John Buckingham, editor of The Prudent Speculator, has long-been one of the newsletter industry's most respected and successful advisors; as a counterbalance to market naysayers, he offers an optimistic long-term view of equities.
Interest rates are near historic lows with the yield on the 10-Year US Treasury at 1.84%, easing consumer and corporate borrowing costs while bolstering balance sheets.
Economic data, while nothing to shout about, continue to suggest that Fed forecasts offered back in December for GDP growth north of 2%, both this year and next, are not unreasonable.
To be sure, economic growth overseas is not as strong as we’d like, but the latest projections still call for global GDP to rise 3.0% in 2016 and 3.3% in 2017. Why, then, all the hand wringing?
Warren Buffett offered one explanation: “It’s an election year, and candidates can’t stop speaking about our country’s problems. As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do.”
The Oracle of Omaha was quick to explain, “That view is dead wrong: The babies being born in America today are the luckiest crop in history. American GDP per capita is now about $56,000 — in real terms, a staggering six times the amount in 1930, the year I was born.”
Buffett concludes, “This all-powerful trend is certain to continue: America’s economic magic remains alive and well.”
To be sure, it is not as if everything is rosy, given the plunge in commodities and the ramifications for the banking system, not to mention the strength of the dollar and its impact on corporate profits.
Then, there is the slowdown in China and its effect on global growth, along with heretofore untried forays by foreign central bankers into negative interest rate policy. And we can’t forget the uncertainty about actions the Federal Reserve might take.
At the risk of sounding cavalier, there are always things to worry about and we think that the equity backdrop today is quite favorable.
Of course, we understand that there are still plenty of headwinds facing the equity markets.
However, valuations are reasonable on the stocks in our portfolios, interest rates are extraordinarily low by historical standards, and corporate balance sheets and income statements are generally healthy.
With dividend payouts rising and yields on competing investments unattractive, we continue to believe it a fine time to be maintaining and even adding to undervalued equity holdings.
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By John Buckingham, Editor of The Prudent Speculator
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