Quarterly Market Commentary Archives

Halftime 2022

July 22, 2022/in Articles, Quarterly Market Commentary/by Mackenzie Edwards

In 2013, the Federal Reserve of the United States began publishing a report on the Economic Well-Being of US households. The survey includes modules on a range of topics relevant to financial well-being including credit access, behaviors, savings, retirement, economic fragility, and education. In 2021, self-reported financial well-being increased to the highest percentage in the nine-year history of this survey with 78% of respondents saying they’re “doing at least okay.” In addition, Gallup found that Americans’ satisfaction with “the way things are going in their personal life” neared a 40-year high in early 2022, even though their satisfaction with “the way things are going in the U.S.” neared a 40-year low. Derek Thompson of the Atlantic refers to this as the “Everything Is terrible, but I’m Fine” philosophy as people all over the world tend to be individually optimistic and socially pessimistic.

Unfortunately, the “I’m fine” portion of this philosophy has been starting to deteriorate. Consumer sentiment plunged in early June to the lowest on record, and for good reason. With inflation running north of 8%, gas prices averaging over $5 per gallon, and mortgage rates nearing 6%, consumers are becoming stressed, and some leading indicators suggest economic activity has been slowing. The financial markets have reflected this through the first half of the year with the S&P 500 Index, NASDAQ and the Aggregate Bond Index declining -20.0%, -29.2% and -10.6% respectively. The S&P 500 is now officially in bear market territory after its worst first half-year in over fifty years. In addition, the markets now look a lot different than they did 18 months ago. Back then, Zoom Communications had a larger market cap than Exxon Mobil while today, Exxon Mobil’s market capitalization is now ten times larger than Zoom’s. The formerly formidable FANG stocks have mostly corrected with Amazon down 36%, Netflix down 70%, Facebook (now Meta) down 52%, and Nvidia off 48% from their highs. Cathie Wood’s flagship Ark Innovation fund has fallen more than 60% from its February 2021 high, wiping out all its post-pandemic gains.

Talk of a recession has been palpable and according to the Atlanta Fed’s GDPNow Model, we may already be in one as inflation has started to negatively impact household spending. However, it’s not just consumers who are starting to feel this pain: input costs for the S&P 500’s constituents have experienced an increase of 14.7% year-over-year. A combination of higher labor, material, and transportation costs are causing margins to tighten and in response many businesses have started reducing their earnings forecasts and announcing hiring freezes & layoffs.

Recession or no recession, there’s no denying the world feels like it’s a mess right now. News outlets, journalists, and reporters are repeatedly comparing today’s tribulations to the 1970’s. To be frank, it’s hard not to see similarities. However, investment opportunities have also historically been created when the economy and/or markets decline and we have also observed some positive signs with supply chains starting to improve, and most input costs starting to stabilize or even decline. The unemployment rate is hovering around 3.6%, nearly matching the 50-year low of 3.5% just before the pandemic took hold in 2020. Consumer spending may be softening but remains robust. Consumption makes up 70% of the U.S. economy and while the savings rate has fallen, collectively consumers have never been in a better financial position with more than $17.9 trillion of cash and cash equivalents (Federal Reserve). In addition, the 12-month forward price-to-earnings ratio (P/E) for the S&P 500 Index is now about 15.5x, approximating its historical average and making the equity market much more attractively priced than when it reached a peak of 23x last year. The 70’s may have been the worst decade economically since the Great Depression but it was also when now legendary American businesses including Microsoft, Apple, and Home Depot were born. Similarly, we think the significant declines in the financial markets during the first half of 2022 have created opportunities for better returns going forward.

Mackenzie Edwards – July 2022

IMPORTANT DISCLAIMER: Inlet Private Wealth^®, LLC (“Inlet Private Wealth^®” or the “Firm”) is a SEC registered investment adviser with its principal place of business in Jupiter, Florida. Unless otherwise noted, all data has been obtained via Bloomberg^®. Inlet Private Wealth and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Inlet Private Wealth maintains clients. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. The data contained in this report was gathered from what we believe to be reliable sources, but we cannot guarantee its accuracy. For information about Inlet Private Wealth’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

Russia Unplugged

April 20, 2022/in Articles, Quarterly Market Commentary/by Ted E. Furniss, CFA

During the first quarter of 2022, the NASDAQ briefly fell 20%+ from its high into bear market territory and the stock market has arguably had all but the kitchen sink thrown at it during 2022: Russia’s invasion of Ukraine, an uptick in global Covid cases, higher oil prices, inflation running at 40 year highs, rising interest rates, the inversion of the yield curve, and tightening fiscal conditions. Some of these dynamics are interrelated and arguably equity markets have held up relatively well with the S&P 500 declining -4.6% year-to-date. However, bonds have been unable to serve as a hedge for equity market declines and are on pace for their worst year since 1949 due largely to inflationary pressures and a rise in interest rates.

Growing up on a farm, Swift became interested in horses at a young age, and according to the New York Daily News , “Her first hobby was horseback riding.” According to the article, Swift “took riding lessons and eventually began participating in horse shows around the age of 7.” Taylor Swift facts the singer later shared photos from her childhood that show her interest in beautiful animals. An article for Rolling Stone shows a photo of Swift at age 10 standing next to a horse in her riding gear.

To date, about the only thing Putin has accomplished by invading Ukraine is the elimination of Covid as frontpage news. However, cases of Covid picked up meaningfully worldwide during the first quarter of 2022 and the rapid spread of the BA.2 Omicron subvariant in China has resulted in the closure of entire cities and additional strains on global supply chains, increasing inflationary pressures. China’s authoritarian approach to Covid cases is now unique to the approach of liberal democracies where 7 out of 10 Americans agree with the sentiment that “it’s time we accept Covid is here to stay and just get on with our lives” and more than 4 in 5 Americans either feel ready to travel or have already started doing so.

The first casualty of Putin’s invasion of Ukraine was the truth. His launch of a “special military operation” on February 24^th after building up Russian forces on the Ukrainian border for several months was claimed a preemptive act of self-defense and an effort to “de-Nazify” Ukraine. The fact that Ukraine’s president Volodymyr Zelensky is Jewish and lost family members during the Holocaust has not halted this Kremlin narrative. As a result, a Putin led Russian government that lies all the time will have trouble getting anyone to listen even when it tells the truth. Putin’s hubris resulted in a gross miscalculation of Ukraine’s sense of nationhood and/or his ability to conquer the hearts and minds of Ukrainians. Putin also significantly underestimated the unity of the West because while he wants a tamer/weaker NATO, his actions have resulted in the opposite: Sweden and Finland are now thinking of joining the alliance, Switzerland has abandoned its historic neutrality and Germany has abandoned pacifism and will become the world’s third largest military spender. The West has also responded with “shock and awe” economic sanctions that have effectively unplugged Russia’s prior 30 years of integration into the global economy. According to Yale University’s Jeffrey Sonnenfeld, more than 600 western firms have announced plans to suspend or scale back their operations in Russia. JP Morgan recently forecasted that Russia’s economy will contract 35 percent in the second quarter of 2022. In addition, tens of thousands of Russians that conduct business internationally have fled the country to escape the spiraling effects of Putin’s invasion of Ukraine. The “brain drain” from thousands of educated and skilled people leaving Russia will cause a long-lasting economic blow if they choose not to eventually return. While sanctions and corporate shutdowns may feed into Putin’s narrative about Western countries, they also signal to the Russian people that access to capital is not a right, it’s a privilege and as such something has gone quite wrong.

The Federal Reserve has a dual mandate to promote maximum employment and stable prices. While there are currently 1.8 jobs for every unemployed person and the unemployment rate is only 3.6%, inflation is running at 7.9% in the US, its fastest pace in four decades. Increases in wages are not keeping pace with increases in consumer prices and as a result, consumer confidence is at a 10-year low. Oil prices have significantly increased due to tight supplies and Russian sanctions. Nickel prices were up five-fold and wheat prices are up more than 50% since Russia invaded Ukraine. Increases in fertilizer costs have contributed to the World Food Price Index recently reaching its third highest reading in history. The Fed recently raised interest rates but when it comes to the stability of prices, it has waited too long to act and the yield curve recently inverted. Historically, an inversion of the yield curve has been a very accurate leading indicator of recessions, and this creates a conundrum for the Fed in that if they raise rates too aggressively, it could impair the economy and cause a recession but if they do not raise rates aggressively enough, inflation could remain well above their target rate of 2% annually. The Fed is confronted with a very narrow path to bring inflation under control without causing a recession.

The inspirational resolve of the Ukrainians coupled with Putin’s prison-yard psychology that prohibits showing any weakness makes it unlikely there are “face saving” measures available to him that the U.S. and its NATO allies would accept. As a result, the war in Ukraine will likely last longer than most predict. We expect 2022 will continue to be volatile and while typically uncomfortable, it is often the genesis that creates attractive investment opportunities. At the present time, there are many cross currents, but we are optimistic that as we navigate through them, we are well positioned to take advantage of opportunities as they present themselves.

Ted E. Furniss, CFA – April 2022

IMPORTANT DISCLAIMER: Inlet Private Wealth^®, LLC (“Inlet Private Wealth^®” or the “Firm”) is a SEC registered investment adviser with its principal place of business in Jupiter, Florida. Unless otherwise noted, all data has been obtained via Bloomberg^®. Inlet Private Wealth and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Inlet Private Wealth maintains clients. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. The data contained in this report was gathered from what we believe to be reliable sources, but we cannot guarantee its accuracy. For information about Inlet Private Wealth’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

What’s in a Meme?

February 8, 2022/in Articles, News, Quarterly Market Commentary/by Ted E. Furniss, CFA

“Meme” conceptually originated with Richard Dawkins in his 1976 book “The Selfish Gene.” Its initial genetic connotation has since evolved into a form of symbolism that spreads by imitation from person to person. During 2021, “meme stocks” became synonymous with companies having arguably dubious long-term business prospects and a cult-like following of stock traders that created buying frenzies through social media resulting in sky-high share price increases. It was not uncommon for video game retailers with physical locations (GameStop) or movie theaters (AMC Entertainment Holdings) to quickly double or triple in price. The intrinsic value of an investment is irrelevant, all that matters to a meme trader is if there will be someone willing to pay more than them (minutes) later. However, just as “a rose with any other name would smell as sweet,” a meme stock is effectively just another name for an illegal “pump and dump” scheme.

The advent of commission free trades may have helped to “democratize investing” but it has also aided and abetted meme schemes. Coupled with Robinhood’s gamification of investing, commission free trading has also significantly shortened investment time horizons and effectively turned some financial markets into giant casinos. According to the CBOE (Chicago Board Options Exchange), options trading, which can be riskier than stock trading, surpassed stock trading activity during 2021 for the first time in history (based on notional value). There are now over 8,000 cryptocurrencies to choose from, more than all the stocks listed on the New York Stock Exchange and NASDAQ, combined. However, unlike sports gambling and casino games, there is a time value associated with most investments and its outcomes are rarely instant and/or binary. Alcohol has also played a role with 59% of Generation Z traders claiming in a recent survey by MagnifyMoney to have bought or sold an investment while inebriated. This “greater fool” approach to investing can work extremely well, until like water, a highly overvalued stock seeks the level of its intrinsic value. Or, to paraphrase the philosopher Homer Simpson, alcohol can be both the cause of and the solution to all of life’s problems.

2021 was the third straight year of double-digit gains for the S&P 500. During the year, this index made 70 new all-time highs. However, in addition to the extraordinary returns from “meme trading,” most of 2021’s stock market performance was concentrated among relatively few large cap stocks with the ten largest experiencing an average total return of 49.6%. These ten companies are selling with an average price to earnings multiple of 70 while the index as a whole is selling for 21 times earnings. As a result, the valuation of the S&P 500 Index has become “top heavy.” On average, US stocks finished the year down 28% from their peaks and 38% of NASDAQ stocks have fallen 50% or more from their highs during the year. Tech stocks equally weighted were up only about 14% for the year and two thirds of the companies that went public via initial public offerings during 2021 are now trading below their IPO prices. Diversification is often referred to as the only “free lunch” in investing but the returns from international markets were unpalatable with the Vanguard FTSE All-World ex-US index finishing up just 6.3% and the MSCI Emerging Markets Index down -4.8%. China was down -22% and bonds were certainly not a safe haven with the US Aggregate Bond Index finishing the year down -1.6%.

Inflation as measured by the consumer price index is currently running at 7.0%, well above the Fed’s target rate of 2.0%. Gas prices are over $3 per gallon for the first time in over six years, prices for used cars have increased 42% year-over-year and standard Medicare Part B premiums will be increased by 15%, one of the largest annual hikes in the history of the program. The unemployment rate is currently just 3.9% but 2021 will be remembered as the year of “The Great Resignation” with over 38 million quitting their jobs. While many switched jobs, employers are still trying to fill 11 million openings with just 6.9 million unemployed actively searching for work. According to the Labor Department, 3 million workers retired early because Covid changed attitudes toward work at a time when stock and housing market gains made doing so feasible. 2022 is a mid-term election year which historically have been referendums on the party in power. Inflation currently polls as the key issue for consumers and by extension voters as their after-tax, after-inflation income is underwater. According to Strategas, midterm election years have been the most volatile for the S&P 500 during the four-year presidential cycle with the market correcting an average of 19.0%. With Washington D.C. more divided than ever, the era of the open check book seems over. Monetary and fiscal policy will likely be noticeably tighter in 2022 and the returns of the equity market indexes will likely be modest. Dividends are likely to be a more important component of total returns during the new year and with 45% of the companies in the S&P 500 yielding more than the US 10-Year Note, there are seemingly a lot more stocks to like under the market’s surface for 2022 than toward the top of the S&P 500 Index. As such, the current environment for financial markets seemingly favors active managers like Inlet Private Wealth.

Ted E. Furniss, CFA – February 2022

IMPORTANT DISCLAIMER: Inlet Private Wealth^®, LLC (“Inlet Private Wealth^®” or the “Firm”) is a SEC registered investment adviser with its principal place of business in Jupiter, Florida. Unless otherwise noted, all data has been obtained via Bloomberg^®. Inlet Private Wealth and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Inlet Private Wealth maintains clients. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. The data contained in this report was gathered from what we believe to be reliable sources, but we cannot guarantee its accuracy. For information about Inlet Private Wealth’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

Third Quarter 2021 – Not So Grande

October 7, 2021/in Articles, News, Quarterly Market Commentary/by Mackenzie Edwards

The surge of a new COVID variant, a global supply chain struggling to keep up with demand, inflation on the rise, a major debt crisis in China, and the looming threat of another government shutdown here in the US made the third quarter anything but ordinary. Despite all this uncertainty, the US equity markets did their best to hang in there. For the quarter, the S&P500 was essentially flat with a -0.29% return and the Dow Jones was down -2.28%.

Global supply chain update: Still broken. The queue of container ships waiting to enter neighboring ports of Los Angeles and Long Beach hit an all-time high of 65 vessels in the past couple weeks, and they’ll wait an average of 8.7 days to deliver their cargo. The average transit time from China to the US is now 71 days, compared to 40 days in 2019. This matters because these California ports are the busiest in the US, and they accept more than a quarter of all American imports. Nike and Costco are two victims of these supply chain issues who have recently cut their revenue forecasts for the year. Nike also said that 80% of its shoe factories in Vietnam are currently closed. Be prepared to hear this more and more during the upcoming earnings season. Of all the goods caught up in these bottlenecks, semiconductors and other chips used in electronics may be the most in demand. The global chip shortage will cost the auto industry $210 billion in revenue, according to consulting firm AlixPartners. Automakers are estimated to lose 7.7 million units of production this year because of the chip shortage.

As a result of these bottlenecks and the Federal Reserve’s purchase program of $120 billion of bonds every month, inflation has kicked in and is on the rise. In fact, Dollar Tree (a store that sells a majority of their items for only one dollar) announced that they will be boosting their prices above $1 as their costs continue to rise. To avoid being accused of false advertising, they may soon have to change their name to the “Dollar Tree Plus.” As of August, the U.S. Consumer Price Index, the most widely used measure of inflation, read a 5.3% increase in prices compared to August of 2020. While the Federal Reserve has signaled that they believe this inflation is only “transitory,” these lingering bottlenecks threaten to limit supply and keep inflation elevated. The economic experts at Strategas suggest inflation will likely not be sticky at 5%, but it remains an open question as to whether price changes will remain closer to 3% in years to come. The Federal Reserve has given us more transparency about when they will begin slowing down their bond purchases and, in response, treasury yields are back on the rise. Rising yields don’t necessarily spell doom for stocks. They actually appear to be signaling that a more “normal” economy, one that doesn’t require unprecedented government stimulus, is arriving.

In China, a company called Evergrande promised to deliver apartments to some 1.5 million buyers, who are still waiting for their keys. Some of them have started protesting. They want Evergrande (oxymoron?), the world’s most indebted property developer, to resume construction of the apartments they were promised, or give back their money. On September 23rd, Evergrande seemed to have missed their deadline on interest payments of $83.5 million to offshore bondholders, according to sources quoted in several media reports. The group is now entering a 30-day grace period during which it can still make good with its creditors, but fears have increased about the company’s capacity to manage its $305 billion total debt load. It remains to be seen if and how Chinese authorities will react- whether they will allow Evergrande to collapse, facilitate a restructuring, or bail out the battered group. If that wasn’t already enough Chinese drama for you, President Xi has also been cracking down on industries as he tries to center the country around the ideal of “common prosperity.” During the last three months he has 1) stopped Didi, the Uber of China, from signing up new customers 2) announced plans to break up Alipay, China’s largest digital payments platform 3) expanded a ban on crypto-related transactions 4) limited the amount of time young children can play videogames 5) banned “effeminate” men from appearing on TV and 6) blocked tutoring companies from taking profits.

Although, the media loves to bombard us with negative news, it’s important to remember that there are still positive events happening in the world. The oldest living World War II veteran, Lawrence Brooks, just celebrated his 112th birthday in September. Commercial space flight is officially a reality. In July, Richard Branson and Jeff Bezos separately blasted off into space in their own respective rockets before safely landing back down to Earth. The percent of people in the U.S. who have received at least one dose of a Covid-19 vaccine is now over 65%. Drugmaker Merck just released a study that its antiviral pill, molnupiravir, slashed the risk of hospitalization or death in subjects with mild to moderate Covid-19 by 50%. If approved by the FDA, this treatment could be a huge help to keep hospitals from being overwhelmed. After growing at an annual rate of +6.7% in the second quarter of 2021, forecasters from the Federal Reserve of Philadelphia expect U.S. GDP to grow 6.1% in 2021 and 4.4% in 2022. The net worth of U.S. households rose to a record $141.7 trillion as of June 30th, up 19.6% from a year ago. Of the $5.85 trillion increase in net worth, stocks accounted for $3.5 trillion, and real estate appreciation was responsible for $1.2 trillion. Personal savings in the US is also up more than $700 billion compared to the 10-year average before the pandemic, per Strategas.

With all that’s going on in the world, the fourth quarter promises to be another volatile one. Though volatility may create short term worries, it also typically creates long-term buying opportunities. We will stay tuned.

Mackenzie C. Edwards September 30, 2021

IMPORTANT DISCLAIMER: Inlet Private Wealth, LLC (“Inlet Private Wealth” or the “Firm”) is a SEC registered investment adviser with its principal place of business in Jupiter, Florida. Inlet Private Wealth and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Inlet Private Wealth maintains clients. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. The data contained in this report was gathered from what we believe to be reliable sources, but we cannot guarantee its accuracy. For information about Inlet Private Wealth’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

Halftime 2021

July 6, 2021/in Articles, News, Quarterly Market Commentary/by Ted E. Furniss, CFA

On May 25^th, the number of restaurant reservations made on OpenTable returned to pre-pandemic levels and during June, the average number of video streaming services utilized per U.S. user declined for the first time. “Cord-cutting” is rising again and the number of Costco memberships is now higher than the number of U.S. households that pay for cable TV (Bloomberg). TSA check-ins are now at 2.2 million per day, more than tripling from 600,000 a year ago and nearing their pre-pandemic level of 2.5 million. GasBuddy, an app to find the cheapest gas stations nearby, reports that gasoline demand is 40% higher than a year ago and Hilton Hotels’ CEO highlighted that 93% of its rooms were occupied over the Memorial Day weekend. Despite a pandemic, the Financial Times reported that more than 5 million people worldwide became U.S. Dollar millionaires last year.

Many countries continue to struggle with Covid and the risk from new variants remains. However, the above metrics reflect a collective vibe in the U.S. that the end of the Covid-19 crisis is in sight and the financial markets have responded accordingly. The S&P 500 Index has returned 15.2% year-to-date and there are now five companies with equity market capitalizations exceeding $1 trillion. This highly exclusive club includes Apple, Microsoft, Amazon, Alphabet (Google) and Facebook but this year’s returns have been driven mostly by a rotation from “growth” and “stay at home” stocks into “value” and “economic reopening” stocks. Financial and energy stocks have been leading the way while Tesla’s shares have fallen by a third and a 33% decline in toilet paper sales and softening demand for bleach have turned Kimberly Clark and Clorox from outperformers into regulars on the Wall Street Journal’s 52-week low list.

Disruptions to supply chains, extraordinary monetary and fiscal stimulus and pent-up demand have contributed to an inflation rate of 5.9% for the 12 months ending in May. U.S. gasoline prices now average above $3 per gallon for the first time in more than six years. Lumber prices have nearly tripled since the start of the pandemic. The median home price has advanced 23.6% from a year earlier to just over $350,000 while the number of licensed realtors (1.45 million) noticeably exceeds the supply of homes for sale (1.04 million). The average used-vehicle price was up more than 30% in May from a year earlier even though the average vehicle age on U.S. roadways has increased to 12.1 years – the oldest level recorded. The Fed suggests these consumer price increases are transitory but also recently stated that they will likely raise rates twice during 2023. The need to raise rates seems inconsistent with their use of the word “transitory” but to date, the financial markets have shrugged this off.

Recently released U.S. census data suggests that about half of its population was born after 1981 which was the last time consumer prices moved upwards meaningfully. As such, 50% of consumers are experiencing material price increases for the first time. It will be interesting to observe how consumers respond but with Levi’s CEO suggesting that 25% of shoppers have a different size today than before the pandemic, suggesting that many consumers are spending because of genuine demand. The census data also highlighted how the U.S. population is starting to collectively age with the number of people over 65 now outnumbering children under the age of 5 for the first time in its history. While it seems that sheltering in place during Covid-19 should have helped foster procreation, just over 9 months after Covid-19 related lockdowns in the U.S., the birth rate plummeted by 8% and 25 states have been reporting a greater number of deaths than births. Many other countries are aging more rapidly – in Japan, the number of adult diapers sold is now greater than for babies. However, there have been some areas experiencing noticeable growth with Utah (18.4%), Idaho (17.3%) and Texas (15.9%) leading the way. Florida, often cynically referred to as the “sixth borough,” now has a population that is larger than all of New York State’s and the number of West Palm Beach area luxury home sales increased 116% year-over-year (Redfin), the largest gain of any major U.S. metro area. U-Haul’s pricing has responded accordingly with the cost to move from New York City to West Palm Beach costing 60% more than moving in the opposite direction. Demographics may or may not be destiny, but the most recent census data highlights many trends that may provide attractive long-term investment opportunities.

Inlet Private Wealth just celebrated its third anniversary! The past three years have passed much faster than seems possible and while much has changed in the world during this time, our clients and the financial, investment and legal professionals we work with have remained extremely loyal and tremendously supportive. We are grateful for the opportunity to work with such wonderful people and for the confidence and trust they have placed in us.

Ted E. Furniss, CFA – July 2021

IMPORTANT DISCLAIMER: Inlet Private Wealth^®, LLC (“Inlet Private Wealth^®” or the “Firm”) is a SEC registered investment adviser with its principal place of business in Jupiter, Florida. Unless otherwise noted, all data has been obtained via Bloomberg^®. Inlet Private Wealth and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Inlet Private Wealth maintains clients. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. The data contained in this report was gathered from what we believe to be reliable sources, but we cannot guarantee its accuracy. For information about Inlet Private Wealth’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

Unprecedented – January 2021

January 12, 2021/in News, Quarterly Market Commentary/by Ted E. Furniss, CFA

One of our wittier clients recently commented that on midnight January 1^st, it was the first time in history we all had hindsight that was 2020. Even Nostradamus could not have had the foresight to predict the magnitude of the Covid-19 pandemic, that oil prices would fall below zero, that shares of Hertz would significantly appreciate after declaring bankruptcy, or that pharmaceutical companies could develop multiple vaccines in less than one tenth of the time it has historically taken them to create just one. There were so many “unprecedented” events during 2020 that the use of this word now feels trite.

Financial markets behaved capriciously during the year with the S&P 500 surprisingly finishing up nearly 18% while concurrently the global economy noticeably declined. With the benefit of 2020’s hindsight, the large outperformance of the S&P 500 versus the economy last year was primarily due to the difference in the composition of the S&P 500 compared to the US economy. Apple, Microsoft, Amazon, Alphabet and Facebook combined comprise 21% of the S&P 500 but collectively generated 66% of its returns. However, compared to the US economy as measured by gross domestic product (GDP), the collective net income of these five stocks during the year represented only 1% of GDP. The S&P 500 is arguably now “top heavy” from the appreciation of its largest constituents. For example, Apple, the world’s largest publicly traded company based on its market capitalization, is valued at $2+ trillion making it worth more than all the constituents of the Russell 2000 Index, combined.

As we enter 2021, many remain cautious or understandably, afraid. There is currently $500 billion more in money market funds compared to pre-pandemic levels. 79% of the more than 500 institutional investors recently surveyed by Natixis SA do not expect GDP to recover to pre-Covid levels before 2022. Handgun sales increased year-over-year by 81% and personal savings rates are at decade highs. However, there have also been increasing signs of what John Maynard Keynes referred to as “animal spirits.” Margin loans or the use of debt to buy publicly traded securities is at all-time highs. Individual investors opened more than 10 million new brokerage accounts during 2020, a record. The volume of traded option contracts, risky securities that are levered to the change in price of an underlying security, were 48% higher than during 2019. Initial Public Offerings (IPOs) have started to party unlike any time since 1999 with more than half of these new issues being speculative, special purpose acquisition companies or SPACs. At the start of last year, Berkshire Hathaway held enough cash to buy Tesla, twice. Enthusiasm from Robinhood’s investment community and Elon’s Musketeers helped to drive Tesla’s share price up so much that at the end of the year it was the 5^th largest publicly traded company in the US, making it larger than all of Berkshire Hathaway. Bitcoin, once referred to as “a charlatan attracting delusion that is likely rat poison squared” by Warren Buffett, arguably one of the greatest investors of all time, recently sold for more than $40,000, up from $7,000 at the time of his statement.

It is challenging to describe the current prices of most investable assets as inexpensive. The S&P 500’s price to earnings ratio is currently 31x. In 1990, a $5 million portfolio of investment grade municipal bonds could generate $362,500 of tax-exempt income annually; today, it takes $36 million to generate this much income. As a result, many investors that would like to buy bonds are no longer able to “afford” them. Technology now represents 38% of the S&P 500’s market capitalization but accounts for just 6% of US GDP and 2% of employment. However, the collective optimism of investors that is being reflected in asset prices has some merit. The Fed is expected to keep interest rates near zero until 2023 and to continue purchasing $120 billion worth of bonds each month until the economy is near full employment. The money supply has been growing at an annualized rate of 25% and while this would typically stoke broad inflationary pressures, to date, an historically high savings rate has resulted in the inflation of asset prices, not the real economy. During a time of extreme political polarization, Republicans and Democrats have worked together to pass multiple fiscal relief bills. With a so called “unified government” in 2021 and interest rates hovering near zero, these levels of fiscal and monetary stimulus are likely to continue unabated.

John Kenneth Galbraith once said, “the only function of economic forecasting is to make astrology look respectable.” Having provided this disclaimer, the 2021 consensus forecasts are for GDP growth of 4% and for the S&P 500 to gain 7.4% and there do seemly remain some areas of potential opportunity for investors. As the pace of vaccinations improve and fiscal & monetary stimuli increasingly flow into the economy, small and medium sized companies should start to noticeably recover and with interest rates close to zero and likely to stay there for some time, quality dividend paying stocks seem relatively attractive. It is likely the New Year will present more than its fair share of challenges but the mere changing of the calendar to 2021 does makes it seem likely that it will be an improvement over an unprecedented 2020.

Ted E. Furniss, CFA – January 2021

IMPORTANT DISCLAIMER: Inlet Private Wealth^®, LLC (“Inlet Private Wealth^®” or the “Firm”) is a SEC registered investment adviser with its principal place of business in Jupiter, Florida. Unless otherwise noted, all data has been obtained via Bloomberg^®. Inlet Private Wealth and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Inlet Private Wealth maintains clients. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. The data contained in this report was gathered from what we believe to be reliable sources, but we cannot guarantee its accuracy. For information about Inlet Private Wealth’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

2020 Q2 Quarterly Newsletter – The Great Lockdown

July 9, 2020/in Articles, Quarterly Market Commentary/by Mackenzie Edwards

After free-falling over 33 percent from its peak, the market has since recovered nearly all these losses thanks to an increase in confidence surrounding the reopening of our economy. Year to date, the S&P 500 is now only down 2 percent, while the technology-heavy NASDAQ is up over 16 percent. This puts the NASDAQ’s advantage over the S&P and DOW at its largest margin since 1983. Considering it took place while the U.S. economy was falling into a recession, this recovery has been especially perplexing. Right now, we are in the top 10 percent of historical price to earnings ratios for the S&P, yet at the same time, we are in the worst 10 percent of historical economic conditions. As a reference, the forward earnings multiple on the S&P 500 reached 10.8x in March 2009, while it rests at 22.1x today.

The quick recovery markets have experienced can be attributed to two main variables: The Federal Reserve’s intervention and the optimism associated with reopening the economy. After lowering interest rates to essentially 0 percent, the Fed is also now buying bonds in the open market to help keep rates at low levels. Keeping interest rates this low is a way to stimulate the economy by promoting the flow of credit to consumers and small businesses, although, it does not come without consequences. Artificially low interest rates may encourage excessive risk taking by promoting companies to lever up with debt and make risky investments. Congress also authorized a $3 trillion Covid-19 relief package by way of individual stimulus checks, unemployment programs, small business loans through the Paycheck Protection Program, and satisfying liquidity needs in U.S. markets. The Fed’s balance sheet has grown from $4 trillion to $7 trillion over the past few months and Federal Reserve board member Dudley suggests a $10 trillion Fed balance sheet is on the way. The speed and size of the Fed’s actions were successful for the short-term, and Fed Chairman Powell suggests there is still more they can do, but that does not mean we are out of the woods by any means.

As financial markets continue to recover, many investors still seem to remain skeptical. According to LPL Financial, 33 percent of all investors over the age of 65 sold their full equity holdings between February and May 2020. Total assets in money market funds have nearly doubled since 2018 and peaked at nearly $4.8 trillion just five weeks ago but have since begun to decline. Of the money that has returned to equity markets, large technology stocks seem to be the hot spot. The NASDAQ may be positive for the year, but roughly 75 percent of the stocks in the index are down in 2020. This reflects the disproportion in the size of its top ten holdings, which account for approximately 44 percent of the value of the 2,700 stock index.

While financial markets have improved, the economy continues to suffer as we uncover more of the damage inflicted by the pandemic and economic lockdown. From what we know so far, the economy seems to be experiencing an “income shock,” compared to the great financial crisis during 2008-09 when it was hit with a credit shock. While the Congressional Budget Office projects the U.S. budget deficit will reach $3.7 trillion in 2020, the damage done to corporate balance sheets and income statements has shaped a consensus amongst economists that the U.S. GDP will take a $5 trillion hit through 2021. A year ago, jobless claims were 1.7 million in the U.S.; in early May, the claims peaked at 25 million before slowly coming down to 19.3 million, where it remains today. Unemployment in the U.S. is still extremely high at 11.1 percent as permanent layoffs continue to rise. On a global scale, the UN’s labor arm reported that in Q2, the world lost an equivalent of 400 million full-time jobs due to the COVID-19 crisis. The IMF also predicts that the global economy will shrink by 4.9% this year.

With individual states beginning to slowly re-open their economies and assess the damage done, we are already beginning to see both the positive and negative effects. Foot traffic at TSA checkpoints is at about 15 percent of normal, up from 5 percent in April and May. U.S. new homes sales rose 16.6 percent month-over-month in May and retail sales also improved 17.7 percent in May. While most businesses are starting to reopen their doors, many have been permanently closed as more than 3,400 bankruptcies have been filed year to date. OpenTable’s CEO predicts that 25 percent of the restaurants that were forced to close during the lockdown, will not be able to reopen again.

New daily cases of COVID-19 in the United States were on a downward trend until very recently, but we are now seeing an increase in cases around the country. Regardless of whether it is from reopening of states’ economies or a wider availability of testing, this trend does not help to instill confidence. The economic lockdown helped to reinforce a fear-driven pullback in the financial markets; however, the re-opening of the economy may not result in an immediate economic rebound that the financial markets now seemingly anticipate. The U.S. savings rate in 2019 was 8 percent, but it rose to 32.2 percent in April and was still 23.2 percent in May. Consumer spending is the main driver of the US economy, accounting for more than two-thirds of economic output. If consumers are still fearful and unwilling to spend, the road to a full economic recovery will take longer than expected – likely until an effective vaccine becomes available. As we slowly emerge from the “Great Lockdown” with the reopening of the economy, the second half of 2020 will be anything but ordinary as we continue to deal with the ongoing pandemic and approach what promises to be one of the most volatile U.S. presidential elections in history.

Mackenzie Edwards – July 6, 2020

IMPORTANT DISCLAIMER: Inlet Private Wealth^®, LLC (“Inlet Private Wealth^®” or the “Firm”) is a SEC registered investment adviser with its principal place of business in Jupiter, Florida. Inlet Private Wealth and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Inlet Private Wealth maintains clients. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. The data contained in this report was gathered from what we believe to be reliable sources, but we cannot guarantee its accuracy. For information about Inlet Private Wealth’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

Novel Times – April 2020

April 3, 2020/in Articles, Quarterly Market Commentary/by Ted E. Furniss, CFA

After making a record high on February 19, 2020, the equity markets have since fallen by as much as 35%. This decline into a bear market has occurred at the fastest pace in history. New records for volatility have been made with the average daily price change of 5.2% during March exceeding the previous record set during the Great Depression. Even investments traditionally considered “safe havens” experienced declines as investors sought to raise cash or were forced to meet margin calls.

Unlike events typically associated with past bear markets, this market decline has been due to an unexpected public health crisis. The Covid-19 virus currently has no vaccine and given the risk it poses to the lives of their constituents, governments across the globe have responded by effectively shutting down their economies. Equity and fixed income markets rapidly declined as a result, perversely serving as a vigilante to fiscal and monetary policy makers. The Cares Act was promptly passed with rare bipartisan support and will provide $2+ trillion of stimulus with more likely to follow. The Federal Reserve cut interest rates to zero and by increasing its balance sheet to more than $5 trillion demonstrated a willingness to go to infinity and beyond with quantitative easing, stabilizing the investment grade credit markets in the process. Economic data will become significantly worse in the short-term, already unemployment claims increased to approximately 10 million in the U.S. during the two-week period ending of March 29th. Through no fault of their own, many will now be without a paycheck indefinitely while their ongoing financial obligations including rent, car payments and utilities remain. The Cares Act will help to bridge some financial obligations but very few people or businesses can withstand zero revenues for any extended length of time. A global recession now seems certain. However, these monetary and fiscal policy efforts will help to meaningfully dampen its depth and duration.

Due to the Fed’s efforts, the interest rate on the 10-year U.S. Treasury Note is currently 0.67% which is the equivalent to buying a stock at 150 times earnings that guarantees no growth over the next ten years. Whereas a $5 million portfolio of municipal bonds could have generated $350,000 of tax-exempt income annually in 1990, today it takes over $17.5 million to generate this amount. Artificially low interest rates can cause distortions and encourage excessive risk taking. Many investors that would prefer to own bonds can no longer “afford” them and the 2.1% dividend yield on the S&P 500 Index currently makes stocks seem relatively attractive to income seeking investors. Low rates have also incentivized many corporations to increase their debt levels. During the past decade, the investment grade corporate bond market nearly doubled to $6 trillion, its highest level ever relative to GDP and approximately half of this amount is rated BBB or one level above non-investment grade. The longer the global economy remains closed, an increasing number of companies will become financially challenged with debt they may have been able to comfortably service during normal times. Capitalism without bankruptcy has been likened to religion without hell and many have already started feeling some heat.

Economic and market downturns are never pleasant but as John Stuart Mill once said, the seeds of each economic boom are sown during the preceding crisis.

Ted E. Furniss – April 3, 2020

IMPORTANT DISCLAIMER: Inlet Private Wealth^®, LLC (“Inlet Private Wealth^®” or the “Firm”) is a SEC registered investment adviser with its principal place of business in Jupiter, Florida. Inlet Private Wealth and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Inlet Private Wealth maintains clients. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. The data contained in this report was gathered from what we believe to be reliable sources, but we cannot guarantee its accuracy. For information about Inlet Private Wealth’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

2020 Visions – January 2020

January 16, 2020/in Articles, Quarterly Market Commentary/by Ted E. Furniss, CFA

As a new year and decade begin, the election in 2020, negative interest rates, aging demographics, and the growth of passive investing will likely have the biggest impacts on the financial markets going forward:

The Election

For the past 40+ years, we have lived in a world where business has become more global while politics have remained local. The result has been an increase in populism worldwide. The United States is basically a 50/50 country but there is a wide gap between the proposed policies on the left and the right of the political spectrum. Currently, the only evidence of any bipartisanship is the lack of concern over the $1+ trillion budget deficit. According to Strategas, Trump is unlikely to win the popular vote but likely needs just Wisconsin, Pennsylvania, or Michigan to win the electoral college. Expect the election in 2020 to be ugly. The only guaranteed winner will be ad spending.

Financial Alchemy

Interest rates are the lowest in recorded history and the amount of bonds globally with yields below zero currently approximates $12 trillion. Bonds with negative yields are guaranteed to lose money if held to maturity and no rational investor willingly owns them. This financial paradox is largely due to the monetary policies of central banks and while irrational, negative interest rates can make Adam Smith’s “Invisible Hand” do crazy things that are technically justifiable economically. Corporations attracted by the siren song of low interest rates have been aggressively tapping debt markets and have utilized the proceeds primarily for buying back shares. The growing increase in leverage has caused credit quality to decline as approximately 50% of the Barclay’s Aggregate Credit Index is now rated BBB, just one notch above non-investment grade or junk. According to the International Monetary Fund, the volume of corporate borrowing has outstripped the cash generation of many companies as 33% of the constituents in the Russell 2000 Index have interest costs in excess of their annual earnings. While the economy remains relatively robust, many of these companies are effectively financial Zombies that will not be able to service their debt over any extended period of time.

Ok Boomer

According to The Economist, the world will have more people over the age of 30 than under in 2020 for the first time. The average Baby Boomer in the United States turns 65 in 2020 and there are now 10,000 people turning 65 every day in the United States. In Europe, 25% of the population is over 60 and Japan is considered “ultra-aged.” The Milken Institute states that Americans over 50 now account for $7.6 trillion of economic activity and own nearly 75% of all financial assets. Boomers will remain one of the primary engines of global economic growth in the coming years.

Passive Aggressive

According to the Financial Times, there is now more than $11 trillion passively invested in index funds. Mutual funds and exchange traded funds that mimic indexes are effectively algorithms making investments based on the equity market capitalization of their constituents; the bigger a company’s equity market capitalization, the bigger its weight in an index. Over the past decade, holdings within indexes have become increasingly concentrated and relatively expensive. For example, the five largest holdings in the Nasdaq 100 Index are Apple, Microsoft, Amazon, Facebook and Alphabet (Google). Combined, these five companies only represent 5% of its holdings but now make up 43% of this index’s market value. Indexing does not take the valuations of its constituents into consideration and as more passive investment capital is allocated to the Nasdaq 100 Index, an increasingly disproportionate amount will continue to be invested in these five companies selling at earnings multiples of 25, 32, 84, 25, and 31 respectively or well above the market’s historical average. As a result, the downside risk of investing passively in indexes has continued to increase.

2020 and Beyond

The S&P 500 Index finished 2019 up 29.4% and 30,000 for the Dow Jones Industrial Average is merely 5% away. GDP growth was solid during 2019 as a result of robust consumer spending but the strength displayed by the S&P 500 last year while confronting trade wars, a yield curve that inverted, impeachment and a decline in manufacturing was truly impressive. However, it is important to note that the earnings generated by the S&P 500 last year were unchanged from 2018; its advance was caused by multiple expansion or the increase in its price to earnings from approximately 15x to 18.4x. Given the starting point of earnings multiples and interest rates, investment returns will likely be more muted in the decade to come.

Ted E. Furniss, CFA January 2, 2020

IMPORTANT DISCLAIMER: Inlet Private Wealth^®, LLC (“Inlet Private Wealth^®” or the “Firm”) is a SEC registered investment adviser with its principal place of business in Jupiter, Florida. Inlet Private Wealth and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Inlet Private Wealth maintains clients. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. The data contained in this report was gathered from what we believe to be reliable sources, but we cannot guarantee its accuracy. For information about Inlet Private Wealth’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

(R)aging Bull

October 17, 2018/in Articles, Quarterly Market Commentary/by Ted E. Furniss, CFA

The first three months for Inlet Private Wealth^® are now in the books and what a quarter it has been! We are incredibly grateful to our clients and the professional community for their support which has contributed to our assets under management growing to nearly a quarter of a billion dollars and a robust pipeline of more to come. The S&P 500’s 7.4% advance and the work performed for our clients contributed meaningfully to the growth of their portfolios during the quarter. The current bull market is now the longest on record since its bottom in March 2009. However, as this aging bull enters the fourth quarter, trade war saber rattling, the rising U.S. Dollar, tightening monetary policy, a flattening yield curve, growing inflationary pressures and widening cracks in emerging markets have caused most global equity markets and the total returns for fixed income to loiter in the red.

Verbal pugilist President Trump did not pull any punches in hitting China with new tariffs on $200 billion worth of Chinese goods. About half of all Chinese imports into the U.S. now attract levies. These tariffs start at 10% and are scheduled to rise to 25% in January. Trade is a relatively small component of GDP in the U.S. and our economy has a significant growth buffer from last year’s fiscal stimulus. However, the complexity of modern supply chains typically stretches across multiple borders and any disruption could impair the global economy.

As the Federal Reserve jabs short-term rates upward, the yield curve in the U.S. has flattened significantly, causing the difference between the yield of the two and ten-year treasury bonds to duck below 25 basis points. Historically, a flattening yield curve implies that lower economic growth lies ahead. It is also concerning because an inverted yield curve, when short-term rates rise above long-term rates, has historically preceded a recession by 6 to 24 months. According to the Fed, every recession during the past 60 years has been preceded by an inverted yield curve, the sole exception being one false positive in the mid-1960’s. Outside of the U.S., the yield curve has inverted with the average yield in JP Morgan’s global government bond index below the average yields on bonds maturing in 1 to 3 years. The yield curve in Japan is negative; perversely, this is occurring while Japan’s ratio of debt to GDP is among the highest in the world and the U.S. is offering nearly 100 basis points more to borrow for the next four weeks than Japan offers for the next 40 years.

The headline rate for the Consumer Price Index in August was 2.7%, noticeably above the Fed’s targeted inflation rate of 2.0% and making additional rate increases by the Fed all but certain. Unemployment at 3.8% is near a 50-year low and is now causing some upward pressure on wages. Venezuela, one of the world’s largest oil producers, is on the proverbial financial ropes and the upcoming economic sanctions on Iran could cause the global market to lose 1+ million barrels of oil a day. As a result, oil prices have brawled their way upward more than 65% over the past year.

While 25% of the world’s economy still has negative interest rates, tightening monetary policy in the U.S. resulting from the Fed increasing interest rates and the unwinding of its balance sheet have contributed to the U.S. having an interest rate premium over other countries that is at multi-year highs. As a result, global savings are coming to the U.S. displacing other sovereign borrowers. In particular, the economies of emerging markets with large current account deficits have taken a dive.

A current account or trade deficit results from a country importing more than it exports. As a result, the country is required to either fund this deficit from its foreign reserves or by borrowing from other countries. Turkey has one of the largest current account deficits of any emerging market country and has financed it by borrowing in foreign currencies. According to Strategas, Turkey’s private sector also has about $375 billion of private sector debt, an amount representing approximately 44% of Turkey’s annual economic output. Turkish businesses owe significantly more dollars and euros to their domestic banks than they do to foreign investors and its central bank does not have enough in foreign reserves to cover its banks’ liabilities. As a result, there has been high inflation and a 45% decline in the Turkish Lira relative to the U.S. Dollar making Turkey’s U.S. Dollar denominated debt significantly more expensive. Turkey finds itself in the position of needing to finance $100 billion U.S. Dollars a year without access to private capital markets in an environment with rising oil prices and a strong U.S. Dollar. Argentina is fighting against similar issues and recently raised interest rates by 60% to counterpunch an inflationary hit and a run on its currency. China’s debt levels are high at approximately 300% of GDP and its equity market has been knocked-down 25% from its high, bear market territory. South Africa is in recession. According to BCA, the exposure of Spanish banks to the most vulnerable emerging markets totals nearly 120% of their banking system’s capital and reserves…French banks have large exposure to Spain and…German banks to France. We are not suggesting that investors throw in the towel, but these interconnections make the possibility of contagion a growing concern.

Most ring-side economic pundits weighed into 2018 with expectations of synchronized growth globally. However, the factors mentioned above have instead contributed to a desynchronization in global growth and highlighted the ability of Wall Street seers to make the forecasting efforts of fortune tellers seem respectable. Regardless, animal spirits remain strong with consumer confidence near 18-year highs, corporate profits are up nearly 25% year-over-year and global deal-making year-to-date has reached $3.2 trillion, an all-time high. While equity markets seem to be generally on the expensive side, individually many companies are selling at attractive valuations. To paraphrase Raging Bull Jake LaMotta, the current environment seems to be “giving a stage where active investment managers can rage.”

Ted, Vicki, and Terry