Some Random Meanderings

Now that I’ve presented my 2019 game plan and my positioning moves planned for the last quarter, the time is ripe to see the strategies embraced by others.   First off the blocks was Credit Suisse with a projection of an 11% upside with some volatility.  I can’t disagree with the answer but question the methodology.  Their belief is the rise will mainly be on the backs of investors willing to pay up for quality (margin expansion).  My belief is that it will be riding the back of productivity increases as a result of the tax plan.  At least we both recognize that the Y/Y EPS growth rate is generally not sustainable.

Despite the probable mid-term election correction, once the dust settles we can begin to assess differing economic trajectories.  Meanwhile, one point worth remembering is pointedly delivered in one of Manole Capital‘s reports, “This year is somewhat skewed and artificially inflated. When looking at growth rates, 2018 is elevated versus 2017 because of the dramatically lower corporate tax rate. This, to us, is a one-time benefit, which will not be recurring. We prefer to look at sustainable growth rates and believe 2018 is a little bit elevated due to this macro change.

Meantime the vicious cycle continues with:

“We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!”

President Donald Trump, 20 Sep 2018

Well part of our presence is to ensure the free trade of oil which is to our benefit.  Another part of the equation is his withdrawal from the Iran treaty.  End result, lacking Middle East complicity, will be higher inflation (followed by higher interest rates …).  Certainly not a recipe for stellar economic growth.  But then again he always seems to have another rabbit to pull from his hat.

Today’s final thought is the fact that I front loaded most of this months’ activities.  Much of this month’s trading volumes can be traced to the long awaited GICS sector changes – notably Telecom changing to (and expanding within) Communications Services.  Beginning close of business yesterday and coincident with options expiration, the deed has begun.  This should be relatively seamless for most of us but sector ETF investors may need to revisit their comfort zones.  One instance is eBay moving from Technology to Consumer Discretionary.  The new Communications Services include Facebook and Netflix.  There appears to be some difference of opinion within the analyst community with BMO initiating as an Overweight while rival RBC went underweight due to perceived negatives outweighing potential positives.  From June, this article probably provides the best overview.  Anyway … point being why I added MSCI to my portfolio recently since they and S&P Global (SPGI) jointly created and manage the Global Industry Classification Standard (GICS).  It will be a little interesting to view the impact of these changes to their fee revenue.

As always – just some interesting tidbits to consider as we enter the final week of the quarter!