Newsletter

Inflation is supposed to be very scary for investors, but we believe there’s a way to position to benefit from it. What characterizes stocks that are attractive to own now, based on what we know about wages and prices? Ideally, a business that has pricing power for its goods or services (customers will pay up, rather than substituting an inferior good or just putting off the purchase altogether) AND is not as exposed to structural labor cost increases.

Boluan Fanzheng is a Chinese idiom meaning “to bring order out of chaos” but also to “return to the rectitude of the past”. Today, the U.S. markets are receiving more chaos than order from China. How should you position your portfolio for China macro risk?

Let me state this opinion: I do not believe Amazon, Apple, Facebook, Google and Microsoft are an oligopolistic cartel colluding to freeze out competition. Rather, the
largest competition for each of these companies (excluding foreign companies and governments actively trying to steal their intellectual property) is each other.
Here’s what I think criticism of these companies and their perceived market dominance is missing. The shockingly enormous success of these enterprises indirectly funds a huge number of smaller companies.
Stock idea discussed: Thor Industries (THO)

The attractiveness of speculation is inversely related to fear of losing money. What has the investing public learned from the corona-panic and the financial crisis before that? We suggest that the lesson has been: the Feds don’t want you to lose money, and the government likes a stock market that goes up. However, it’s unlikely this will continue indefinitely. We explain how we construct portfolios to account for this eventuality and for other risks.

Biden’s $2 Trillion infrastructure plan, unveiled last week, promises to be a boon to select companies, their employees and the economy in general. Unfortunately, the dark side of the plan is that it will be paid for by raising tax rates on corporations. We explain how to position your equity investments.

Last month, shares of a marginal retail company briefly rose to $500 from $20. Some thought
this was a bad sign, but does it mean anything at all?

Conditions appear very good for equities heading into 2021. Governments are spending trillions to stimulate economies and we estimate > $50 trillion of fixed income or bank deposits earning nothing or next to nothing. Meanwhile, globalization and technologies are concentrating profits in corporations and a greater number of individual investors are entering the market at a time when the number of public companies has shrunk. Markets have momentum, comparisons are easy, and investors aren’t requiring fast growing companies to show a profit.

Despite media and political fear gauges boiling over, consumer behavior has continued to normalize. That’s at least according to the company management teams with whom I have spoken over the past two weeks. Various data sources also continue to suggest that consumers remain chill. Will this change? Will people freak out during the gap between now and when the vaccine is widely available?
My response from a purely investment standpoint: It does not matter.

Covid numbers & stimulus dynamic matter much more, in our opinion. Over the next few weeks, we expect to be inundated with articles on discussing each candidate’s respective platform and the potential ramification for stock prices. However, the reality is that not much will change, regardless of who wins, at least in the foreseeable future. Both candidates will continue the Fed’s stimulative policies with trillion-dollar packages likely, and neither will make coronavirus go away. Get ready for a few weeks of handwringing and anxiety which will eventually cumulate in the unsatisfying sensation of being exhausted from running in place.

Following last week’s setback equity markets (the S&P500) are still up 6% YTD and more than 50% above than the depths of corona-panic levels in March. We anticipate it getting more difficult over the near-term. The recovery in sectors hurt by Covid19 is decelerating. Meanwhile, many companies that have benefited from the pandemic have their best results behind them. The Fed remains supportive, but more than 10 million people are still without a job compared to last year. It took five years to create 10 million jobs in the period leading up to 2020. Next up, a two-month countdown to a Presidential election in an era of simmering social tension.