Y H & C Investments August 2021 Monthly Update- Edition 157
|Index/Asset||July 2021|| || |
|Dow Jones||+1.3%|| || |
|S&P 500||2.3%|| || |
|Nasdaq||1.2%|| || |
|Russell 2000||-3.45%|| || |
|Oil||-1.84%|| || |
|Gold||+1.63%|| || |
|Silver ||-3.93%|| || |
|10Yr Treasury Jan 2021-.917|
July 30- 1.228%
|-209 Bp|| || |
|U.S. Dollar Index||-.15%|| || |
|-11.54%|| || |
U.S Economic & Financial Markets Outlook-! Economy Recovering Nicely as Delta Strain Introduces More Uncertainty! (Return figures in this section come from the June 30, 201 editions 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 possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
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In July, the Dow Jones Industrial Average gained 1.3%, the S&P 500 rose 2.3%, and the NASDAQ added 1.2%. The U.S. economy continues to rebound as economic activity in the second quarter (GDP) grew at an annual rate of 6.5%, up from 6.3% in the first quarter of 2021. The size of the economy is now greater than the level it was at when the pandemic started in 2020. Second quarter growth came from fiscal stimulus and accompanying consumer spending, which expanded at an annual rate of nearly 12%. Normally, accelerated growth would be viewed by investors as positive and attract more capital. However, investor sentiment is dampened by the recent outbreak of the Delta variant, as well as elevated inflation readings. Over the short term, the heightened attention to more restrictions on business will be a focus, and the inflation question is one which poses a more severe threat for the economic environment.
In terms of economic conditions in the United States, the improvement in the service areas and dramatic increase in travel demand clearly has been a major help for airlines, hotels, and entertainment- based sectors. There are a few different cross currents which make the economic picture complex. With heightened demand comes the continuing pressure on supply chains for inputs across a wide variety of industries. In many cases, there are long wait times for goods, especially from overseas suppliers dealing with logistical problems in their own countries. In the United States, many industries are faced with labor shortages as the number of available jobs is far exceeded by people who don’t want to participate in the labor force. Some of this will change based on the planned reopening of schools in September, along with companies who are making workers return to offices. The elimination of unemployment benefits in about 70% of the working population areas will be a factor as well.
On the corporate front, earnings reports continue to exceed estimates and with borrowing rates exceedingly cheap, financing for deals remains a non- issue (1.22% on the 10 yr. treasury). As the last month of summer begins, continued attention will be paid to profit outlooks, the Federal Reserve’s statements at the annual get together in Jackson Hole, Wyoming, and inflation. Other topics of focus must include monetary policy and tapering, the ballooning national debt, and the expanding fiscal deficits. For investors, with equity valuations fully priced in technology and a market heavily weighted towards the tech giants, capital rotation into other areas would probably be a healthy event. Who would it benefit is entirely a separate matter?
Global Economic & Financial Markets Outlook-World Equity Markets Remain Solid as the Delta Variant Leads to Questions About Recovery Time! (All country index data provided by countryeconomy.com, July 30, 2021.)
With most global equity indexes ahead by double digits going into August, the surge of the delta Covid variant in countries like India, Japan, Indonesia, and the UK calls into question the recovery time of the global economy. Based on the market values of equities in many parts of the world, investors believe the world is well on the way to finding a solution to the Covid issue and return to a pre-Covid type economic environment. Many argue Covid has permanently altered the way business is conducted (less travel, remote meetings, reduced office occupancy, work from home). As time marches on, I suspect the world will take the best of both pre and post pandemic approaches. Let’s turn to some of the different geographic areas and look at specific country index returns from those places.
In Asia, China’s Shanghai index is down 2.18% for the year, Japan’s Nikkei is off .59%, Hong Kong’s Hang Seng is lower by 4.86%, Taiwan’s TAIAX is ahead by 17.07%, while India’s NIFTY is up 12.74%. Other countries of interest in the region include Thailand (+5.01%), Vietnam (+18.68%), the Philippines (-12.18%), and South Korea (+11.44%). Across Europe, the Stoxx 50 (pan Europe) is up 15.11%, while the mature western countries of France (CAC +19.12%), Germany (DAX +13.31%), the UK (FTSE +8.85%), Italy (MIB +14.08%), Spain (IBEX -7.35%), and Portugal (PSI +2.62%) generally show strength. In the east, the numbers are quite striking. Poland (+13.58%), Austria (+12.23%), Romania (+21.10%), Czechoslovakia (+17.7%), Bulgaria (+27.46%), and Hungary (+15.44%) display a nice result for investors.
In the Middle East and Africa, the improved demand for oil and price improvement have helped the Saudi TASI (+26.74%), Qatar (+3.04%), and the UAE (+45.05%). Moving west, Canada’s TSX (+17.56%) Mexico’s MEXBOL (+15.43%), and Brazil’s IBOV (+2.34%) are nicely positive as well.
Investors must drill down in each region and locality to determine if those areas are places where the risk adjusted return justifies the potential troubles one might encounter by owning those assets. The political environment and market dynamics, fiscal and monetary policy, justice system and rule of law, and currency status are all critical factors to evaluate. One only needs to look at the changing status in Chile and dramatic deterioration in Venezuela as prime examples of the dynamic nature of investing globally.
The Art of Contrarian Thinking-Think Like a Venture Capitalist and Invest Like a Private Equity Fund! (YH & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
Venture capitalists specialize in investing in startup companies which they believe will be much larger in three, five, or ten years. Many will not, some will, and one out of ten or twenty can earn a huge return which will outweigh all the other non-performing or mediocre companies in the fund. Private equity funds use a different approach by taking control of a few companies and improving their operations. Once the improvement is complete, they resell the company to other buyers or take it public again at a dramatically higher value. Most investors don’t have great amounts of capital to work with like VC’s or private equity funds (think billions or hundreds of millions). However, with a great deal of hunting, you can find small public companies that have private equity backing. You can also find public investment firms which own large stakes in small public companies and promising startups, too. Buying the public entity which owns those kinds of assets is a less risky way of investing in venture capital or private equity-controlled companies. It may still offer the upside and reward an investor with very good results, but plenty of work needs to be done on evaluating the management teams and the assets they own. Something to consider when looking at areas to invest in.
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(Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)