Markets Continue To Melt (higher!)




The Bank of Japan (the central bank) left rates on hold at -0.1% and also revised its timetable for achieving 2% inflation to 2020. There is a quote that goes something like “inflation is the easiest thing in the world to create, except when you need it.” Before the financial crisis, the only concern was that of inflation. The crisis was a deflationary event that fortunately did not create a deflationary debt spiral but global GDP has not really gotten going, for developed countries anyway, and countries are struggling to get inflation to levels that would go with healthy growth. The Great Depression from almost 90 years ago cast a pall over the country for decades and that appears to be a possibility with the Financial Crisis. One difference (there are many) is that developed countries have demographics working against them, moreso Japan and Europe. If there is always a bull market somewhere, and we believe in that saying, finding it may become a little harder to do.


Domestic equity markets mostly moved higher last week except for the Dow Jones Industrial Average which fell 0.27%. The S&P 500 gained 0.53%, the NASDAQ added 1.16% and the Russell 2000 was up 0.48%. The yield curve flattened some last week as the Ten Year US Treasury Yield fell to 2.23% as the previous week’s dovish sentiment from Janet Yellen was echoed by ECB president Mario Draghi. If you’ve been following this report lately you know that we watch the impact that the slope of the curve has on style and sure enough as the curve flattened growth outperformed value as it usually does (steepening tends to be better for value).


Barron’s cited good ole fashioned earnings as contributing to the melt up in US equities. They note that second quarter earnings are on pace to grow by 10% getting a boost from the decline in the US dollar. The idea of course is that companies that sell abroad benefit by selling products in a currency that is inflating against the greenback. A few years ago, earnings faced major headwinds as the dollar rallied. There always has been, and will be, a pendulum effect as the dollar is weak for a time (much of the previous decade), strong for a time (much of the current decade) and now maybe weak again for a time, at least this year.


Uruguay has legalized the sale of recreational marijuana through pharmacies under government supervision. Some media accounts are referring to this as an experiment on the part of the socially liberal country. All things cannabis is a burgeoning investment theme with companies listing on global markets, an ETF trading in Canada and increasing analyst coverage of the space. As we have written before about ESG, more and more advisory clients will become interested in the space both for reasons of personal use and any potential investment merits. We won’t weigh in on whether this becomes a profitable investment theme, but there is likely to be more companies and investment products targeted to the space and probably worthwhile for advisors to learn about even if only to tell clients not suitable for them in an informed manner.


ETF News


JP Morgan filed for several hedge fund replication strategies it will bring to market in the ETF wrapper. Recently AdvisorShares hosted a call with Doug Kass and Dennis Gartman and one interesting point made by Kass (although there many interesting points of course) is that hedge funds don’t hedge anymore, too many of them are long only. There are quite a few ETF and traditional mutual fund replicators tracking various strategies and while several are quite large (more than $1 billion in AUM) they seem as a group to struggle to gain mass. The long only comment from Kass captures the problem of mismatched expectation. A true hedge fund probably isn’t looking to gain 100% when the stock market is up 20% and more importantly, a true hedge fund probably isn’t looking to correlate too closely to the equity market.


Interesting Reads


Some GOT analysis (you’re on your own for spoilers); Game of Thrones season 7: The Hound’s redemption arc is turning him into an essential character;


Death is such an essential part of the Game of Thrones universe that it’s easy to become numb to it unless it happens to a favorite character or in particularly awesome fashion. But the Hound’s recognition that the poor father and daughter he abandoned to their certain deaths in season four deserved better, while a small concession, is one of the most dramatic perspective shifts the show has executed.



A good story about a great tennis player as Wimbledon Finalist Roger Federer Spends $13.5m To Open 81 Schools In Malawi;


With 15 programs running in Switzerland, Malawi, Botswana, Namibia, South Africa, Zambia and Zimbabwe already, The Roger Feder foundation has set the goal of changing the lives of one million children by 2018.



We are in Washington State this week to check out Rainier, Olympic and North Cascades National Parks, go to a couple of Red Sox games (in town to play the Mariners) and see some family. All the park-looking pictures above are from Mount Rainier; one of the entrance from the west, two from Skyline Trail and two from Comet Falls Trail. The dog is Pips. Long time readers know the story but my wife has worked in animal rescue for many years. Pips is a cattle dog and they can be difficult to adopt as was the case with Pips, actually impossible to adopt. He needs to be a working dog not a pet. Joellyn found Conservation Canines which does animal research (they track animal population by scat and use dogs to find the scat) through the University of Washington (actually located in Eatonville). We brought Pips up from Prescott in 2011 and he immediately became their star. When we visited on Friday, one of the workers actually said that he’s created a lot of awareness for the organization (he’s been on multiple magazine/newspaper covers), he’s really done a lot for them. Like many cattle dogs, he has bonded to just one person, the director of the organization, but when they brought him out to us to say hello he got very excited, he clearly recognized us and that surprised everyone. It did become overwhelming for him, he just laid down and started working that bone in the picture and that was about it but seeing him again was awesome.


Source: Google Finance, Yahoo Finance, Wall Street Journal, SeekingAlpha, Bloomberg,, Reuters, Barrons,,, Bespoke Investment Group, CME Group, Metro UK, VOX

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