Dave Canal's blog

Recently, I was in a local restaurant having dinner when my cell phone rang.  As I reached for the phone, I saw a client’s name.  It was the first day of stock trading following the election.  The market had opened down horribly but closed up 250 points for the day.  Virtually everyone in the media had been saying Hillary Clinton was the certain winner.  Of course, Donald Trump was the winner.  The belief had been that if Trump were to win, the stock market would go down … BIG.  But it had closed up!

Imagine buying a washing machine for $800.  Then a month later you see Sears Roebuck advertising the same model for $400.  You know you can’t take it back.  You’ve used it.  Is the new price low enough to warrant buying another?  And if you did, what would you do with it?  In the real world when you have too much of something, you don’t want more.  But isn’t that what the Federal Reserve has been offering us?

“Gentlemen, we must leap over the high wall.”  Hearing that, I thought to myself “Huh?  What is he talking about?”  I was too young (21) – and too poor-- to have an understanding of what this seeming allegory was about.  The words were spoken with strong conviction in a heavy Boston Brahmin accent.  To me, an Irish kid from public housing, he sounded like Winston Churchill.  But then he did have a famous name and undoubtedly lived on an estate … with high walls.  The man, I thought, probably assumed everyone else in the room did as well.  But leap over one?

To recall a lunch from 38 years ago, it had to have an emotional impact.  This one certainly did.  I felt despondent as the lunch began. The guest speaker was the Chief Financial Officer, Norman Rifkin, of Toys R Us.  At that time, the toy retailing industry was an eight billion dollar business.  Toys R Us was the largest company in the industry at just $250 million.  I had bought the stock for ten dollars and as I sat at the lunch it had fallen to five dollars.  Such a reality would have made anyone despondent!

As I sat in the faculty club dining room with Professor John Sterman I thought, “My God, it’s going to be miserable to go through a long-wave downturn.” Our lunch was 25 years ago.  Judging by the current economic and presidential activity, my foreboding was totally justified.  Professor Sterman is a professor at M.I.T.’s Sloan School and an expert on the early 20^th century Russian economist Nicolai Kondratieff, the man who originated the long-wave concept.

The investment world is experiencing something it has never seen before … a “rolling” bear market.  Sector by sector, industry by industry, the market has been declining for a year and a half.  Yet, overall the market has not declined!  It is a situation that has confused everyone.

“How would you like your business card to read?” the office receptionist asked.   “Francis Patrick Boland,” I answered.  It was an outlandish statement on my part.  Everyone around me had a nick name.  I did not.  But then I wasn’t an upper-class Boston Brahmin. “Might as well put my Irish heritage up front,” I thought.  It was the spring of 1965 and I was a new stockbroker at Estabrook & Co.

How often have you heard an investment management firm discuss or write about their sell discipline?  Probably never!  Most firms don’t have one.  I was, in fact, in the investment business for 35 years before I fully realized its importance.   Even then, it wasn’t my epiphany.  The realization was forced on me by a client who became a friend.

An economic paradigm shift occurs over a long period of time.  As a consequence, it is often not recognized by most people as it is happening.  This seems to be the present situation with China.   It is not until a new paradigm reaches an inflection point of change that it becomes obvious ... at least to some.   My belief is that we in the United States have reached an inflection point in our transition from an Industrial Economy to a Knowledge/Service-based economy.  This will have a major impact on economies all over the world … especially China.

Market Update

January 14, 2016

We are sending this note to give you our perspective on the recent global market turmoil and volatility.  We realize these periods can be very unsettling and stressful.  It’s difficult to keep your cool when the 24/7 news cycle is on high alert as these events unfold.  While there are legitimate concerns about the global economy, we believe the pessimism is significantly overdone.