Recent Posts by John Goltermann

An Obsession with the Fed Dominates Markets

Market participants and financial media punditry are understandably fixated on the Federal Reserve and perceptions of what the Fed will or won’t do. In this month’s letter, we explore some of the factors that influence Fed behavior as well as our view of what is likely to happen. The economy has more or less been on 'life support' since 2008 with zero interest rates most of that time, and huge monthly bond purchases (quantitative easing). But we have also seen heavy Fed interventions for 25 years. As such, the Federal Reserve has, in large part, become the credit market and supported equity and bond markets significantly for decades. That support overrides of market-based pricing. In final analysis, the economy is largely being administered by the Fed, instead of being allowed to function freely on its own. The positive effect of Fed administration has been that investment price declines and economic downturns tend to be brief, but the negative effects are increased possibility of consumer inflation, a lack of the 'creative destruction' of capitalism, high system-wide indebtedness, and over-inflated asset prices — all of which makes the financial system less stable and less resilient. Moreover, the moral hazard of people widely expecting bailouts causes reckless behavior. Fed emergency measures and economic bailouts have brought high speculative activity, as we have seen recently in SPACs, NFTs, retail option trading, meme stocks, etc. Historically, such environments have generally preceded an era of more conservative investing where a value-oriented approach works well.
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Value Stocks Significantly Outperform

The 1st quarter of 2021 saw a continuation of the stock price gains that have been the general trend for the last 12 years. Fed largesse, in the form of emergency measures, direct lending and balance sheet expansion, as well Congressional stimulus in the form of direct payments to qualifying individuals, continued unabated. The stock…
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As far as financial assets are concerned, 2020 was a banner year. Not so much for everything else. There is no need to rehash the challenges that we all faced last year – it is onward and upward from here! The S&P 500, which is an index of 500 stocks weighted/ranked by the size of…
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A Divergence in Stock Prices – Will It Last?

The 3rd quarter of 2020 saw a continuation of the rebound in stock prices as the US economy began to recover from its COVID-related lockdowns and restrictions. Much of the stock rally came in August, which saw leveraged buying by retail investors (individuals) of the usual mega-cap tech stocks and in speculative positions such as…
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