Index January 2023 Return
Dow Jones
34086.04 +2.83%
S& P 500
4076.60 +6.18%
Nasdaq
11584.55 +10.68%
Russell 2000
1931.94 +10.35%
Oil- 85.53 (Brent) -.53%
Gold-1943.10 +6.14%
Silver-
23.765 -1.82%
10 Yr. Treasuries-
Yield-3.51% -37 bp 100BP=1%
US Dollar Index -1.38%
Bitcoin
23,083 +39.32%
Y H & C GARP Portfolio +6.7%
(Returns not GIPS Certified)
Data comes from Interactive Advisors
Concentrated GARP Portfolio +5.8%
(Returns not GIPS Certified)
Data comes from Interactive Advisors
U.S Economic & Financial Markets Outlook-Retailers Loaded with Inventory as Markets Anticipate the Fed! (Return figures in this section come from the January 31, 2023 edition of the Wall St. Journal. Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research the investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
In January, the Dow Jones Industrial Average gained 2.83%, the S&P 500 increased 6.18%, and the Nasdaq rose by 10.68%. With nearly every major economist in the canyons of Wall Street calling for a 2023 recession, the economic data shows the economy holding up well. Based on research by the Institute for Economic Research, fourth-quarter GDP rose 2.9% (versus the expected 2.6-2.7%). Naturally, the specifics require more contemplation. Consumption growth slowed from 2.3% to 2.1% as personal services led the spending. Business investment fell by 3.7% while inventories and trade grew GDP by 2%. The biggest drawback came from residential investment, off by 26.7% in the quarter. Rising mortgage rates led to a fall in mortgage applications by 51%. One of the major factors helping the economy is the amount of cash built up during the pandemic. As of October 31, 2022 (based on Axios reporting), U.S. household savings stood at more than $1.7 trillion, with half of that residing with the highest-earning households. The excess balances built up provide a cash cushion that is being drawn down as time marches on. One can look at the tight labor market in conjunction with the cash balances and presume many people are living off the cushion and foregoing job-seeking as long as possible. Until people have more of an urgency to pound the pavement and become job seekers, the labor market, and potentially wage inflation, will probably remain sticky in an elevated way.
As for positive news on the economic front, one area which remains strong is the travel and leisure sector. The urge to visit other locales is a massive lift to hospitality and dining as individuals and companies continue to spend at rates equal to or exceeding 2019 levels. The biggest areas to watch in 2023 remain housing and real estate. With the work-at-home alternative continuing to affect commercial occupancy (only now breaking 50% for employees in many major corporations), some of the major cities remain very depressed relative to pre-pandemic levels (San Francisco, NY, Chicago). The technology area has seen quite a few high-profile announcements of job layoffs, so the mood in Silicon Valley is subdued.
Turning to the corporate reporting season, fourth-quarter earnings have been rolling in over the past few weeks. Banks reported large profits but are preparing for a meaningful slowdown (recession) as loan loss reserves escalated. With 2022 a terrible year for the IPO market, there is optimism that the merger and acquisition area will see an improved year. Clearly, the large number of depressed equity areas would dictate consolidation. As for the markets, January saw a meaningful rebound in many beaten-down sectors. While remaining severely lower than their historical averages, the uplift has brightened the spirit of many investors. With a potential catalyst in three to six months’ time of the Federal Reserve changing interest rate policy, each situation requires a very rigorous examination of its own merit. Imagine that.
Global Economic & Financial Markets Outlook- Improved Europe May Avoid Recession as A Warm Winter Relieves Energy Fears; China’s Reopening Could Ignite Energy Prices! (All country index data provided by countryeconomy.com, January 31, 2023,)
One of the interesting things about economics is the constant change in the ebb and flow of the world economy. Let’s gaze back a few months, shall we? Around the early fall, think September and October, it was widely assumed the Eurozone would experience a deep recession in 2023, as would the UK. China was seen as a wild card with the zero covid policy thought to be eliminated by the middle or end of 2023. Now, only one month into the new year, those prior predictions have changed dramatically.
The Eurozone is potentially seeing growth while China’s economy is rapidly reopening, and low and behold, it is possible the world gets a stimulative Chinese government. Growth in Europe will help the major economies of Germany, France, Spain, Italy, Portugal, and Greece. An open China certainly helps commodity exporters like Brazil and Australia, as well as trading partners Japan, South Korea, Thailand, Taiwan, Hong Kong, Singapore, and Germany. Looking ahead, the wild card is the reemergence of inflation because of the increased demand for commodities, especially oil, and gas. Inflation levels will dictate monetary policy at the ECB, which was caught on its back foot even more than the Federal Reserve.
The other factor which must be considered is the situation in Ukraine. Clearly, Vladimir’s original calculus was more than a little off. The question becomes will he continue on this course, and for how much longer, or when do his advisors, if there are any rational ones, persuade him the wisest action when you are in a ditch is to stop digging? The answer will affect energy and food markets in a major way.
The Art of Contrarian Thinking-How I Invest Money For Clients and Myself! (YH & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research the investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
One of the biggest issues in the world is credibility. People all over the globe have little faith in what is said by others. The problem is especially severe for those who are in a position of authority or who have large levels of responsibility. In my position, as a steward of clients’ money, credibility is only earned by investing capital in a thoughtful and responsible way. It must be consistent with whatever is said and written. It is why I use a policy statement that details the goals and how capital is allocated to achieve the stated objectives. It is always specific to the client.
On a personal level, I invest capital using a variety of strategies and techniques. As a staunch believer in Peter Lynch’s idea of incorporating personal experience and knowledge into your investment holdings, I’ve used my own life’s journey to invest in individual equities. As an example, I have taken a few trips to Hawaii and became familiar with the economics, demographics, and logistics of the state (multiple islands). Quite a few investments revolve around quality assets in Hawaii, and I pay close attention to what takes place there, and with these companies. Another strategy that I incorporate is to make sure we own assets that generate income, typically dividend-paying companies. Usually, I take gains from other positions which have performed well, like buyouts or mergers, or where there has been plenty of capital appreciation, and recycle the capital into income-generating assets which are reliable. By reliable, I mean their cash flow covers the payouts, often referred to as the payout ratio. Another area we invest capital is called aggressive situations. Usually, it is smaller companies that I feel are compelling based on their individual business. The majority of these are microcap, small-cap, or unique situations which are followed by very few investors. I hope this helps people get a better understanding of how I go about investing client money.
Y H & C Investments- February Update
It was a particularly nice month for the markets, and we participated in a big way. A large position that we have built and nurtured for many years reported its results and the investment world responded nicely. A few years ago, the company suffered a tough time, through no fault of its own. Management did an excellent job of improving the position and using the pandemic to greatly strengthen its operations. The same thing has happened in quite a few other holdings, too. The big lesson is we continue to benefit by sticking with holdings where the stock price does not necessarily represent the quality of the company. Cutting and running is usually not a great strategy if you own high-quality entities, at least in my experience.
Thanks for reading the newsletter this month, and if you think it is worthy, recommending it to a friend or family member would be greatly appreciated.
(Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research the investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
