by Smead Capital Management
After watching “Forrest Gump” for about the thirtieth time recently, I realized that the US economy and US stock market share a great deal in common with Forrest. In this missive, we will be reminded of the journey of a true American folk hero and of the journey back from the abyss the US economy and stock market have made since early in 2009.
Since the financial crisis, Warren Buffett's Berkshire Hathaway has had significant exposure to financial stocks in its portfolio. Q1 2021 hedge fund letters, conferences and more At the end of March this year, Bank of America accounted for nearly 15% of the conglomerate's vast equity portfolio. Until very recently, Wells Fargo was also a prominent Read More
Forrest was a simpleton kid born with both mental and physical imperfections. He was “slow,” so teachers and students reminded him that he was stupid. His Momma’s response was “stupid is as stupid does.” Forrest graduated from high school and went off to college. He walked with braces until they came flying off as he evaded a group of bully’s. I can still hear his friend Jenny yelling, “Run, Forrest, run!”
The US economy was “slow” to recover these last four years as economic growth has been underwhelming compared to the rebound from prior recessions. Esteemed economists (brilliant pessimists) have told simpleton optimists how stupid they are for having confidence in the future of the US economy and for buying US stocks. They said that the record levels of over-hanging debt would cripple the US economy for decades and to not commit much of your capital to domestically-oriented US stocks.
Now we believe Fed Chairman, Ben Bernanke, is about to take the “braces off” the US economy by reducing the stimulative monetary policy of the last four years. Forrest did fine without his Momma in college and we believe the US economy will do fine after monetary stimulus is reduced and ultimately eliminated. Did we forget to mention that Forrest was an All-American in football and went to the White House to meet the President? Most of the brilliant pessimists of today fail to remind you of how much their “brilliant” pessimism cost investors the last four years. Here is an example of a recent Wall Street Journal article called, “Lofty Profit Margins Hint at Pain to Come for Stocks”: