Quarterly Review & Outlook-2nd Quarter 2019

The only thing we learn from history is that we learn nothing from history.”

-Georg Hegel

False narratives are invented after the fact to give order to chaos, to provide answers that are simple and compelling, even when the truth is out of reach. Why does the sun rise? Easy one, Helios drives a chariot pulled by fiery horses across the sky every day to bring light to the world. Why was the S&P 500 down 0.15% yesterday? “Stocks decline as earnings roll in,” says Bloomberg News.

Over the last decade[1], U.S. stocks gained about 15% per annum, compared to 7% for the rest of the world. The reasons are obvious. The Eurozone is a failed experiment, China is over-leveraged, and Japan will soon sell more diapers for adults than babies. By contrast, the U.S. is a large, dynamic economy whose exceptionalism is persistently undervalued.

Makes sense, except that over the prior ten-year stretch, the U.S. stock market declined 2% per annum, while Emerging Markets gained 8%, fueled by a rising China. Before the 2008-09 downturn, conventional wisdom held that the Eurozone was a resounding success and the global economy was decoupling from the fading U.S. superpower. Go back to prior decades and the story flips again.

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