Total Pageviews

Tuesday, December 31, 2019


Strong consumer spending bolsters U.S. Economy going into 2020.
GUEST BLOG / By Angelo Kourkafas, CFA
Investment Strategy Analyst with Edward Jones.
Stocks rose in the final week of 2019, with several major indexes hitting fresh record highs. Volatility remained subdued, and stocks continued their ascent into year-end, as there were no catalysts or major economic releases to disrupt the market rally. The S&P 500 is on track to match the 2013 29.6% return, which was the best of this decade. Historically, stocks have risen by an average of 7.0% the following year when the stock market rose by more than 25%, indicating that good returns don’t have to be followed by bad ones1. However, given full valuations, we think investors need to incorporate lower expected long-term rates of return into their strategies.
Source: Bloomberg, S&P 500 price returns.

2019 in Review: The Fed, Trade and the End of a Strong Decade

Investment goals and market cycles do not reset every calendar year, but the end of a year marks an opportunity for reflection. The one thing that most investors agree on is that there is never a dull moment when it comes to investing and financial markets. That proved to be the case in 2019 as stocks managed to climb the wall of worry, finishing the year and the decade on a high note. While a mosaic of events and factors typically drive the market narrative and short-term performance, two stand out this year: 1) the Federal Reserve pivot, and 2) twists and turns on the U.S. / China trade negotiations. Before digging deeper into these two factors, here is a look back at the highlights (good and bad) of 2019 and what they could mean for the markets in the year ahead.

A year with plenty of records, firsts and low points
--34 new record highs – Following a near 20% correction in December of 2018, the S&P 500 climbed steadily throughout 2019, recording 34 fresh record highs, with stocks having their best year in more than half a decade. Since 2013 when the market reclaimed the 2007 high, the S&P 500 has set 271 all-time highs (an impressive 16% of all trading days), indicating that new highs aren't a sign of exhaustion.1
--126 months of economic expansion – In June, the U.S. economic expansion surpassed the one in the 1990s to become the longest on record. The slow and steady pace of economic growth has likely played a role in this expansion's longevity, with the economy avoiding the typical overheating that marks the end of the business cycle, in our view. GDP growth in 2019 is projected to slow to a still-healthy 2.3% (also the average growth over the last 10 years) from 2.9% in 2018.2
--Unemployment at a 50-year low – Despite heightened uncertainties, consumers remained confident and continued to spend in 2019, which arguably ties back to the labor market. The U.S. economy added about 2 million jobs this year, bringing the unemployment rate down to 3.5%, the lowest level since the late 1960s.2 Rising wages, a steady uptrend in housing prices, and solid stock-market returns all have bolstered confidence and continue to do so.
--Zero 10% corrections – Volatility remained depressed throughout the year, with the S&P 500 experiencing only two modest pullbacks, a 6.8% drawdown in May and 6.1% in August. For historical comparison, corrections in the stock market – defined as a decline of 10% or more – have occurred, on average, about once a year. Also reflecting the low degree of fluctuation was that the S&P 500 experienced only seven daily moves (up or down) of 2% or more in 2019, compared with an average of 19 over the past 20 years.1
--Slowest global growth in 10 years – Rising trade and geopolitical tensions took a toll on manufacturing activity, which weakened to levels not seen since the global financial crisis. As a result, world GDP growth decelerated to around 3%, the slowest pace in the last decade. Monetary accommodation and a resilient service sector acted as offsets, supporting employment and stock prices.3
--Record low 30-year government yields – While stocks tend to capture the spotlight, bonds also deserve a place at the podium this year. Slower economic growth, muted inflation, and expectations of central-bank easing drove 30-year government yields to a record low near 2% and 10-year yields to the lowest level in three years. As yields fell, bonds recorded the biggest gain in 17 years.2
--$11 trillion of negative-yielding debt – With central banks in Europe and Japan setting short-term policy rates below zero, negative-yielding bonds grew to almost $17 trillion in market value ($11 trillion currently), pushing U.S. yields lower.
--Yield-curve scare – A portion of the yield curve inverted in March as 10-year rates dipped below three-month rates for the first time since 2007. This signal, which in the past has been a reliable, but not infallible, predictor of economic downturns, triggered fears of an upcoming recession. As economic data showed a slowdown, but not a collapse, recession fears receded and the yield curve un-inverted.
--Asset-class scorecard - U.S. large-cap stocks were not only the asset class winner for the year (+32% total return), but for the decade as well (257% total return, or +13.6% per year). On the flip side, emerging markets (18%) and commodities (18.5%) lagged this year (and decade), held back by slowing global growth and trade uncertainty.4

Implications for 2020:
A) Edward Jones stock market pros believe economic data will be more balanced and stock-market gains will moderate as we progress through next year and decade. Valuations are higher exiting 2019 compared with year-ago levels, yet they are still at reasonable levels given the economic and interest rate backdrop. With limited opportunities for further multiple expansion, the pace of market gains will be set by the pace of earnings growth, which we think will rise at a mid-single-digit rate.
B) We expect consumer spending to remain a bright spot in the U.S. economy. Job growth will likely slow but stay above the 100,000-level necessary to absorb new entrants in the labor force.
C) Election uncertainties, trade setbacks and occasionally underwhelming economic reports will likely stoke higher volatility than investors have been accustomed to in recent years.
D) While U.S. large-cap stocks have consistently generated the best returns this decade, asset-class leadership often rotates. As the cycle advances, we think well-diversified portfolios will be better positioned to navigate the swings.
E) Despite ongoing low yields, we still think fixed-income investments play an important part in helping stabilize portfolios when stocks drop.

A U-turn by central banks
The biggest change in the macroeconomic landscape in 2019 was, in our view, the dovish pivot of major central banks around the world. The Fed, the European Central Bank (ECB) and the Bank of Japan all became more accommodative to sustain the economic expansion. This synchronized policy easing was a key driver of financial markets, contributing to the fall in short- and long-term interest rates, and benefiting equities. One year ago, the sell-off in 2018 was driven by concerns that the Fed was overtightening amid escalation in trade tensions and slowing global growth. Since then, rather than continue to tighten policy as originally planned, the Fed pivoted to a pause in March and later cut rates three times as insurance against risks to the outlook.

Implications for 2020: Easy financial conditions will likely continue to support stock prices next year. Monetary-policy changes impact the real economy with a lag (typically six – nine months); therefore, we expect the markets and the economy to continue to benefit in 2020 from this year's rate cuts. Risks of a further slowdown in global growth have lessened somewhat in recent months, but inflation remains stubbornly below target, providing the Fed flexibility to remain accommodative.

Tweets, tariffs and a truce
Trade tensions triggered the two most sizable pullbacks in global stocks this year. Accompanied by a series of tweets in May, President Trump raised tariffs to 25% from 10% on $200 billion in imports from China. China responded by increasing tariffs on $60 billion worth of U.S. exports. In another episode of the trade saga in August, the U.S. announced 10% tariffs on an additional $300 billion worth of Chinese imports. China responded with $75 billion in new tariffs. The direct impact of the trade escalation was a drop (but not a collapse) in global trade volumes. The indirect impact, which potentially carries more economic significance, in our view, was the deterioration in business confidence and investment hesitation because of the uncertainty. The emergence of the "phase one" trade deal between the U.S. and China, which includes agricultural purchases and some tariff relief, eased fears of further trade escalation and inspired the market's late-year rally.

Implications for 2020: We believe that the recent trade truce signals that both countries are incentivized to compromise to avoid more economic harm. The "phase-one" agreement could help ease uncertainty, if it lasts, and act as a catalyst for a modest rebound in global manufacturing activity. However, we would caution that there could be further setbacks that stoke market volatility. A comprehensive deal including the more-sensitive issues of intellectual property rights protection and enforcement will likely not happen before the 2020 U.S. elections.

A final note
With days left in 2019 and this decade, we reflect on what has been an eventful and prosperous year. Heading into 2020, we maintain a fairly positive outlook, but we believe that the next decade will likely bring plenty more challenges for investors to navigate. History has taught us, however, that investment challenges are best navigated with investment discipline and a longer-term perspective.

From all of us on the Edward Jones Investment Strategy team, we wish you a happy and prosperous new year!

Sources: 1. FactSet, 2. Bloomberg as of 12/26/19, 3. IMF World Economic Outlook, October 2019, 4. Morningstar Direct, total return.

[ daily online magazine is a media partner with Edward Jones]



Monday, December 30, 2019


The following published column was written when the late Rowland Stiteler [1947-2019] was editor of D Magazine, a post he held from the late 1970s to the early 80s. His popular column was called Editor’s Page and this particular selection is refreshing.  His insight rings familiar bells with writers and editors everywhere:

“Hazards of Being an Editor”
By Rowland Stiteler

They are good values, those fundamental tenants taught us by the Judeo/Christian culture.  Those beliefs have enabled us to build America, cure polio, land on the moon and return safely and feed the poor.

But, as a former writer for this magazine used to say, no deal is perfect.  There is one glaring erroneous but widely held value that runs throughout our culture.  We revere writers to the point of imitation.  We think, God help us, that a good education is not complete unless we are writers.

Editor Stiteler
That fundamental misunderstanding of reality is both a curse and a blessing for those of us who put bread on our tables and unleaded in our Toyotas by calling ourselves editors.  It is usually a curse.  It fills our offices with writing dentists, writing lawyers, writing retirees, writing aviators and even writing writing teachers.

They are a diverse lot, but generally share one common trait: They can’t write. 

The writer’s curse extends beyond those to whom writing is a hobby and real estate or architecture is a profession.  It causes thousands of our young people to waste big chucks of their lives in the halls of academe, studying Journalism or English, reading Thomas Wolfe and Tom Wolfe, and dreaming of the day their essays will grace the pages of Esquire & The New Yorker.

The odds of entering a college or university and emerging four years later as a writer are about the same as entering Las Vegas casino with two bucks and a yen for three-card monte and emerging a millionaire.  (In some cases your casino odds are going to be a little better than your college odds; it all depends on what casino you choose and how long it has been since the house has been beaten.

But the fact is those of us who aspire to be writers are not a reasoning lot; we are driven by romanticism and ego.  (I speak from personal experience.)  We are, as a group, willing to work long hours for short wages and the thrill of seeing our names  in print.  We labor under the naïve concept that by reporting to you that Councilman Smedlap overspent his budget by $31.62, or that the quiche is overcooked at Chez Fred’s, we are somehow changing the course of history.  We think each story marks a small stride for mankind and moves us a step close to our first national best seller.

For years a controversy has raged din the editorial offices of my magazine with regard to journalism graduates.  One of the top executives has always held that journalism graduates make horrible journalists—and worse writers—and therefore should be categorically barred from consideration as job applicates here.  For years, I was the only journalism graduate on the staff, an exception that my boss said merely proved his point. Because I invested four years in journalism school, it is, of course, incumbent on me to take a differing view.

My experience with graduates of college journalism programs as magazine writers has yielded the following unmistakable truth: Journalism schools are benign, not malignant.  

There is nothing about going to journalism school that will keep an eager, smart and well-motivated young person from becoming a good writer someday.  Therefore, in dealing with potential employees, I never hold it against someone if (s)he has been to journalism school.

A J-schooler is generally no more qualified to write than someone who attended the Midas Muffler Academy, but is certainly not less qualified.

The fact is that there is no set of credentials that identifies a person as a writer, a creative person who can put words on paper/screen in a manner that other people will pay to read.  Writers are rich and poor, sophisticates and slobs.

One of the most talented members of the Ft. Worth journalism community for many years, for instance, was a charming individual who had this problem with green teeth.  If only he had brushed them once in a while, he would have had a blinding smile.  But wow, that guy produced great copy.

By contrast, one of the best writers D Magazine has ever had, contributing writer Jo Brans, is an impeccably groomed woman who looks like a schoolteacher, probably because she is one of those rare writers who is good enough that, as an editor, I basically don’t care what topic he chooses.  Good writing is good writing.  “What do you want my story to be about,” she asks.  “About 20 pages,” I reply.

The dilemma facing all editors is that there is no simple way to tell a Jo Brans from the bus loads of also-rans by looking at them.  But these so-sos would do all of us a favor if they’d simply give up and take up stamp collecting or some other form of self-entertainment.

True writers are born and made.  They have an innate creativity [there is no substitute for it and there is no way to teach it] and they have usually sharpened that talent through the learning process, be it in college or at the magazine rack of the corner drug store.

But there is just no way to spot them by perusing their resumes or glancing through clippings they have written for other publications.  (Sometimes, excellent clippings can be the work not of the writer but of a skillful editor.)  And that brings us to my problem—as an editor—and the problem of every other editor who cares about the quality of his/her publication.

There is no substitute for answering every phone call, discussing every story proposal, reading every manuscript (at least in part) that comes in unsolicited.  And that is why I do, and will, respond to everyone who has the requisite imagination—or audacity—to propose a writing project for this magazine.

It is my opinion that there are probably 50 people within a 50-mile radius of downtown Dallas who have the skills, talent and wherewithal to write a good magazine article.  I only know about 20 of those people, counting D Magazine staff and contributing editors.  One of the parts of this job that I consider a duty is to constantly be looking for the other 30.

For those of you interested in becoming one of the 30, I suggest a few commonsense rules.  Read our magazine before submitting ideas.  (When you ask me on the telephone for our address or to spell may name, that tells me you’ve never seen our masthead.)  Don’t send photocopied query letters with “Dear Blank” at the top.  Never propose to write anything about J.R. Ewing, Dealey Plaza, the Metroplex or the Dallas Cowboy’s latest hotshot.  Never mail us anything you can’t afford to us to lose; we probably will.  Most of all, however, don’t think that the editors of this magazine think over the transom proposals are categorically worthless.

I know someone who got a job with a good magazine that way.  Me.

--Don’t automatically assume each editor has similar tastes or needs.  Some editors return phone calls others don’t. 
--Don’t beg.  It is not the fault of the editor if you can’t pay the rent if you don’t get an assignment.
--If you wish to get the attention of an editor via Email you still must write in coherent, complete sentences that get to the point.
--Don’t submit same article idea to more than one editor at a time. 
--Don’t suggest articles by your PR friends because they probably were on the phone to us the same day with the same idea.
--If it isn’t true don’t put it in your article.
--Understand travel or home/garden magazines can not save the Allende Revolution in Chile.
--If you haven’t heard back from an editor in six months consider his/her answer was “no” to your proposal.
--The busiest [heartless?] editors often automatically return article proposals without reading them because statistically about one percent of unsolicited proposals are worth printing.   Not all editors are so inclined.   In one editor’s case his staff waited until the “no” stack got two feet high before sending over an intern to mail out the rejection notices.

“If it didn’t happen that way—it should have...”  By the late great Tom Basinski, author of “No Good Deed.”

Sunday, December 29, 2019


The winners of the National Book awards for 2019 were announced on November 20 at a ceremony in New York City at Cipriani Wall Street restaurant.  Today’s post offers an excerpt from winning poetry Sight Lines by Arthur Sze.
From the current phenomenon of drawing calligraphy with water in public parks in China to Thomas Jefferson laying out dinosaur bones on the White House floor, from
Arthur Sze
the last sighting of the axolotl to a man who stops building plutonium triggers, Sight Lines moves through space and time and brings the disparate and divergent into stunning and meaningful focus. In this new work, Arthur Sze employs a wide range of voices
from lichen on a ceiling to a man behind on his rentand his mythic imagination continually evokes how humans are endangering the planet; yet, balancing rigor with passion, he seizes the significant and luminous and transforms these moments into riveting and enduring poetry.

The Critics:
"...The Sight Lines is Sze's 10th collection are just thatimagistic lines strung together by jump-cuts, creating a filmic collage that itself seems to be a portrait of simultaneity..." The New York Times

"These new poems are stronger yet and by confronting time head-on, may best stand its tests." Lit Hub

“...This is poetry of assemblage, where violence and beauty combine and hang on Sze's particular gift for the leaping non sequitur. ‘Green tips of tulips are rising out of the earth— / you don't flense a whale or fire at beer cans / in an arroyo but catch the budding / tips of pear branches and wonder,’ Sze writes. Inside these poems of billowing consciousness, we too are alive to a spectrum of wonders.--The New York Times Book Review - Tess Taylor

"The wonders and realities of the world as seen through travel, nature walks, and daily routine bring life to the poems in Sight Lines." Library Journal

Judges’ Citation:
Arthur Sze writes with a quiet mastery which generates beautiful, sensuous, inventive, and emotionally rich poems. Sight Lines unfurls like ink in water, circulating through meditations on the natural world; the pleasure and associational depth of eating food; and the profound constitutions of self through memory, human relationships, and experience of the actual world. A keen awareness arises of structural, environmental, and social threats in the midst of this expansive beauty.

Three Poems:

Tigris River, left.
Deer browse at sunrise in an apple orchard,
while honey locust leaves litter the walk.
A neighbor hears gunshots in the bosque
and wonders who's firing at close range;
I spot bear prints near the Pojoaque River
but see no sign of the reported mountain lion.
As chlorophyll slips into the roots of a cottonwood
and the leaves burst into yellow gold, I wonder,
where's our mortal flare? You can travel
to where the Tigris and Euphrates flow together
and admire the inventions of people living
on floating islands of reeds; you can travel
along an archipelago and hike among volcanic
pools steaming with water and sulfuric acid;
but you can't change the eventual, adamant body.
Though death might not come like a curare-
dipped dart blown out of a tube or slam
at you like surf breaking over black lava rock,
it will come—it will come—and it unites us—
brother, sister, boxer, spinner—in this pact,
while you inscribe a letter with trembling hand.

Morning glories
Westbourne Street
Porch light illuminating white steps, light
over a garage door, darkness inside windows—
and the darkness exposes the tenuous.
A glass blower shapes a rearing horse
that shifts, on a stand, from glowing orange
to glistening crystal; suddenly the horse
shatters into legs, head, body, mane.
At midnight, “Fucking idiot!” a woman yells,
shaking the house; along a hedge,
a man sleeps, coat over head, legs sticking out;
and, at 8 am, morning glories open
on a fence; a backhoe heads up the street.
From this window, he views banana leaves,
an orange tree with five oranges, house
with shingled roofs, and steps leading
to an upstairs apartment; farther off, palm trees,
and, beyond, a sloping street, ocean, sky;
but what line of sight leads to revelation?

Black Center
Green tips of tulips are rising out of the earth—
you don’t flense a whale or fire at beer cans
in an arroyo but catch the budding
tips of pear branches and wonder what
it’s like to live along a purling edge of spring.
Jefferson once tried to assemble a mastodon
skeleton on the White House floor but,
with pieces missing, failed to sequence the bones;
when the last speaker of a language dies,
a hue vanishes from the spectrum of visible light.
Last night, you sped past revolving and flashing
red, blue, and white lights along the road—
a wildfire in the dark; though no one
you knew was taken in the midnight ambulance,
an arrow struck a bull’s eye and quivered
in its shaft: one minute gratitude rises
like water from an underground lake,
another dissolution gnaws from a black center.