the crowd could be wrong about this bogeyman theory because they may be giving Donald too much credit. I just don’t think he’s that principled about who his friends are. He simply wants a better deal. He needs a deal if he is to keep his job, and he really likes his job.

We could be wrong, but we believe the Chinese think similarly to Donald. They may say that they are going to go on a long march into battle (to the tune of “Onward, Christian Soldiers”), but they are madly firing up the water hose of money to support their flagging economy. There seems to be a sense of urgency to keep the wheels of communist wonder spinning, and Hong Kong could be just the start if they don’t play their cards right.

So, what if we are wrong?

The natural progression of the world is toward advancement. That’s the history of things and there is little evidence to show that the cycle will be different this time. Good companies overcome tough times and investors who accept that simple fact buy when everyone is worried about the short term and do very well in the long term.

History repeats.