Letter - October 2017





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Where Have All the Sellers Gone?

At the end of the third quarter, stock market price indices closed at or near record levels. The long bull market continues despite troubling developments that we have been writing about for years now: heightened tension in international relations (Russia, China and North Korea), sluggish GDP growth stuck at about 2%, continued disfunction in the White House and Congress, artificially low interest rates causing a mis-allocation of capital…

The consensus among pundits claims that the rising market reflects accelerating earnings growth. Sounds reasonable to us though we note that the triple disasters in Houston, Florida and Puerto Rico will probably negatively impact fourth quarter GDP and earnings growth. Nevertheless, the markets continue to vote for higher prices, betting that a recession is nowhere on the horizon. Employment figures are strong and there is little sign of a resurgence of inflation. The Federal Reserve is likely to raise short term interest rates at year-end and, beyond that, at a slow, deliberate and well telegraphed pace. Growth in world GDP is accelerating. Hopes for tax relief are high. As Alfred E. Newman of Mad Magazine would say, ”What me worry?”

The current bull market in stocks is among the longest on record, having begun in 2009. Along the way, there have been a few corrections, typically well contained and evidencing little pain. Over the course of the rally, investors have been conditioned to buy on the dips, while those who took profits in the face of what seemed to be daunting prospects lived to regret selling and have been confronted with lagging performance.

Along with most commentators we see little froth and excess excitement in the stock market that has been typical at other market tops in the past. Trading volumes are not elevated and there is little sign of public enthusiasm. That is generally considered good for the market. However, we note a certain complacency among investors, which we believe is not a good sign. As investors have been conditioned to buy dips and disregard high valuations, sellers have been similarly conditioned not to sell. Continuous buying by investors in contrast to diminished profit taking by sellers has contributed to climbing stock prices. Indeed, we wonder where have all the sellers gone? Hibernation?

After a blow-out performance in 2016, clients should expect a breather in 2017. Returns this year are generally in the mid to high single digits. We continue to be cautious about the market and cash balances remain high. We see little of value in the market. As in the past we question the wisdom of selling high and using the proceeds to buy high. As sellers, we are not in hibernation but our heart beat is noticeably lower. Let’s say we have been conditioned somewhat by past market behavior.

* * *

Many of you have read the news about the online hacking of personal information from Equifax, Yahoo!, the Securities and Exchange Commission, Target, and other companies that has put hundreds of millions of people at greater risk of identity theft and other fraud.

Your assets with us are custodied at Pershing, which has strong defenses against cybersecurity threats. Nevertheless, cyber thieves are probing constantly for vulnerabilities.

During a recent review of our cybersecurity procedures we found that email is particularly vulnerable. You may have heard the saying, “Don’t put in an email anything that you wouldn’t put on a postcard.” That is never more true than now.

Therefore, we strongly urge you to avoid putting sensitive personal information in an email or email attachment, including your full financial account numbers, social security numbers, and signatures. Even seemingly innocuous personal information such as detailed addresses can put you at risk.

In particular, please send wire transfer requests by fax or, if you don’t have access to a fax, please call us to determine the safest way to get the necessary information and authorization to us.


Tom Herzig



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