Victor Canto, discussing the state of the Global economy and offering some of his views on asset allocation strategies for the coming year. Dr. Canto has a unique perspective to add on the current economic experiments taking place in Washington, as he was partners with Art Laffer, and close to the Reagan Administration as the Supply Side Revolution was launched in the early 80’s.
While many demagogue the concept of Supply Side Economics, it is interesting to understand the basis for such criticisms. Often, one argues that the Supply Side approach starves the government, and starts the country on its current habit of deficits and increasing debt. Others argue that cutting taxes across the board has led to extreme wealth dispersion and is thus inherently bad for the nation. While we will explore this discussion in more detail another day, lets offer a quick answer to each question. Regarding government revenues, and deficits, it is hard to argue that tax cuts were the cause of increased deficit spending. Looking at the Reagan years, government revenues increased rather than decreased as common media tends to portray. Thus deficits were the result of increased spending, not reduced revenues. There is not much more to say about that, as the facts are clear. The second question is much more interesting, and will require greater patience and prose to flesh out. However, here is our initial intuition on the subject. Income inequality is most likely a very silly metric to track after individuals have their basic needs met (food, shelter, general well being). Probably the correct question to ask is whether the quality of living is improving, how fast, and what are the alternatives. We promise that will be a discussion for the future, as it relates directly to our prior discussion on cost of capital and how increases in those costs affect growth firms more than value firms and likely suppress innovation.
For those of you attending our conference, we look forward to welcoming you, sharing some unique research, and having some vigorous discussions about stocks and the economy during our time together. For those of you that could not make it, we look forward to sharing our research with you in the months ahead and hope you put us on your calendar for next year.
Here are the returns for May 2009 (5/1 – 5/29), another good month for the equity market:
Here is an overview of which sector and style universes look the most undervalued:
Source(www.EconomicMargin.com)
Download the complete version of the June Market Review.
Applied Finance Group’s (AFG’s) Value Score defined - Value Score represents the percentile rank of the percent to target (deviation between AFG’s current default target price and stock’s current trading price). A Value Score of 100 is the most undervalued and 0 is the most overvalued company in the universe.
