Republished - U.S. Stock Markets Nearing All Time Highs: Why They can Move Higher

Republished - U.S. Stock Markets Nearing All Time Highs: Why They can Move Higher

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our April research piece, U.S. Stock Markets Nearing All Time Highs: Why They can Move Higher, which can be found HERE
 

For literally years, actually four years now, investors in stocks, market participants, media pundits, and so-called experts have been focused on all that is wrong in the world. Too much debt, check. A potential Eurozone break-up, check. Lackluster job growth, check. The end of the economic world as we know it, check.  However, despite all the doom and gloom and predictions that missed the mark (widely), U.S. stock markets are within a stone’s throw of reaching their all-time highs. 

As you can see in the chart below, the Dow Jones Industrial Average is at a level not seen since late 2007. Surprisingly, the discussion still remains centered around what can go wrong. We often say that when only one side of the story is told, one argument easy to make, it’s time to look at the other side, which is precisely the objective of this commentary. 

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2013 Year-In-Review

2013 Year-In-Review

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our recent research piece "2013 Year-In-Review."  The full report can be found HERE

As we close out 2013 and prepare to ring in a new year, we in the U.S. have a great deal to rejoice about and celebrate. U.S. equity markets finished off their fifth straight year of positive returns and are now at all-time highs, which means many 401k balances have recovered to pre-recession levels. U.S. home prices continue to climb, meaning many consumers feel wealthier. Additionally, we are beginning to see an acceleration in hiring, and the unemployment rate in this country is at the lowest level since November 2008, which means more Americans are heading back to work.

Pathlight’s thesis when we entered 2013 was that the negativity surrounding the economy and equity markets was simply tired. We also stated that the myriad reasons why stocks could not continue to rise were so well known and understood that they presented little barrier, given continued economic growth and the easy money policies....

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2014 Outlook: A Year of Change

2014 Outlook: A Year of Change

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our recent research piece "2014 Outlook: A Year of Change"  The full report can be found HERE.

We are calling 2014, A Year of Change. This change, albeit modest, is substantial directionally as we are finally seeing the recurring themes of the last five years dissipate. Fear has turned into increased confidence. Low interest rates have started to rise. Economic growth is expected to accelerate. European breakup talk has been replaced by discussions about an improving Europe. These changes make the investment backdrop for 2014, different from years past and perhaps even a bit more challenging.

At Pathlight, our optimistic view over the last five years had been based on our opinion that the pervasive negativity was not only misplaced, but excessive. We felt that as minor improvements materialized, investment performance would follow. It didn’t really matter if economic growth was 2% or 4%--or if job growth was 100,000 per month rather than 180,000. What mattered was the avoidance of a major negative macro event that would steel concerns of another 2008 meltdown–which fortunately didn’t happen. In 2014, that is now different. With heightened expectations, investment results will likely require more than just macro event avoidance. It will require continued improvement globally in the economy, jobs in the U.S., consistency in China, and increased stability in the Eurozone.

 

 

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Stock Market Bubble or More Room to Run?

Stock Market Bubble or More Room to Run?

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our recent research piece "Stock Market Bubble or More Room to Run?"  The full report can be found here:http://pathlightinvestors.com/sites/default/files/pdfs/Bubble%20or%20Room%20to%20Run%20Nov%202013t.pdf

At the time of this writing, U.S. stock markets are at all-time highs, and home prices in most markets have skyrocketed to near 2007 levels—all despite modest economic growth, elevated unemployment, and continued fighting in Washington D.C. This combination of strong investment performance and a weak macro environment has many investors believing that a bubble is brewing in stocks. They believe that artificially low interest rates have created false appreciation, that money printing will lead to rampant inflation, and, finally, that the bubble will POP, leading to another round of despair and

disappointment. 

BUT WAIT—there is another sort of believer: those who focus on the indisputable facts—facts that show the

U.S. economy continues to grow, those who understand that millions of private sector jobs have been created over the

last four years, those who believe inflation remains tame, those who believe stocks are not excessively valued relative to

history, and those who are excited that U.S. government deficits are the lowest in many years. These sides couldn’t be farther apart, as evidenced by how easy it is to find prognostications on the future value of the S&P 500. To put it starkly, 2014 price targets range from 1,400 to 2,100, which translate into returns from current levels ranging from -21% to +19%, a 40% difference. This begs the question,who it right?

 

 

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Back from Dead: Finding Value in Challenged Businesses

Back from Dead: Finding Value in Challenged Businesses

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our recent research piece "Back from the Dead: Finding Value in Challenged Businesses"  The full report can be found here:  http://pathlightinvestors.com/sites/default/files/pdfs/October%20Pathlighter%20%2010162013.pdf

Halloween is a time of ghosts, goblins, monsters, and zombies—a month for candy, costumes, and haunted houses.   I will be spending my Halloween with my two young children trick or treating, of which treats are their only interest, of course.  In thinking about it, investment markets are not too dissimilar from the month of October.  There are tricks, some treats, the walking dead, and some that will actually come back from the dead.  The trick with investing is the ability to decipher those that will come back to life from those that may be perpetual zombies.  In investment parlance, it’s the difference between finding value and value traps.

This analysis is easier said than done, as the abundance of information, or misinformation, media hyperbole, and the proverbial hot tip often lead investors to visit the wrong neighborhood.   I’d like to take the mask off Pathlight’s investment process and let our clients and readers better understand the procedures we adhere to when researching and analyzing investment opportunities.  We’ll use a real-life example of investing in a company that was left for dead by some investors but embraced by the Pathlight Investment Team. 

 

 

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Pathlight Investors’ Top Recommended Reads - October 2013

Pathlight Investors’ Top Recommended Reads - October 2013

  • Posted on: 9 December 2015
  • By: admin

Here's our picks for October 2013:  

 

China growth ests cut by World Bank – the World Bank on Mon lowered its growth forecasts for China and most of developing East Asia; the WB now sees developing East Asian growth +7.1% in ’13 (down from +7.8% in Apr) and +7.2% in ’14 (vs. +7.6% in Apr).  Chinese growth in ’14 is seen +7.7%, down from its prior forecast of +8% - Reuters   http://goo.gl/E9XJ44   

 

Puerto Rico is the new Greece - http://www.forbes.com/sites/realspin/2013/10/16/why-would-a-puerto-rico-debt-crisis-matter/

 

How Summers was doomed – the Reuters provides some background on Larry Summers’ path through the Senate; the White House knew he was doomed when it realized at least 5 Democratic Senators on the Senate Banking Committee were leaning against Summers as Fed chairman.  "Four seemed insurmountable. Five was just game over," said a Senate aide.  Reuters   http://goo.gl/Zt4sqK  

 

Health care – the White House said Americans will pay on average $328 per month for a mid-tier health insurance plan once the new ObamaCare exchanges open next week.  The Obama administration is counting on signing up 7 million Americans in the first full year of reform through the state exchanges – Reuters    http://goo.gl/hmb8Sm   

 

Greece – the country’s deputy PM said a 3rd bailout wasn’t required; all Greece needed was a “re-profiling” of its current debt (longer maturities and a lower interest rate) and that, combined w/a return to the debt market in ’14, could suffice.  Reuters  http://goo.gl/ebc5iD   

 

Spain – the gov’t may deepen the overhaul of labor laws in an effort to reduce unemployment – Bloomberg  http://goo.gl/7xKG3h   

 

Congress – the coming fall will be “bitter, ugly, and widly unpredictable” in Washington.  Congress is set “decide the fates of a president’s power, a military strike, defense contracts, the budget, health-care implementation, the Federal Reserve chairmanship, illegal immigrants, and all of us who would be hit by a debt default”.  Politico     http://goo.gl/Epy9Ah

 

And On A Lighter Note…

 

Japanese professor pushes for Hide and Seek at the Olympics: http://goo.gl/WRk3nn

 

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