Year-end Summary 2020

The economy at present is performing as well as could be expected under the circumstances. Housing is booming given the lowest mortgage interest rates in a century. The main factor holding back the economy is not a lack of disposable income; indeed areas where people are free to spend are also doing quite well. Rather, the curtailed growth is heavily concentrated in services where social distancing is a problem. The Fed continues to be as accommodative as possible and recognizing its own constraints to stimulate growth, is literally begging Congress for more fiscal stimulus and is encouraging even more than that which Congress is presently considering. The Fed, after trying and failing for a decade to get inflation to rise enough to meet a meager target of 2%, and now in the midst of a pandemic, has virtually abandoned any inflation concerns it may have had.

Congress at present is trying to agree on the content and size of an upcoming fiscal stimulus. The 2018 tax cuts based on old “trickle-down” economic theory, while high on promise failed to deliver as the economy began to decelerate even before the pandemic arrived. The conclusion drawn is that capital investors were already flush with cash, and apparently in hindsight, were not willing to invest in new plant capacity or additional hiring until they could see rising demand for additional product. They aren’t now, and never were, going to produce goods to sit in warehouses. The occurrence of the pandemic was fortunate in that it forced policy makers to test new theories previously regarded as economic heresy, namely, “trickle-up” economics by giving cash directly to consumers to sustain growth and to stimulate aggregate demand. The theory now is that increasing consumer demand will automatically cause capital investors to invest in new plant capacity and to increase hiring to meet the new demand. Going forward, we expect to see ongoing monetary stimulus from the Fed and fiscal stimulus from Congress in the form of a combination of both business and consumer relief to meet both consumer and capital needs. The path of the pandemic or of new strains of the virus now entering the population are the largest variables in determining the longer-term direction of the economy, the markets, and other policy initiatives that may be forthcoming.

As always, we remain cautious and vigilant. Please remember that because these quarterly thumbnail sketches are very brief, do not hesitate to call me if you wish to discuss your account or our outlook in greater detail.

Very Best Regards,

Joseph L. Toronto, CFA

3rd Quarter Update Summary

The monetary and fiscal stimulus packages that began last spring effectively halted the meltdown taking place in the economy and in the financial markets. The markets revived quickly as they always do when money is being pumped into the economy, but in the economy, the stimulus could at most mitigate in some degree the paralysis that was taking place from the effects of efforts to contain the epidemic.

Those efforts generally succeeded and bought us some time to supply our medical system with PPE and testing capability. The economy also largely survived the state-by-state scattershot approach to various lockdowns and is poised for future growth in the form of pent-up consumer demand. Although given this haphazard approach, the epidemic is returning yet again in another wave of infections further delaying a full economic recovery. The Federal Reserve has deployed its full arsenal and is literally pleading with Congress for more fiscal stimulus to weather the now prolonged epidemic. So far, the Senate Republicans do not have consensus and hence cannot pass further stimulus without Democrat votes.

Although many parts of the economy such as construction and home building have recovered and are growing, the biggest risk to the economy and the markets remains the course of the epidemic as it continues to ebb and flow unpredictably and is constantly challenging the effectiveness of our response and/or our willingness to continue to confront it.

The silver lining in this pandemic is that our global body of scientific knowledge specifically of viruses and generally of immunology is growing at light speed as we research testing, treatments, infections, spread, transmission, vaccine design, and immune response. A mere months ago ventilators were deemed critical for severe cases, but death rates have declined as ventilator use also has declined in favor of advanced mitigation of symptoms and better management of the immune response to acute infection. More than 240 vaccines are currently in development or trials, some under entirely new approaches and vectors to immune response systems and/or treatments. The knowledge gained from the massive global investment will be invaluable for our treatment of viral disease in general and in ways we can’t comprehend at present but will likely advance our knowledge of many “incurable” diseases.

We remain cautious, vigilant and patient, at least until a more clear picture emerges, as the old economic rules and measures are quite simply attuned to a pre-pandemic world and environment. Please also remember that because these quarterly thumbnail sketches are very brief, do not hesitate to call me if you wish to discuss your account or our outlook in greater detail.

Very Best Regards,

Joseph L. Toronto, CFA

2nd Quarter Update Summary

The stock and bond markets have continued to stabilize as volatility slowly ebbs away. The returns we have seen recently are unlikely through the remainder of the year as a full economic recovery will take some time. The markets have been buoyant primarily because it is readily apparent that close-to-zero interest rates will be with us for the foreseeable future. The markets also detect that the massive stimulus from the federal government to get us through the epidemic will not be ending abruptly anytime soon.

The abrupt shock to the economy has already caused many dislocations, but this also presents a rare opportunity to re-invest and reconfigure for a future economy in terms of transportation, energy, education, entertainment etc. The market is counting on continuing stimulus and investment going forward. Congress has been talking about infrastructure renewal for many years with no action due to worries about funding. Now we know, quite by accident, that the funding is there and has always been there. Our priorities are changing, in some cases quite dramatically, because social trauma in the form of an epidemic has this way of forcing re-evaluation of our priorities and our place in the world.

Going forward, the economy and the markets will remain highly sensitive to the national epidemic, whether it subsides or expands, and, whether and how long federal monetary and fiscal stimulus remains available to mitigate its effects. We anticipate that the epidemic will eventually subside as individuals will become sensitized to the seriousness of it and individually adopt precautionary preventative measures together with acceptance of governmental measures to control its spread. This proved to be the case in the Northeast where the epidemic has already subsided substantially.

We remain cautious and vigilant. We continue to maintain significant cash balances in most accounts. However, we recently invested some cash in a diversified mutual fund after the market collapse and as it began to recover. We do not anticipate making other targeted or strategic portfolio changes until the economic outlook becomes much more clear. Please also remember that because these quarterly thumbnail sketches are very brief, do not hesitate to call me if you wish to discuss your account or our outlook in greater detail.

Very Best Regards,

Joseph L. Toronto, CFA

1st Quarter Update Summary – Pandemic

Following our interim email update last month the Federal Reserve charged headlong into the financial system very fast and very big. While we predicted a quick rate reduction, the Fed instantly dropped its target rates to zero and additionally announced massive liquidity facilities to flood the banking system with cash. At the same time, we made the prediction that given entrenched partisanship, it would take Congress many months to respond with the necessary fiscal stimulus. But lo, within two weeks, Congress unanimously passed not one, but two stimulus packages totaling over TWO Trillion dollars for small business, corporations, and remarkably, also for American workers and consumers. The Fed again then followed that up with Continue reading 1st Quarter Update Summary – Pandemic

Interim Update – Coronavirus

The market declines of these past two weeks have erased six months of recent gains. Although we are closely monitoring the situation, we may take action in your account quickly if needed in order to reduce risk if conditions continue to deteriorate and alter the long-term investment outlook of your account.

The corona-virus is currently the focus of the market’s attention. The novel coronavirus Covid-19 is now out in the wild; containment in the U.S. seems to be a long-lost hope. In the near term, the authorities are hoping to suppress Continue reading Interim Update – Coronavirus

Year-end Summary 2019

Our accounts performed well this year, again outperforming the major market indices. However, as with the indices, some of the large gains were the result of a sharp market recovery early this year following a sharp downturn late last year. The market quickly stabilized and continued its upward trend as the Fed successfully took strong measures during the year to avoid economic weakness in the face of the weakening manufacturing sector.

The current economic indicators show the economy continues to grow, that manufacturing remains modestly weak, but the Continue reading Year-end Summary 2019

3rd Quarter Update Summary -Slow Growth?


Despite some weakness in the manufacturing sector, the overall economy continues to grow. The markets on the other hand have been wandering aimlessly at the same level as that of one year ago. Our accounts similarly show a small gain over that same twelve month period. Despite rising deficits, all of the inflation indicators are soft or declining. The Fed, having clearly overshot its interest rate targets, has been Continue reading 3rd Quarter Update Summary -Slow Growth?

2nd Quarter Update Summary – Soft Landing?

550c441a6bb3f776218b4568-750-562Inflation, despite historically high deficits, stubbornly refuses to rise to the Fed’s relatively modest target of a mere 2%. In our last report, we noted that the Fed was finally ready to “stand pat” on further interest rate increases. We also addressed the importance of the yield curve in predicting future economic growth. At the time it was partially inverted (indicating an economic slowdown) due to the Fed’s aggressive interest rate increases last year. Since then, commodity and energy prices have modestly declined and labor costs have been rock steady. This week the Fed Continue reading 2nd Quarter Update Summary – Soft Landing?

1st Quarter Update Summary – Stand Pat?


We continue to focus on the growth of the economy and the one variable of greatest impact on economic growth, interest rates and money supply. Fortunately, the markets rebounded and weathered quite well the Fed’s aggressive interest rate increases of the past year. In December, the month of the last rate increase, the markets were Continue reading 1st Quarter Update Summary – Stand Pat?

Year-end Summary 2018

Our accounts turned in exceptional performance this year with positive returns while the market indexes were all down for the year. Our largest holding, Amazon, was up 28.4% and contributed substantially to those gains. The merger of our second largest holding Oclaro, was a 24% gain for the year and was completed in December with a cash payout together with Lumenthum stock. Consequently we are starting this year with large cash balances in a tumultuous market environment.

As you are likely aware, there are several important issues (shutdown, Brexit, tariff trade disputes, etc.) that all could significantly Continue reading Year-end Summary 2018

3rd Quarter Update Summary – The Economy Chugs Along, But Whither the Markets?

While the Fed continues to increase short-term interest rates as the economy chugs along, we had a new wrinkle appear this quarter. Previously, long-term rates remained relatively stable as short-term rates rose. This had the effect of a flattening of the term structure of the yield curve, an indicator that future growth may slow. This month however, those stable long-term interest rates have begun to rise sharply in pace with short-term rates controlled by the Fed. The cause of this is quite unknowable at this point, but we note that oil and some commodity prices have been rising together with wage increases finally showing signs of life. The takeaway here is that the economy remains robust and that a slowdown or recession does not Continue reading 3rd Quarter Update Summary – The Economy Chugs Along, But Whither the Markets?

2nd Quarter Update Summary

Last quarter, the markets largely stabilized in an upward trend again following a rambunctious first quarter. Amazon continues its upward surge and Oclaro stockholders last week overwhelmingly approved the merger with Lumentum which will be completed in a few months in a distribution of both cash and Lumentum stock. The capital gains and tax effects of the merger are still not clear.

We continue to focus on monetary policy. The Fed continues to raise short-term interest rates but long-term interest rates, largely controlled by market forces, remain quite stable resulting in a flattening of the yield curve. A flat, or worse yet, an inverted yield curve is a proven precursor to Continue reading 2nd Quarter Update Summary

1st Quarter Update Summary

Despite the fact that the markets began the year in verifiably volatile fashion, they wrapped up the first quarter about where they began. Despite this however, our accounts successfully turned in significant gains for the quarter. This was due primarily to our two largest holdings: Amazon was up 19% and Oclaro was up 45% due to a buyout merger offer from Lumentum Holdings, a leading-edge fiber optic provider. The buyout offer of part cash and part Lumentum stock will likely be completed within a few months. We do not yet know the tax effects of this transaction.

The economy appears to be moving forward on firm footing. Although the current economic cycle is one of the longest on record, economic growth cycles normally don’t merely die of old age and recessions usually have specific causes. This growth cycle, with the recent tax cut and approval of the federal budget containing a sizeable deficit, now has these two additional growth stimuli to continue the expansion. Our economy has yet to explore Continue reading 1st Quarter Update Summary

Market Meltdown? Foreshadow? Not Likely…

The market meltdown in the previous few days was unmistakably a reaction to sharply rising bond yields which previously were rising slowly if at all in response to Fed rate increases. It was not likely a response to inflationary fears as leading inflation indicators (metals and commodities) were unmoved if not down. Add it all together and present value theory of stock prices required a downward move in prices in response to those bond yields. The consequence? The Fed, now chaired by a Wall Street insider, has no reason to be too aggressive in raising short rates and may even temper its planned sales and reductions of its massive bond portfolio.

2018 Annual Outlook Summary

Last year the economy and the markets performed well in part due to the fact that the economy is in the midst of an enduring economic expansion. Now with some new fiscal stimulus in the form of comprehensive tax cuts passed by Congress the expansion received an additional boost to extend its life. This provided there are no unfortunate consequential mis-steps by the Administration and Congress in terms of trade (NAFTA, TPP) or foreign relations (Iran, Korea, China). Although the Republicans have, for now, forsaken their historical misplaced concerns regarding Continue reading 2018 Annual Outlook Summary