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Market Regains Losses as Powell Buys Corporate Bonds!

Warm summer sun, shine kindly here.

Mark Twain

 Summer is usually a time of leisure and lethargy. Reading a good book while you lie on a beach is an activity most of us engage in and enjoy. Traveling to some remote location for a few days (weeks) off is part of the plan. Leaving work early on a Friday to spend more time with the family is typically in the cards. If you are on Wall Street, traveling to the Hamptons early to get away from the city is probably in the works. All in all, it is a time to slow down and get away from the hustle and bustle. However, this summer already seems vastly different.

For one, the Covid 19 crisis and the civil rights protests have made this summer already seem like an eternity. In the markets, usually the summer is a time where trading volumes are light, stocks remain fairly uneventful, and many large investors leave the operations to the rookies. There are a few interesting factors which play into the narrative. First, with the Federal Reserve’s support markets at any cost policy, investors know that interest rates are not going up any time soon. Chairman Powell is now in the business of buying corporate bonds, which further lends evidence by critics that the Fed is far too active in it’s activities in markets. With rock bottom interest rates always affecting asset prices, bond buying across the fixed income spectrum changes the denominator on the future value of cash flows. Next, those low interest rates have attracted all kinds of issuers in the corporate bond market, as borrowing as low as possible is always a wonderful thing. Third, with the rise of no commission trading, there is little or no cost to buy and sell most capital assets. With plenty of time available and lots of the population making more from being unemployed than they would at a regular job, there is extra money lying around. Naturally, it finds its way into places like Robinhood, where legions of followers have taken to paying attention to the new finance superstar, Dave Portnoy. With El Presidente taking to the airwaves, everyone is now capable of making money in the market. Of course, it is never that simple, or easy.

The nature of markets is they are like the ocean, sometimes calm for long periods of time, with not much trouble to be found. There are different variables which can affect different areas of the ocean (weather, wind, topography, marine activity) at various times. The same is true of markets. It has long been a fools errand to believe one can accurately predict what markets will do. Many legendary investors underperform for quite some time because their particular style is not in vogue. As an example, Julian Robertson closed up shop during the internet bubble because of poor performance. Jean Marie Evillard lost nearly 2/3 of his assets at that time. Over the last few years, we have seen well known hedge fund investors Bill Ackman and David Einhorn have very poor results, although to be fair, Mr. Ackman has done quite well over the last 18 months. With a big rally taking place over the last quarter, some of the largest investors across the globe are sounding the alarm on how extended the rally is. Along those lines, commenting on the recent market upswing, both Leon Cooperman and Howard Marks are quite skeptical of the recent move and think it will end badly. With El President’s analysis consisting of picking letters out of a scrabble box, I would venture to say it is probably wise to pay attention to Mr. Cooperman and Marks, both of whom have taken billions out of markets for their investors. And what about my stance?

In any case, one can only control what you do with your capital. You make decisions about what you want to own, why, and at what price. In many cases, it takes a long time to get a good result. The question is do you ultimately achieve this result and how good is it? Was it worth the wait, or wasn’t it? Many do not invest in this way, however, it is how I approach the markets. You may see things differently, which is what makes markets interesting. On the earnings front, it was a relatively light week over the past five days. Kroger, Oracle, and Lennar had nice earnings beats while Carnival continues to suffer from the travel slump. Korn/Ferry and CarMax met expectations, as did Jabil Circuit. The IPO market has a full slate ahead of it with July booked solid and August trending towards a full book as well.

On the political front, the Democratic party and it’s supporters are in the midst of getting out the rulers to measure the curtains on the White House. With a poor economy, Covid 19 flaring up, and protestors showing up by the thousands to proclaim their dissatisfaction with capital allocation towards police departments, in appears they have good reason to feel optimistic. National poll results show a double digit lead for Mr. Biden over President Trump. The one thing we know about politics and markets is the only constant is change. Nothing is ever easy, especially victory. As we have mentioned before, 2020 is a year to pay attention. Pay very close attention. On that note, I hope you have a good week and start the summer well.

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Thank you for reading the blog this week, and if you have any questions about investing, please email me at information@y-hc.com.
Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one’s overall financial situation.  The fact that Yale Bock has earned the right to use the CFA designation does not mean Y H & C Investments will outperform broad market indexes.

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