Insights

January 12, 2024No Comments

Here we go again with one of my musings blogs. Various insights from differing sources. Enjoy!

Don’t trust the media

Yet again, don’t pay attention to the media and talking heads. Both of these headlines appeared on my iPhone stock quote app on the same day in early January:

 

From Howard Marks

Howard Marks of Oaktree Capital is one of the most respected Portfolio Managers in the world. He’s a big picture man, and he’s known to be very insightful. Here’s a summary from his most recent research (available here) on how he summarizes an economic cycle, and how investments are impacted:

  • First, simulative rate cuts bring on easy money and positive market developments;
  • which reduce prospective returns;
  • which leads to willingness to bear increased risk;
  • which results in unwise decisions and, eventually, investment losses;
  • which bring on a period of fear, stringency, tight money, and economic contraction;
  • which leads to simulative rate cuts, easy money, and positive market developments. 

Here’s a summary of Mr. Marks current outlook & observations:

  1. The period from 1980 through 2021 was generally one of declining and/or ultra-low interest rates.
  2. This had profound ramifications in many areas, including determining which investment strategies would be the winners and losers.
  3. That changed in 2022, when the Fed was forced to begin raising interest rates to combat inflation.
  4. We’re unlikely to go back to such easy money conditions, other than temporarily in response to recessions.
  5. Therefore, the investment environment in the coming years will feature higher interest rates than those we saw in 2009-21.  Different strategies will outperform in the period ahead, and thus a different asset allocation is called for.

 

Brooke Thackray on “Buy Now, Pay Later” spending

“When consumers are buying their groceries on a BNPL plan, this is a sad statement and is indicative of the increasing financial stress. “Over the course of 2023, BNPL spending rose about 14%, hitting $75 billion” (Market
Watch January 5, 2023).
BNPL is the last line of spending for consumers. It cannot be pushed out any further. At some point, a group of consumers will simply not have additional means to spending and will be in big trouble. Not all consumers of course, but the decreased spending will have an impact on the economy.

Governments have been on the BNPL plan for quite awhile, but they are ramping up their debts at an alarming rate. It is a bit different for governments compared to consumers, because western governments have greater resources to pushing their debts and problems further into the future. Nevertheless, the current situation has become problematic. Currently, the US government has a national debt of $34 trillion (Yes, trillion with a “T”). The government doesn’t seem to care and has forecasted a debt of $50 trillion by 2033.”

 

Presidential cycle

If we look at the Presidential cycle for the DJIA chart below, we can see that the pattern has been pretty accurate during the Biden era. For example, the mid-term (2022) was soft, leading into the pre-election year (2023) as strong.

The pattern for election years is:  Soft in the first half, strong in the second half.

Hey, its only been 2 weeks – but so far, it seems to be on track with the cyclical average….

Of note

  • The updated version of my book Sideways is out. Here is the link.
  • You can subscribe to the monthly ValueTrend Update newsletter – which is an abbreviated version of the newsletter privy only to clients of ValueTrend – it contains insights that you won’t always get in the blog. You can receive either or both of these resources in your inbox automatically. Click here to subscribe.
  • Note that you will NEVER be spammed or have your email address recirculated in any way, shape, or form if you subscribe to one of our publications. I give you my word.
  • I also do video’s on topics not covered in this blog. For example: My recent interview with Peter Hodson was well received. You can subscribe to the videos to come to your inbox too. Click here to subscribe. 

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