My brain is operating at near full capacity so some thinking has been done. This is unusual so I jotted down 3 things:
1) I think it’s interesting how short-term the markets have become in recent years. I always adhered to the belief that the market doesn’t discount anything out more than about one quarter (my days trading earnings reports made this abundantly clear and anyone who understands the corporate earnings game can see how clearly true this is), but I am beginning to question whether one quarter is even long enough these days. It almost seems like the market is now trading every real-time data point and not much else.
One of the main reasons I was thinking about this was because the market seems virtually immune to the reality of this upcoming election. It’s looking increasingly likely that Obama will win. Intrade now has him at 70%+. Clearly, that’s not guaranteed, but there’s been a rather large swing since the conventions. The funny thing is that this is not a market positive. If Obama wins we’re going to see total gridlock in Washington. That means the risk of going over the fiscal cliff increases and it means that Obama is not getting any big stimulative measures passed any time soon. We know the House will remain in Republican hands and the Senate looks to be up for grabs. But all it takes is the House to shoot down any new spending measure. So an Obama win = 4 years of gridlock and repositioning for 2016. Is that bullish? Call me skeptical.
2) Speaking of how things are getting compressed – how about Europe? What we basically have in Europe is a whole bunch of countries living in very close proximity who are all economically dependent on one another in a world that is getting increasingly tiny. Globalization and massive technological advancements are making the world a very small place. And this is nowhere more apparent than it is in Europe where I think we’re literally seeing a forced integration due to this massive macro change. The thing is, there’s thousands of years of animosity between some of these countries and they’re being forced into the realization that they all live under the same increasingly tiny roof. So you have a situation where you live with someone you kind of dislike, but you can’t get away from them. The result is being forced to learn to live with them. And I think that’s exactly what we’re seeing occur in Europe.
3) I guess compression is on the mind this morning because the other big thing on my mind in recent weeks is the non-stop talk about Apple and the iPhone. I was once a huge proponent of the iPhone. When the original iPhone came out I was one of those nerds who just had to have it immediately and forked over the $XXX to have it. I did the same thing with the next 4 versions or however many they came out with. But the love affair ended when the 4S came out. I bought an Atrix 2 which was an admittedly inferior handset, but something very different was occurring there.
There was a time when, if you owned an iPhone, you literally owned a product that was light years ahead of the competition. But that’s not true anymore. In fact, the Android operating system has many features that are superior than the iPhone. And my new GS3 is arguably better than the iPhone 5 (though I haven’t used a 5 I do suspect it’s still slightly better). But we’re talking compression here and what’s being compressed is Apple’s differentiation to the competition. You could even argue that Apple’s competitive advantage on pure technological superiority is gone. Or at least it just doesn’t exist to the extent that it once did. And if you’re like me that makes the iPhone a lot less attractive. Especially if your life is increasingly integrated through Google Everything (as mine is).
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.