Non-Partisan Investing: Financial Advisors' Daily Digest

In his weekly “Weighing the Week” column, Jeff Miller presents evidence for continued economic expansion, of surprising strength. He’s been saying so for some time, and deserves credit for being right.

In contrast, I see a much larger volume of articles talking about the doom and gloom soon to befall us. This latter type of article falls into two categories: intelligent analyses and pulp pessimism. While I too see, and write often, about the long-term problems that I believe will bring about a day of reckoning, if unaddressed, I take no position on when that might happen, and that is why I advocate a portfolio that can benefit from the market’s continuing strength while offering protection from market declines, i.e., the sort of portfolio lacking appeal to “partisan” investors, for whom bull or bear market scenarios are akin to party allegiance.

Jeff’s article offers numerous reasons to be upbeat about the economy. For example, here is just one snippet about stock buybacks (John M. Mason’s piece, linked below, also discusses this issue):

Corporate buybacks are bullish for investors. (Barron’s cover story) Andrew Bary’s analysis is thorough, looking at many stocks and considering counter-arguments in an even-handed way. Buybacks add an effective ‘yield’ of about 3%, combined with a 1.9% dividend yield on the S&P 500.”

This is a perfect example of a phenomenon that could be looked at very differently, depending on your investment “party.” By buying back their own shares, corporations reduce the number of shares outstanding and thereby cause earnings per share to rise. That’s fantastic news for existing shareholders! But here’s the catch: In order to buy back these shares, the same companies are issuing large quantities of debt that will one day have to be repaid; and – about those earnings per share: their rise occurs irrespective of whether their actual profits rose!

So while I might write pessimistically about corporate underinvestment in labor and capital expenditure, or about the fact that managers looking after shareholders via buybacks tend to be showered with bonuses and options, I acknowledge that such a trend is apt to fuel stock prices, barring some large-scale jolt.

Currently, however, the biggest large scale jolt that I see presently (though perhaps not presciently – I could be wrong) is peace breaking out. I quote the following marvelous snippet from today’s Wall Street Breakfast:

"North Korea has announced that they will dismantle Nuclear Test Site this month, ahead of the big Summit Meeting on June 12th. Thank you, a very smart and gracious gesture!" President Trump wrote on Twitter. Pyongyang plans to destroy all of the tunnels at the country’s northeastern testing ground with an explosion and remove observation facilities, research posts and ground-based guard units.”

As I wrote last week, commenting on Rob Marstrand’s bullish case for purchasing a South Korea country ETF, North Korea’s peace moves appear to be legit, and if so, would lift a boulder off of South Korea’s muscular shoulder; imagine mighty South Korea unhindered by the shadow of North Korea’s nuclear cloud.

As Jeff Miller asks in his article, the question pundits should be asking themselves is what investments are most apt to benefit from administration policy. He astutely adds that “this is an investment question, not a political one.” For me, the investment I’ll be weighing this week is whether and when to buy a South Korea ETF.

SA For FAs

Senior Editor, FA Content