President’s Letter

By the time we hit mid July we start thinking about the Dog Days of summer. Those haven’t come yet. But Greece was saved from a Grexit and the U.S. Fed finally made it clear that rates will rise (to the surprise of no one) and the S&P. . .well, is still moving sideways.

When, and if, those Dog Days come what could they be like? We think Europe will always find a way to keep hope alive for the unity, and coherence, of the EU. Europe will not go backwards. The simple fact is Germany is the strongest economy of that union and the most fiscally responsible and gets to call the shots. History aside Germany’s dictates to Greece were the right thing to do.

China is correcting and that’s also a good thing. Although the revelation that shareholders lost as much “value” in the recent slide as was wiped out during the entire market crash of the Great Financial Crisis in the U.S. is sobering. But that’s the scale of what China is about. No surprise there.

Puerto Rico owes $70 some-odd billion?!?! That is worrisome. Just where did all that money go? That points to a potentially larger worry, that of the global debt bubble. Throw a dart at a country, any country, and you’ll find a massive pile of sovereign and probably corporate (high yield) debt ready to blow. Or maybe not. As misaligned as central banks have been globally they still know what to do to maintain global financial market stability.

That was one of the great benefits of the Great Financial Crisis. What we learned. But, then, the current recovery, if you can call it that, is about tapped out. Six, arguably seven, years old. This is about the time that things peak out. Another GFC? No, I doubt it. And yet companies have spent much of the last half decade making it seem their stocks are worth more by doing share buybacks rather than making capital investments. On top of that they’ve been goosing valuations through cost cutting, sometimes into bone. That’s not a recipe for surviving a global economic slowdown. It is a basis for a lot of corporate red ink. Let’s hope not.

All the best,
Montieth M. Illingworth
President, Montieth & Company
July 17, 2015