(New York)

Hate him or love him, you have definitely heard of him and may respect him. Paul Krugman is one of the most famous economists in the world, and he has just put out a warning we think investors need to hear. Krugman’s big fear is that trouble is building in the economy and the Fed doesn’t have much firepower to help stimulate things if and when growth heads backwards. “There seems to be an accumulation of smaller problems and the underlying backdrop is that we have no good policy response”. Krugman argues that hiking rates was never “grounded in the data” to start with and that “Continuing to raise rates was really looking like a bad idea”.

FINSUM: What we know is that a recession will come at some time, what we don’t know is when. Krugman has given sometime in the next two years as his timeline, which to us wreaks of a lack of confidence.

(New York)

Value stocks have been in a slump for a decade, with growth consistently outperforming. That acknowledged, there is still something to be said for buying beaten up stocks, which seem to have less downside than highly valued growth names. But how to do it? Try an old stock picker’s favorite: buy the ten stocks with the highest dividend yields in the Dow, a strategy which has historically performed well and is called the “Dogs of the Dow”. These stocks tend to have great dividend yields, and generally outperform the index as a whole. The bottom ten right now are: Verizon, IBM, Pfizer, Chevron, Exxon-Mobil, Merck, Coca-Cola, Cisco, Procter & Gamble, and JP Morgan.

FINSUM: This sounds like a solid bet, though because of the group, you are buying them with no real catalyst.

(San Francisco)

Barron’s has just put out a very timely list. The publication has compiled a list which ranks the 100 top companies according to sustainability. Sustainability, which is a component of and often linked to ESG, has become an increasingly important component of returns, so Barron’s rankings will likely make a difference to portfolios. The top ranked firm is Best Buy, followed by Cisco, Agilent Technologies, Texas Instruments, Voya Financial, and Clorox. The top 25 also includes Salesforce, Cummins, and Kellogg.

FINSUM: ESG is an increasingly important area not only for returns, but also for clients, so this is quite a handy list for what can be a surprisingly difficult to handle issue (i.e. deciding which companies are sustainable and not).

(New York)

The topic of the next recession has faded a bit from the mainstream media discussion over the last month, and understandably so. Not only has the market jumped, but the Fed seems to have completely backed off the rates gas pedal. That said, we are keeping an eye on primary and secondary data on the economy to see what the future may hold. Here is some data that is worrying us a bit: global freight shipping rates are tumbling. China’s weak spending and a global slowing of growth has sent shipping rates way down, a sign of excess supply and demand weakness across the world.

FINSUM: This kind of info, along with metals demand etc, are great leading indicators of what might happen in the economy. Add this to the warning signs.

(New York)

Stock investors and bond investors are showing a big disconnect right now. That mismatch in sentiment could cause some big losses. Fixed income investors have been buying bonds aggressively, keeping yields pinned at low levels and the curve very flat. However, equity markets have been rallying strongly, which will alleviate some pressure on the Fed, allowing them more margin to raise rates again. However, the bond derivatives market shows the market is betting there is a 98% chance rates are in exactly the same place as now in one year’s time.

FINSUM: Bond investors are too comfortable with the Fed right now. Powell et al have been quite hawkish for awhile now, only very recently backing off. We don’t think it would take much to get them back on track, and the equity market is paving the way.