Are we on the edge of the next recession? Let’s look at what causes recessions and why they happen. Let’s also talk about the first Trillion dollar company. I plan on writing about the causes of recessions in at least two and maybe more of my weekly “The Bottom Lines”. This is a subject that warrants more than just a cursory overview.
First, I want to talk about a truly historic event this week. Does anyone remember the hilarious Mike Myers Movie “The Spy Who shagged Me”? Dr. Evil (Myers) ask the president of the United States (Tim Robbins) for $100 Billion dollars and they all laugh at Dr. Evil and tell him that amount of money doesn’t even exist in the world. It is truly a hilarious scene. But no one is laughing at Apple today. Apple is now the first company to be valued at One Trillion Dollars. Apple has CASH in the amount of $243 BILLION dollars. So is Apple over valued? I think not. Apple is trading at only 15 times earnings and if you take away the cash it is trading at 11.5 times earnings. Apple is not a telephone hardware company it is the most creative high tech software and hardware company in the world. I am convinced that Apple is its own world and just does business with Earth.
Ok, now on to Recession Talk. I read a very interesting article this week on Bloomberg about the causes of recessions. According to the indicators compiled by the National Bureau of Economic Research, the U.S. economy hasn’t been in recession since June 2009 — almost nine years ago. If the economy sustains its expansion for just 14 more months, this will be the longest the country has gone without an economic downturn in recorded history, surpassing both the 1960s and 1990s booms in duration. (Noah Smith Bloomberg). Obviously we all know our economy has been growing these past nine years mostly because of the stimulus added by the Federal Reserve’s policy of very low interest rates.
So why did it take us so long to climb out of recession? In spite of very low interest rates the then current administration’s overly punitive tax and regulatory policies made business investing just too risky for too little return, not to mention we had a very big hole to dig out of that the previous administration put us in.
Well, that is enough for now. As I mentioned in my opening paragraph this discussion will take more than just one report. This is an elephant we need to take one bite at a time. This week I wanted to set the stage. Next week I will get more specifically into the causes of recessions. It is what I call the “Shock and Awe” of economic recessions. I hope you will tune back in next week.
Have a great weekend.
Your Boring Money Manager,
Mowery Capital Management
We manage risks first
Then we buy quality
And only then do we seek to provide a reasonable return
At the time of this writing:
Dow Jones 25,399.05
S&P 500 2,831.92
Two Year Treasury Yield 2.65%
Ten Year Treasury Yield 2.96%
Thirty Year Treasury Yield 3.08%
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Sources: The Capital Group. Zacks, Seeking Alpha, CNBC, CNBC guest and contributors, Jim Cramer, Wall Street Journal, Investor’s Business Daily, and Financial Times. Special thanks to Wikipedia and MarketWatch for historical facts. If I have inadvertently missed any other sources please accept my apologies. No assurance can be made that profits will be achieved or that substantial losses will not be incurred in connection with any investment. All investments involve varying degrees of risk including loss of capital. This information should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any individual investment or strategy. PAST PERFORMANCE IS NO GUARR ANTEE OR INDICATION OF FUTURE RESULTS
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