The More Things Change...
August 16. 2025
The recent activity in the financial markets all seems so familiar - the market making new highs, sentiment very bullish, optimistic predictions that the market will finish the year even higher than it is today are widespread. I apologize if this will seem somewhat repetitive - it is just that I’ve seen this movie recently, was just on this crowded boat. After all the gains of the past 30 months, I cannot get myself comfortable assuming that all projections that it will continue will actually come to pass.
The signs of froth in the IPO market, where new issues close after their first day of trading with gains of almost 100% and sometimes more, is worrisome. It would be easy to characterize those results as a bad job by the company’s investment bankers. However, if these are young companies with limited, if any, earnings, the valuations are already pretty hefty and when the share prices zoom up from there…well that is a speculative fever that often ends badly.
The re-emergence of ‘meme’ stocks, now with a summarizing acronym DORK (from the first letter of the tickers for Krispy Kreme, Opendoor, Rocket, and Kohl’s), is another sign of froth. The turmoil generating from new government policies and geopolitical tensions, the uncertain impacts from both tariffs and AI does not seem to be causing investors to worry. That complacency, in the face of so much change, geopolitical tensions, and partisan rancor, remains surprising, perplexing, and troubling.
Yet, I can easily make the opposite case – the Fed will finally start to cut rates which will be especially helpful to small businesses and good for stocks. Artificial intelligence will continue to lead to productivity gains. Companies will be more profitable, their earnings growing, and their share prices will rise. The One Big Beautiful Bill will leave individuals and companies with more cash to spend. Finally, with more individuals' money in the equity markets than ever before, the wealth effect of the rise in share prices will have a positive impact on the economy.
Really, though, my heart isn’t in it. I think tariffs, essentially a consumption tax, will hurt spending power. Rate cuts won’t really revive the housing markets because their greatest impact will be on short-term borrowings; interest on longer maturity bonds will remain stubbornly high due to concerns about the national debt and even, eventually, the status of the US dollar as the world's reserve currency. AI productivity gains will be slower to achieve and less widespread for a long while and as it becomes more prevalent, there will be a negative impact on employment. The noise about increased investing in the US will be just that...noise. And to the extent that there is more capital deployed, job creation will be limited and the current mismatch between job openings and worker skills will remain substantial.
Having made the case so easily for such diverse outcomes, it is not surprising that the current situation remains a confusing, uncertain time for us all and especially so for investors. Nonetheless, that has been true for some months now. If you gave in to the negative case and stepped away, you missed gains this year of 10% or more. Additionally, even if there is a recession, maintaining capital investments in the equity markets must remain a cornerstone of any reasonable investment program. Timing the market is not a good strategy.
If you are truly nervous, consider selling some riskier holdings…or doing some trimming as we have advocated before. If you sell all the shares of good young companies that are just overvalued, will you be as smart on your timing for re-investing and catching their subsequent rise? Sometimes the best investment moves are the ones we don’t make. If you are not investing money that you will need soon, try sitting on your hands and just enjoying the summer weather.
Today’s link is to a recent article in the NY Times about the growth in the spread of tick-borne illnesses. Most of you have heard about Lyme disease… but you may not be familiar with alpha gal syndrome, a condition transmitted by the bite of the lone star tick. Those afflicted have, at a minimum, allergic reactions after eating red meat. It has appeared across a wide swath of the US, from Oklahoma to the east coast yet much remains unknown about the condition as alpha gal syndrome is only recently beginning to occur with the frequency necessary to get the medical community's attention.
This article was of particular interest to me because I am afflicted myself, quite surprisingly having discovered a lone star tick on my body last October. In severe cases, the resultant allergy to mammal protein can result in horrific symptoms including anaphylaxis. Sufferers may have to give up not only the obvious meats (beef, pork, lamb, dolphin, manatee, whale…) but also all mammal derived dairy products. Poultry and fish can still be on the menu – mammal protein is the issue.
For most people, the affliction eventually fades though the timing of that differs from person to person - the understanding about it is still very limited. I have a mild case. I am hoping it doesn't linger too long and that I do not get bitten again.