Author: Smead Capital Management

My career started in 1994, which was a stealth bear market for stocks and an outright bear market for bonds. Fed Chair Alan Greenspan hiked rates seven times as he played catch up in response to a percolating economy that rediscovered its sea legs coming off the 1991 recession. The Federal Funds Rate doubled from 3.00% to 6.00%, and the 30-year bond yield jumped 150 basis points to 7.75%. You lost roughly 25% by owning the long bond, and although the S&P 500 grew operating earnings 18% that year, its price declined around 1.5% while your average stock did far worse. This Fed era was quite opaque, often surprising the market and offering very little read-through. At times it seemed Greenspan reveled in non-transparency, as the opening quote reminds us.

We consider ourselves excellent spectators of competition and look forward to March Madness this month. We are reminded that these very competitive games can’t take place unless there are rules and referees to officiate. Our long-time readers are aware that we have warned of the danger surrounding the aggregation of power by the monopolistic tech behemoths. In the last week, March 11-17, 2019, everyone from Senator Elizabeth Warren to The Wall Street Journal editorialist, Andy Kessler, to Arizona State Attorney General, Mark Brnovich, have weighed in on the subject of the rules surrounding competition in business and who should be officiating. We would like to reexplain our position on this subject, because we believe it is a most critical question in U.S. long-term economic success, in economic inequality and in where to invest in the U.S. stock market.