Another full week of corporate earnings (mostly benign) and political chaos (potentially problematic). By and large companies reporting this week across the broader markets stuck to the script, though retail continues to be a blood bath. However, the political arena turned up the negative sentiment flames as fears that the “pro-growth” Republican policy agenda would be sidelined (due to administrative branch turmoil) caused the air to come out of the balloon a bit. On top, it appears Brazil has been “re-plunged” into turmoil due to political corruption which is negatively impacting their local markets.
Here is a curated list of important stories outside the main headlines that caught our attention this week.
Americans Are Paying $38 to Collect $1 of Student Debt (Bloomberg). I often find that topics on the back page that raise my eyebrows make their way to the front page a few months later. This was my initial reaction to this piece on student debt…a subject that has been simmering on the back burner for some time.
Virtue is its Own Reward: Or, One Man’s Ceiling is Another Man’s Floor (Cliff Asness @ AQR Capital Management). In this issue of “Cliff’s Perspective”, the esteemed Mr. Asmess looks at the myth that socially conscious investing should generate more money over time. Environmental / Social / Governance (ESG) investing is a constraint and, where diversification is concerned, constraints applied to any investment strategy narrow diversification. This is an excellent note that helps outline some of the basic tenets of good investing strategy in the context of the specific ESG application. Not to be missed.
Seek Safety In Value Investing (Barrons): This is a short article by Martin Conrad who is Chief Investment Strategist at C.I.G. – a private investment group. Value investing principles – specifically remembering that PRICE is often not equal to VALUE – can keep us sane in times when valuations are pressingly high and everyone around us seems to be prospering in every investment they make. As I am often reminded, “there is always something to regret in investing.” This note serves as a reminder to us to be thoughtful and careful in these times. Last week’s volatility spike caught much of the “smart money” off guard as the option and futures market showed that many were short volatility. Indeed, there was nowhere for the VIX to go but up heading into last week.
The Fall of Labor Share and The Rise of Superstar Firms (National Bureau of Economic Research): This is an excellent working paper on what’s happened to labor’s share of GDP growth in the USA and how that’s happened contemporaneously with the rise of large (revenue), multi-national firms that seem to be consuming the lion’s share of incremental GDP growth for their owners. This is a vitally important topic for investors because the question of how labor’s share might normalize will directly impact corporate profitability – which has been running durably above it’s long term average for some time now.
