I was talking to a friend of mine who runs a boutique hedge fund. He puts together his market analysis on his own, using fundamental, technical and behavioral analyses to build a model that’s proprietary to him.
He’s built into it two market indicators he calls the High Growth Index (which tracks fast growers like biotech, telecom and tech) and the Slow Growth Index (which tracks rock-solid blue chips, T bonds, utilities and the like).
His performance is solid and these indexes have been very accurate. He just ran the numbers the other day and the results were interesting, to say the least.
His Slow Growth Index is up 9.1 percent year-to-date versus the High Growth Index, which is -3.1 percent. The S&P 500 is at -2.1 percent. What’s more, this performance includes a 13.6 percent rally in the High Growth Index since February 11 and a 10 percent rally in the S&P. That means, that even with a monster three-week rally, slow growth assets are outperforming by 14.2 percent.
Now, I read everything I can get my hands on. When I start to notice patterns, it helps me spot trends before others realize a shift is going on.
And as I’m mulling over the numbers from my friend’s model, I see the most recent issue of Foreign Affairs. It was started in 1922 to specifically create a forum to discuss global issues.
The cover read: “The World Is Flat: Surviving Slow Growth.”
In the issue are more than half a dozen articles from both public and private respected thinkers (and doers) that are discussing various aspects of slow global growth. It wasn’t a debate. They all agree on the fact that slow growth is something that is here and will stay for a while.
In the articles were discussions about the fact that this is the worst recovery in post-war America and in the world in general.
Another article noted something that really stuck with me. It was written by the head of Global Strategy for Envestnet, one of the new “robo investing” companies that are blazing a path in the brokerage sector.
He talks about how many noted economists have pointed to income inequality as the root cause of this inability to rebound, and how it threatens democracy itself. He notes that middle class wages have not risen in more than 30 years, which no one really cared about until the financial crisis hit. It was one of those issues that people didn’t concern themselves with, as long as they could charge it or refinance.
But easy credit from banks allowed our desire to consume go almost unrestricted — until it all came crashing down.
And now as we try to rebuild, the income inequality has become worse instead of better and many people smarter than me think that until this is addressed there’s no way out of the developed world’s deflation and the emerging markets’ stagnation.
So, from 30,000 feet, evidence tells me most of the financial and political elites believe we’re in a slow-growth world. And trying to get anything back from these folks who have rigged the system is a quixotic effort at best.
I say don’t fight it. Make the trend your friend.
Look to slow growth assets in the coming months. The markets are still selling growth and every rally is cause for finance talking heads to chatter about emerging growth and growing consumer confidence.
Don’t buy it.
Buy quality utilities and firms that are part of our lives every day. If the U.S. consumer isn’t spending like he/she used to, then you want to buy the companies that he/she pays their bills to. Healthcare is another sector. And there are even ways to move into the energy sector now. Remember, everything regresses to the mean. If oil prices are crazy low now, it doesn’t mean they will stay there forever.
Beyond these choices, gold and silver are also great places to put your money. They’re certainly much safer than banks at this point. The U.S. dollar should be a safe haven for now, but don’t expect it to remain that way for too long.
Also, avoid piling up on credit or getting a home equity line. In this kind of economy it’s impossible to grow your way out of the increasing debt.
— GS Early
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