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Harvest Rock Advisors, LLC

Happy Tenth Birthday Mr. Bull

Just when you think your cynicism can’t sink lower comes this week’s bombshell announcement about a den of wealthy thieves arrested for cheating, busted for slipping their mediocre offspring into elite academic universities illegally.  

The situation is still unfolding, but a disturbing number of uber-wealthy families allegedly committed federal felony crimes bypassing the college admissions office to get their little Spaldings improperly admitted.  

Talk about brazen criminality:  a Harvard graduate (allegedly) was paid $10,000 per student to take SAT tests and/or correct their test answers.  How about the university coaches taking bribes to lie about the students’ athletic prowess?  I should buy a jacket, cap and ascot and apply to Penn’s doctorate finance program based on a picture of my yachting skills.

I get Hollywood pretty people behaving this way - high character is not their calling card - but how about the handful of finance / investment executives caught up in this scandal?  Abhorrent.  

I had breakfast this week with one of our investment partners who worked for and knew one of the alleged miscreants in a prior life.  He was disgusted, stating this individual regularly espoused the importance of integrity in their professional work.  Do as I say….

You can’t help but feel dismayed at the cultural decay, where anything goes, especially if you’ve made it to the entitled, privileged class.  It certainly adds more legitimacy to the argument the college acceptance game is rigged against the average Joe or Mary.  What else is rigged?

I hope all those involved get lengthy prison sentences and that the debacle leads to major reform in the college acceptance process.  And is it too late to arrest Elizabeth Warren for her past academic fraud (asking for a friend)?

My lovely daughter Abby turned twenty-three this week, the exact same day that my substitute right hip turned five.  While wishing Abby a happy birthday long-distance, I teased her that the day had been all about her and that neither she or her mother had said a nice word about my five-year old hip, even though it’s old enough to go to kindergarten.  I’m happy to report both my daughter and hip are aging well.

Another important birthday occurred this week – the current stock bull market, which turned ten years old on March 9th. 

Now, there’s a legitimate debate as to whether the stock bull market ended last December during the brutal fourth quarter of 2018.  The S&P500 Index actually did fall more than 20% top-to-bottom – the traditional statistical definition of a bear market – but it closed above that mark at the end of trading day - and the bull market lives on.   I’m sticking with the 20% market close argument or I can’t finish this birthday blog!

I like to joke that I didn’t own a single gray hair before the great financial crisis of 2008 and that it’s been a majority of silver strands ever since.

On Friday, March 6th, 2009, it was not obvious that one of the great stock market crashes in human history was over.  The Dow Jones Industrial Average, which peaked near 14,000 in October 2017, had plummeted to a low of 6,443 during the trading day on March 6th, a breath-taking 54% top-to-trough decline.

The American Association of Individual Investors conducts a long running poll of retail investors asking their current market sentiment.  The highest percentage of bears in AAII’s polling history is 70% - which happened to be the poll released on March 5, 2009.    

On March 9th, 2009 a Wall Street Journal article posited a good case for a Dow 5000 scenario.  At the time, a sustained gloomy scenario seemed as likely – or even more likely - than the start of a new bull market.

Unlike last quarter, when it seemed obvious the market sell-off was based on nerves, many investors were legitimately afraid in early 2009 because the US financial system nearly folded in the aftermath of the sub-prime mortgage and credit default swap crises.  It was bad.

The sad fact is many investors were scarred by the damage inflicted by the financial crisis in terms of depressed home values, lost careers and broadsided investment portfolios.  The result is that too many investors sat out much of this epic bull market, which has been dubbed the “most unloved bull market in history”.

Since March 2009, the S&P500 Index has risen about 400%, which equates to over 17% every year for ten years!  The NASDAQ tech index is up over 500% over the same time period.  Those are blackjack table figures.

Despite its new title as the longest bull market ever, the current market cycle is not the best performing ten-year period.  That mantle goes to the ten years ending in 2000, when S&P500 Index returned nearly 500%.  As Ricky Bobby’s father eloquently said, “if you ain’t first, you’re last”.

The factors that caused and sustained this historic bull market are complex.  Massive government spending and intervention in the private sector, a zero-interest rate policy and a mind-boggling amount of money printing by the Fed Reserve combined to arrest the economic slide in 2009.  Then all the free money worked like a bribe to coax investors to invest in stocks and it worked.

Turning ten, the bull market is starting to show signs of old age, but it’s not ready for senior housing just yet.  The rebound in stocks so far in 2019 is logical given the favorable US economic conditions, low interest rates and the Fed Reserve’s recent decision to take a months-long vacation.

The US stock market is still the prettiest pig in the global barnyard, but the economic cycle appears to moving post-peak even as it becomes the longest US economic expansion on record later in 2019.  A recession in late 2020 or 2021 would definitely put a fork in the bull market for good.

I predict the bull market will celebrate its eleventh birthday in 2020 – but not its twelfth.

Until next time, be well….Tim

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