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Review & Outlook

April 15, 2019

As we look at the major economic events of the past year – from deregulation to deficits, from tax cuts to tariffs, and even allow for a modicum of Federal Reserve QT (Quantitative Tightening) and ratcheting up interest rates, there’s no doubt the seas have changed dramatically. Noticeably, complaints have shifted from getting hurt to getting left behind – a worry consistent with a sharp upturn in the economy. Thus, whether you look at these as nominal or real, short-term aberrations or long-term shifts, the positives have so far dramatically outpaced the abundant but formless negatives and surrounding chaos – by which we refer less to the White House and more to the desultory state of competing foreign markets in general.

Printable Version

As we look at the major economic events of the past year – from deregulation to deficits, from tax cuts to tariffs, and even allow for a modicum of Federal Reserve QT (Quantitative Tightening) and ratcheting up interest rates, there’s no doubt the seas have changed dramatically. Noticeably, complaints have shifted from getting hurt to getting left behind – a worry consistent with a sharp upturn in the economy. Thus, whether you look at these as nominal or real, short-term aberrations or long-term shifts, the positives have so far dramatically outpaced the abundant but formless negatives and surrounding chaos – by which we refer less to the White House and more to the desultory state of competing foreign markets in general.

The fact is, we can but marvel at how U.S. stocks have comparatively and consistently showered their owners with an abundance of strong returns. The relentless pressure this outperformance exerts on investment managers to participate and buy into an already expensive market increasingly represents a danger of its own. Indeed, the indefatigable advance of share prices over the last quarter – no matter the news – calls to mind Sonny and Cher’s “nothing song” that turned into a hit (“The Beat Goes On”) back in 1967. For it’s in much the same way that this “nothing rally” became a raging Bull. While the song’s refrain fits on many levels, more remarkable is its original timing in the midst of the extended top that defined a similar “Buy and Hold Forever” market. Accordingly, the Fed’s persistence in raising rates makes some sense if it can cool the potential for an overheated market to flood an economic engine already running on high octane without causing the whole to seize up.

In the meantime, we’re reminded that Bull Markets get their name from their propensity to gore their naysayers and detractors – even those like us who are tasked both with managing the current run while seeking to prepare for the next. The effort to manage sustained growth is less one of riding a horse until it falls over, and more one of endeavoring to ride like the Pony Express and leap the gap in switching horses. The gap remains, and the truth is that the leap is more of a surefooted step-down-and-up that manages a switch that keeps the ride. Managing portfolios and switching issues is scarcely different and equally necessary if we’re to keep things moving ahead.

At this time, we’d ask you to take a look at your capital gains for the year. Not just the realized gains, but the imbedded, unrealized gains and consider how far we’ve come off the lows of early 2009, the tests of 2011 and all those in between. As we’ve seen few dips of more than 5% or 10% in much of this interim, we have no doubt a larger one lies in wait. If you think through our stated goal of 10% to 20% turnover per year and apportion your unrealized, embedded gains on this basis, most of us would see larger gains than we’ve actually taken in some time. If part of the plan is to also run cyclically with more gains at the beginning and end of long runs, then a time of higher realization is coming, too.

Let us know whether you can do more. And if you want help with the process, feel free to call and discuss your portfolio, your progress and the right level of activity in capital gains for your circumstances. There’s a level that’s too much, and a level that’s too little, and investment consequences for both. Which is right for you may depend on your other resources.

James W. Mersereau, CFA, CIC
President

Daniel A. Kane, CFA, CIC
Managing Director

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  • Review & Outlook – January 9, 2023January 10, 2023
  • Review & Outlook – October 13, 2022November 4, 2022
  • Review & Outlook – July 13, 2022July 27, 2022
  • Review & Outlook – April 11, 2022April 12, 2022

Carderock Capital Management

2 Wisconsin Circle, Suite 600
Chevy Chase, MD 20815

301.951.5288 tel
301.951.0411 fax

About Us

Carderock Capital Management is an independent registered investment management firm serving individuals and families in the Washington D.C. region since 1986. Our firm is purposely structured with a small core group of experienced portfolio professionals to help their clients meet their objectives.

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