Here at Mirador we have spent our summer months watching the stock markets around the globe wrestle with the numerous problems confronting us all.
A brief (albeit incomplete) list of concerns include:
1. Greece debt worries and European debt contagion concerns.
2. The collapse of global oil prices in the US and the potential impact on the high yield and emerging markets.
3. Slowing growth coupled with currency devaluation in China and the impact on global growth and macro-economic stability.
4. The slow and fragile pace of our US post crisis recovery and anemic earnings and productivity growth.
5. The expected September interest rate increase by the US Federal Reserve – the first in eight years – and the resulting impact on US consumers, the housing market, and leverage-fueled economy.
We are not discounting this list of concerns. When markets struggle, we all feel concerned.Yet we view the above concerns largely as cyclical in nature, resulting from the inevitable supply and demand imbalances that occur as continually evolving markets and economies equilibrate.
The way we would characterize where we are (this will make sense to all Californians) is that feeling we all have after we identify that the earth is shaking (an earthquake). Typically, we are keenly aware of the earth’s movements, and pause to determine whether they are getting better or worse.
We have been keenly aware of the tremors within the market for a while now and believe that we have been in a low grade earthquake with few signs of it worsening. To continue with this analogy, after the initial quake, a series of aftershocks can generally be expected. Some can be sharp and violent, but the shaking eventually stops.
The Mirador View:
In short, that is where we currently believe we are. It has been nearly three years since we’ve had a 10% correction and everyone appears to be on edge.
Our base case is that many current market participants hold their stocks via ETFs or mutual funds; this makes crowd selling indiscriminate and highly technical.
We own our assets directly and have chosen what we want to own carefully. We experience pain when others are selling our stocks in the same way that homeowners experience when property values go down on their block, it hurts if they have to sell their house but less so if they don’t.
We view ourselves as owners of companies not renters of stock prices. If you think of the most successful people you know, they are probably owners of assets who look to upgrade the quality of what they own when prices weaken.
That is exactly what we will attempt to do should this market selloff persist. If the market offers bargain prices for great companies, we will be buyers, not sellers. We are busy creating our shopping list.
We’re frequently asked if this is a 2008 scenario repeating itself. It’s impossible to know for sure but it is far more likely that this is a 4.2 earthquake that reminds everyone to check the emergency closet for supplies and will be quickly forgotten when it passes.