|Executive Summary Issued March 17, 2017|
|Economic growth, inflation and interest rates are on the rise across the globe. Fiscal stimulus is beginning to complement/replace monetary stimulus and the impact is giving us economic green shoots, optimism, expanding employment, increases in production and consumption, and the emergence of rising inflation expectations. These factors, along with a pro-business posture in government, have directed the strong monetary flows that have been in the financial system and channeled them with aggressiveness into the equity markets. The result has been a dramatic rise in the equity indexes since November 2016. This rise has been further fueled by the movement of the retail investor out of money markets and into equity index funds. The monetary fuel and the expectations of a struck fiscal matchstick have ignited this fire, and for many it has been a great ride. For others, there is a sense of having missed the parade which is driving a newly inspired desire to join in and to buy stocks. Per the WSJ, Fund tracker EPFR Global reported record net inflows into equity mutual and Exchange Traded Funds during the week of March 1st, clear evidence of the herd moving in one direction. Jamie Diamond of JP Morgan was recently reported to have stated that the animal spirits are back and in play. I wonder if that is good or bad.
A contrary observation to the above is the ratio of company executives buying shares to those selling shares in their own companies. This ratio has slumped to a 29-year low as selling overwhelms buying. That observation more or less aligns with my personal activity in the market. I am not joining the buying parade, for while the reasons for the powerful move higher have substance, the regime of the market in terms of over-valuation, weakening market internals, and the move towards tightening of monetary policy present a real reason to be cautious and conservative until a better entry point appears. That summarizes my current approach.
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