Alone With My Thoughts – 01/24/2023
It has been a good month for Philadelphia…Not only are the Eagles vying to be in the NFC championship game but the Philadelphia Exchange indices are leading the way in the market. Look at the PHLX Gold/Silver index up 12% year to date, PHLX Semiconductor index up 10%, and the PHLX KBW Bank index up 6%. A late day rally on Friday has helped give stocks a nice run to start the year and three positive weeks for the Nasdaq. To quote two of our most famous traders from the Philly exchange (by way of the movie, Trading Places) Louis Winthorpe III “Looking good, Billy Ray.” Billy Ray Valentine “Feeling good, Louis.” Data as of the close of business 1/20/23.
Bruce “The Boss” Springsteen and the Anatomy of a Value Stock
Bruce Springsteen continues to have a prolific six-decade career as a Rock and Roll mega star. He has sold over $140 million records, which makes him the Warren Buffett of contemporary music. His long-term success can only be envied by investors as long-term is our overriding mantra. But Bruce as a value play, let’s look… Value investing can easily be described by a quote from Charlie Munger…”All intelligent investing is value investing…acquiring more that you are paying for. You must value the business in order to value the stock.” It involves going against the favored crowd, anticipating the prospects years down the road, the ability of a company to scale, and the opportunity for long-term wealth generation. The Wall Street Journal recently highlighted the 50-year anniversary of the release of the Bruce Springsteen studio album “Greetings from Asbury Park, N.J.” in January of 2023. Upon its release, the album garnered little fanfare as compared to the “shiny new” progressive rock bands of the time like Jethro Tull and the Moody Blues. The album only managed at its best to reach 60th place on the US charts (two years after its release) and did not even chart in the UK. The reviews were good, but the masses did not see the value. Springsteen was well known in his market and extremely diligent at his craft, but was considered “a cheap, bar band take-off of Bob Dylan”. The rest is history…after tireless touring all over the country, the band became more than the east coast leader of the Jersey Shore Sound and after the release of “Born to Run” they were off to the races. The “Greetings” album, which took years to even chart, ultimately did chart in the UK at 41 in 1985 and is ranked 37th on the Rolling Stone’s list of greatest debut albums. Value is in the eyes and the ears of the beholder, whether the art form is music or investing. As for 2022, the recap is well known now. It was a very difficult year for both stocks and bonds (fixed income) as the Fed realized they missed the mounting inflation problem and continues to attack higher prices with interest rate hikes to slow the economy. We continue to believe that current inflation is a direct result of the record amounts of stimulus added to the economy because of the Pandemic and will most likely just need time to dissipate through the system. For the record, value investing was the best house in a bad neighborhood as the Dow was down 8.78% last year versus a drop of 33% for the Nasdaq, 19% for the S&P 500, and not to be outdone, a drop of 11% for fixed income. Looking ahead, we believe that a combination of earnings that are stable, mixed with a significant drop in prices from peak inflation could help us bounce back in the year ahead. Whatever happens on Wall Street, we will continue to search for value in our investments and look forward to seeing everyone personally in the New Year. Thank you again for your confidence in our firm.
There is Always A Bull Market Somewhere
With stocks and fixed income both in the red this year, we continue to remind people that “there is always a bull market somewhere”, making the case for a diversified portfolio. 2022 to date has certainly tested the resolve of investors, the classic 60-40 stocks to bonds allocation model is suffering its worst performance since the Great Depression, currently down about 18%. We have had some re-assuring good news in several stocks that many of our clients own (full disclosure). For example, a huge spike in energy costs has lifted Chevron up 56% year to date. In the arena of health and bio-tech, Regeneron just recently had the first FDA approval for an eczema treatment (Dupixent)for adults. The stock is up 17% this year. With the attention and funding going into infrastructure projects, combined with high crop prices, John Deere has managed a 15% increase this year. Finally, as the Fed combats inflation with higher interest rates, regional bank NBT is up close to 24%. The point is, stocks move with the market in both bull and bear markets, but having a diversified portfolio with investments that don’t always correlate with these moves can help mitigate the risks. Performance data as of 11/4/2022. Past Performance is no guarantee of future results.
Alone With My Thoughts – 10/17/2022
It is October and we have entered the Clown House of volatility with intra-day swings of 5%+, so buckle up for the ride. For markets, the Fed’s reaction to inflation is the key, as higher interest rates are kryptonite to stock values. Unfortunately, politicians do not seem to understand the basics. If you throw literally trillions of dollars into the economy at the same time there are supply issues, you will by definition get inflation. The Fed will then raise rates to slow the spending and cool off the economy. Hard stop. If the government continues to print money, the Fed cannot raise rates high enough and fast enough. Politicians need to stop handing out money to voters. A recent Barron’s article. “States’ Stimulus Spending is a Negative for the Fed”, points this out, that states are prepared to spend $31 billion in stimulus programs. For example, Kirsten Gillibrand is doing the Thruway tour touting the $1 billion dollars of funding for higher heat costs this year. Feel good moment, yes, helping combat inflation…just the opposite. Social security going up 8.7%, a nice boost for seniors and a nice boost for inflation. Forgiving student debt, does not forgive higher inflation. The bottom line, inflation-relief measures tend to increase inflation which crushes the working class. Beware the Clown bearing gifts.
Alone With My Thoughts – 08/15/2022
The definition of a bear market is pretty straight forward…a 20% drop over 2+ months from previous highs. That is what we are in and there have been only 3 bear occurrences since 2000, with one of them lasting just 33 days (2020). (Technically, the Nasdaq market has now entered bull market territory, having rebounded 20% higher than its recent low). The idea of being in a recession appears to come with a bit more debate…is it two consecutive quarters of negative GDP growth, or a combination of negative growth, high inflation, and an increase in unemployment. While we wait for the bureaucrats to argue the definition, let’s consider two things, one, once they label a recession, we are probably on our way out of it, and two, recessions should be viewed with respect to their level of magnitude. With a strong jobs report and now a cooling of inflation from recent highs, the economy appears to be hanging in there. If the recession remains mild, and inflation tempers, that could be the definition of a recovering stock market.
Alone With My Thoughts – 06/15/2022
Today the Fed took another shot at inflation, raising interest rates by 75 basis points. During the pandemic in 2020-21, and also the Great Recession of 2008-09, the playbook was to throw money at the problem by either keeping interest rates at zero percent or by literally giving people money to spend our way out of a jam. The result of all the free money (trillions with a T) is the aggressive inflation which now needs to be addressed. The multi-trillion dollar question then is…can the Fed raise rates enough to slow the economy without throwing us into a recession and/or a much steeper downward spiral in stocks. The better question may be…are we fighting yesterday’s war and should we be putting our efforts towards freeing up the supply chains, loosening the grip of government controls on US businesses, and letting post-pandemic demand play itself out over a period of time. The only thing that is transitory is any Talking Head taking responsibility for their economic calls.
Alone With My Thoughts – 06/09/2022
Friday’s upcoming CPI report will unfortunately tell us the same story that we are living, that prices are higher and they are sticky at these levels. Inflation can be an insidious threat to our economy, acting like a silent tax on our day to day life. From our friends at 10-K Diver here are some pointers on dealing with inflation. Be a consistent earner, meaning now is the time to be valued in order to maintain and increase your income streams. Continue saving by being even more aware of what and how you are spending your money. Finally, inflation proof your portfolio by investing in companies that have pricing power, very manageable debt loads, and are capital light. Inflation is happening and will be working its way through the system for some time.
Alone With My Thoughts – 05/24/2022
Warren Buffet’s rule number one is to “not lose money”. His rule number two is “see rule number one”. That being said, our goal is to build long-term investment portfolios that can withstand the inevitable bear markets and recessions that cycle through any economy. We also are committed to protecting your assets from the unfortunate tremendous growth in Cyber Fraud. Everyone needs to be vigilant when it comes to their money and its place in the digital world.
Alone With My Thoughts – 05/06/2022
Yesterday, the White House again touted the fact that they have cut federal deficits by historic amounts the past two years. Just keep in mind that the deduction is only in the predicted yearly deficit, in other words the national debt is still going up in historic fashion, but just not quite as fast. In classic political double-speak, the Biden administration would have you believe that they were able to cut the deficit by $350 billion last year, but due to pandemic emergency spending running out, if they had done nothing, according to the Committee for a Responsible Federal Budget, the deficit growth would have slowed by $1 trillion, much more than what they are hanging their hat on. Whether Republican or Democrat, unfortunately our elected leaders do not appear to have the resolve to tackle governmental spending and now we get to deal with the effects of higher interest rates begotten from higher inflation. The more you repeat something the more likely you are to believe it.
Alone With My Thoughts – 12/29/2021
Happy New Calendar Year It is time to flip the calendar on another year and also to reflect on what has been a very impressive market in 2021. Speaking of markets and calendars, the total return on the S&P 500 (the 500 largest US companies) has been quite impressive for the past 95 years, or dating back to 1926. Think about this, over this period we have seen countless historical events…wars, depressions, recessions, embargoes, financial crisis’s, and throw in a pandemic, yet the market has still had a 10.3% average annual return. Remarkable. Even more remarkable, over these 95 years we have only seen seven calendar years where the market is down by 14% or more, just seven. On the flip side we have seen 48 years (more than half) up 14% or more. We cannot predict the future but we can use the odds to our advantage. Here’s to a healthy and happy 2022! (research source Ibbotson Associates)