Let's talk about something other than taxation of retirement plan distributions, and what constitutes a fiduciary, since those topics have been the focus of the last few weeks of commentaries.
The public markets have had a fine year, through Friday's close, whether you are investing stateside or elsewhere. The S&P 500 is up 7.2% from the first of the year through Friday May 5th, not including dividends, while the NASDAQ Composite is up 13.3%. The international markets, whether developed or emerging markets, have also done well, up between 12% and 14%.
Even bonds have held their own, with long bonds (BLV) up 1.6% and short bonds (BSV) up 0.35%, not including interest paid.
As we have discussed at other times, it is time for international markets to have a good year, and for this we are grateful. Domestic equity markets appear to be driven by lack of other opportunity, corporate earnings, and anticipation of good things to come, in the way of tax and health care reform.
Overall, earnings reports have been good during this quarterly reporting season, though there have been a few challenges. Just ask IBM.
IBM created Watson, one of the early AI developments. Unfortunately for Big Blue, they have yet to fully capitalize on this achievement, with revenue continuing to decline, as they fight for AI and cloud dominance against one-time (and now fully established) upstarts such as Alphabet and Amazon, among others.
IBM continues its attempts to turn the ship and rebuild revenue, which has dropped from $105 billion in 2011, when Watson won Jeopardy, to $89 billion in 2016. In the meantime, Moody's downgraded IBM's debt on Wednesday, to A1 from Aa3. And, at the Omaha business lovefest, known as the Berkshire Hathaway annual meeting, Buffet said he'd made a bad call on IBM and announced he'd sold 30 million shares since the first of the year, roughly one third of his position.
Speaking of health care reform, an amended version of the American Health Care Act has passed the House of Representatives. Given the need to get this legislation through the Senate, we won't spend much time on it here. The short version is that the legislation, which made it through the House, would eliminate the current mix of "essential health benefits", handing back to the states the responsibility of determining "mandated" benefits. This would apply to both group and individual coverage.
The current version would also do away with "community" premium rates, once again permitting individual underwriting. It would also allow a multiple of 5 instead of 3, in the premium price spread between the younger and older insureds. The proposed legislation would also do away with the 3.8% surcharge on net investment income, and the 0.9% surcharge on earned income, for certain high income tax payers.
On the economic front, the Bureau of Labor Statistics has announced 211,000 new additions to non-farm payroll for April, with the official unemployment rate holding steady at 4.4%. The employment gains were in leisure and hospitality, health care and social services, financial activities, and mining. You can read the full release at https://www.bls.gov/news.release/empsit.nr0.htm.
It's easy to find bad news. Turn on any "news" channel, or logon to any "news" site, and you can get your fill of what's wrong with anything.
Some good news? Check out the charts at https://ourworldindata.org/. Max Roser has done a yeoman's job compiling some fascinating information, for our edification. Some highlights include: In 1820, 84% of the world population lived in extreme poverty. Today, that number is less than 10%. In 1800, only about 10% of the world population could read. Today, more than 84% can read. Today, more than half the world population lives in a democratic society, where the individual gets a vote, up from nearly zero 200 years ago. Currently, virtually no one lives in colonies, and closed autocracies are becoming scarce.
So that concept articulated as natural law, the freedom of the individual to control his/her own person, and thinking? And that those who govern do so only with the express consent of the governed? It has worked, and spread. Not perfectly, but for vast majorities of the world population, this world is a much better place than it was for their parents, grandparents, and the generations before them. Hats off to those who have fought and died for these ideals.
"Those who can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety."