Loaning Money Will Cost You

Loaning Money Will Cost You

With more than $15 trillion of government debt around the world sporting negative yields, The Wall Street Journal’s Sam Goldfarb and Daniel Kruger wonder, in a recent article, if debt in the United States might be next. When investors accept a negative interest rate, they are effectively guaranteeing a (typically small) loss of principal. Said another way, investors are paying for the privilege of loaning their money to a sovereign entity. To mangle a quote from Popeye’s good friend, J. Wellington Wimpy, “Governments around the world will gladly pay you $0.97 on Tuesday for a dollar you give them today.” This seemingly counterintuitive strategy may make a small amount of sense for institutions (like pension funds or insurance companies) that are trying to match assets to the duration of liabilities many years into the future or for individuals in countries with hyper-volatile base currencies who invest in more stable currencies. But, it doesn’t help savers who are trying to grow a nest egg for retirement. In fact, if interest rates rise, investors stand to experience meaningful paper losses – an underappreciated risk for those who may need to access their capital throughout their holding period. Fortunately, there are other options available for savers today. In our view, it makes significantly more sense to invest in the equities of high-quality, dividend-paying companies, as we do at First Fiduciary. The dividend yields on these companies offer a positive and, in most cases, growing return to investors. Additionally, when purchased at a discount to fair value, the equities offer the potential for long-term growth. This combination of current income and potential growth makes sense in all market environments but especially those environments when many of the fixed income alternatives guarantee a loss.

First Fiduciary in the News

Pittsburgh Paint Maker Aims to Shake the Sales Blues
A Wall Street Journal article about the coatings company PPG* includes a quote from First Fiduciary’s senior analyst, Andrew Givens.

Noteworthy articles we’ve read:

Business
When Everything That Counts Can't Be Counted
An interesting take on the current market dynamic of very expensive technology companies coupled with relatively cheap valuations on companies with real assets.

Network Effects
It is hard to find a tech company today that does not mention network effects a few (dozen) times in any presentation it gives to investors. Here’s a quick primer on what network effects are, and the various types.

Strategy
Making Uncommon Knowledge Common
Ever wonder how a company like Zillow has been able to have so much success? Look no further.

Science
Quantum Computing
Fascinating look at the state of quantum computing, as told by a Google engineer.

Culture
Privacy
What is privacy? Thanks to new surveillance methods, privacy is increasingly become a gray area. What are the long-term ramifications?

Books we liked:

The Gene: An Intimate History
by Siddhartha Mukherjee
What happens when humans can “read” and “write” their own genetic information? This book includes a dense history of human genetics, from Gregor Mendel and Charles Darwin all the way through cutting-edge CRISPR gene editing technology. While at times the author can get too far into the weeds for a genetic layperson, the book overall is a fascinating look at where we’ve come and, more importantly, where we might be headed. The gene editing arms race between the United States and China could potentially shape the future of humanity as we know it in the coming decades. – AG

ReWork: Change the Way You Work Forever
by Jason Fried and David Heinemeier Hansson
A short but sweet book chock full of tips and tools on how to run any business better. While geared more toward those in new ventures and small businesses, companies of all sizes will find many useful nuggets in this book’s pages. – AG

Out & About

Ithaca, New York
We recently dined at Northstar House, a fabulous farm-to-table restaurant in Ithaca, New York. Its homey atmosphere and seasonal menu, using organic and local products when possible, are some of the reasons for its strong local following. The menu denotes items with products sourced from New York State (more items noted than not), while a chalk board by the entrance lists the names of the local farms from which the items were sourced. The soup of the day, a chilled beet soup, would turn a non-beet lover into a fan. The Salmon Bowl came piping hot with freshly sautéed vegetables and served over coconut rice, salmon melting in our mouths. There are plenty of items for vegetarians and vegans (two of the three owners are vegetarian). We chose the Before the Butcher Veggie Burger, which puts Beyond Meat Burger to shame, and the Mushroom Ravioli, equally outstanding. Some of us complimented our meals with refreshing Ithaca Ginger Beer and Root Beer beverages. Service was attentive. We look forward to dining at Northstar House, located at 202 E. Falls St, Ithaca, NY (607.216.8580), on our next visit. – MA

More Than A Trusted Investment Advisor

We are happy to consult with you or your friends & family about all things related to growing & securing wealth. Recently, we had an engaging conversation with a client’s grandson about his options as a younger investor, and we helped him develop an investing strategy that best-suited his growing family’s needs.

Let us know how we can help you.

*PPG is owned by the authors and in FFIC-managed portfolios.

The data contained within this newsletter is for informational purposes only. The information contained herein should not be considered investment, tax or legal advice.

This newsletter contains links to external third party websites that are not affiliated with First Fiduciary Investment Counsel. FFIC does not control or direct the content of the information contained on these websites. Information contained on the third-party website is relevant on the date the newsletter was published but may be changed or revised by the third parties without the knowledge of and/or notice to FFIC.

Statistics and other information have been compiled from various sources. First Fiduciary Investment Counsel believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information.

Past performance does not guarantee future results. The mention of securities or types of securities in this newsletter should not be considered as an offer to sell or a solicitation to purchase or sell any securities mentioned. Neither First Fiduciary nor the authors hold positions in any of the stocks mentioned unless otherwise stated.

First Fiduciary Investment Counsel, Inc. is a registered investment adviser with the Securities and Exchange Commission. A more detailed description of the company, its management and practices is contained in its firm brochure document, Form ADV, Part 2. A copy of this form may be received by contacting the company at: 6100 Oak Tree Blvd., Suite 185, Cleveland, OH 44131; Phone: 216.643.9100; Email: ffic@firstfiduciary.com.