Investing notes from a dinner


Steve Sosnick, Chief Strategist, Interactive Brokers Group

I recently I had dinner with a group of friends.  The group contains a cross section of New York City archetypes – finance and real estate guys, lawyers, and a PR expert.  

We get together about once a month and it’s purely social.  That said, all sorts of topics get discussed, and the market is inevitably one of them.  

Despite the conviviality at a well-regarded steakhouse, the mood was surprisingly downbeat. I asked the friend who helps manage a very large family office whether he’d been busy, and he replied “yes, busy selling.”  

investing

Contrarian Diners

At that point, the friend who retired from managing a multibillion-dollar global bond portfolio volunteered that he was going net short. In my view, their rationales were classic cases of contrarian thinking.

The family office manager is an extraordinarily skilled bottom-up investor with relatively few concentrated holdings.  His thesis is that the earnings picture is murky at best, not boding well for equity fundamentals.

Negative Rates

At the same time, the bond manager is concerned by the dour economic message sent by low interest rates, especially in Europe.  

The stubborn preponderance of negative interest rates on that continent is bringing money into the US in search of yield, obscuring the global headwinds seen in much of the world.  

Throw in my belief that a CBOE Volatility Index (VIX) reading in the low-teens presents an opportunity to consider hedges amidst a sanguine stock market, and we made a fairly cautious bunch.

Property Blues

Then the real estate guys chimed in. Their view is always more idiosyncratic because each property is different, but they shared concerns that properties are getting harder to sell.  

They pointed out the glut of vacant storefronts and worries that we have yet to see the full effect of reduced State and Local Tax (SALT) deductions on residences in coastal states.

At this point we were glad that the bartender mixed excellent rye Manhattans.

Takeaway

Does this mean that we see an immediate market reversal?  No.

But when a group of long-standing professionals is concerned about the sustainability of the recent rally in both stocks and bonds, one has to wonder whether the environment is riskier than it appears.

Photo Credit: Christian Reimer via Flickr Creative Commons

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