Today: ...over the past four quarters, real final sales growth has barely averaged more than 1%; what is “normal” coming out of a garden-variety recession is 4% growth. But we are still in the midst of a global debt deleveraging cycle, which over the centuries has tended to last 6-7 years. We are barely past year two. It will not be a straight line down but the fundamental trend line is down as far as U.S. equity prices are concerned, and racked with intense volatility. The Dow has now seen 19 sessions (or 22 pf the last 26 days) where the intra-day moves exceeded 200 points and we couldn’t help but notice that yesterday’s power-surge occurred on lower volume on the NYSE. Look at what has happened just this cycle — the worst stock market since 1937 followed by the best stock market since 1932 followed by the worst May for the Dow since 1940. There’s a word for this type of market. It’s called a meat-grinder. No return for a decade and yet plenty of sleepless nights on this roller-coaster ride. The case for income-oriented and classic long-short strategies (not to mention active money management) could not be made any stronger than by the facts on the ground and the realization that cycles like these typically last 16-18 years and we are into year 10.
With virtually every measure of underlying inflation below 1%, not to mention the recent move by Target to lower prices by 5% for its cardholders, the primary trendline is one of deflation. This is an environment extremely conducive to income-oriented investment strategies. With profit margins already reaching peak levels south of the border [R is in Canada], the continued challenging environment for revenue generation strongly suggests that re-attaining new peaks in corporate earnings as early as next year is a low-odds bet even if it is a wide-spread consensus view at this time.