Value Set For A Comeback?

This week, we start with a quote that is quite relevant to financial markets today, the charts below and our overall investment strategy. Bridgewater Associates founder Ray Dalio reiterated in his most recent missive that as an investor one should "Identify the paradigm you’re in, examine if and how it is unsustainable, and visualize how the paradigm shift will transpire when that which is unsustainable stops."

The paradigm we’re currently in was recently laid out by JP Morgan’s quant strategist Marko Kolanovic in his most recent research piece which is summarized in this Bloomberg article.

He states that “While there is a secular trend of value becoming cheaper and low-volatility stocks becoming more expensive due to secular decline in yields, the nearly vertical move the last few months is not sustainable. The bubble of low volatility stocks versus value stocks is now more significant than any relative valuation bubble the equity market experienced in modern history.”

Christine Lagarde, The Fed's Jelly Donut Policy and The Uncomfortable Truth

We’re back with another edition of Beach Reading! Let’s jump right in.

We kick this week off with an article from The Economist laying out the future of the European Central Bank (ECB) under Mario Draghi’s newly appointed successor Christine Lagarde. Ms. Largarde ran the IMF for a number of years and is generally regarded as a competent European bureaucrat, although she has very little capital markets experience. The significance of her appointment, though, is that she is unlikely to waver from the ECB’s current zero and negative interest rate policies. In our view, these policies have been counterproductive for most European Union countries and a perpetual continuation of said policies is unlikely to change the equation.

AT&T, Disney, Rupert Murdoch & 13 Mind-Blowing Facts About Florida’s Economy

We’re writing today with our inaugural “Beach Reading” newsletter.

Every other week, we’ll be sending you a collection of interesting articles, charts, interviews, etc. that catch our eye and influence our thinking.

The topics will be mostly financial in nature but we’ll also have a wide range of other content available as well. We’ll do our best to post non-paywalled content but there may be a few articles that are unavailable without subscription once the “free reads” are used.

Our first article this week is the best expose in recent memory on the big strategy shifts occurring at AT&T. Even non-shareholders should be interested in AT&T’s goal to merge connectivity and content into a single monthly bill. Many analysts (and investors) doubt that having access to Game of Thrones (now owned by AT&T through ownership of HBO) will make people less likely to change cell phone service. If they succeed it will be a game changer in the communications and media industries.