U.S Economic & Financial Markets Outlook-! Economy Improving and Set for A Full Open, Fed Prioritizes Employment! (Return figures in this section come from the May 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 May, the Dow Jones Industrial Average rose 1.93%, the S&P 500 gained .55%, and the NASDAQ lost 1.53%.  Year to date, the Dow is ahead 12. 82%, the S&P 500 has advanced 11.93%, and the Nasdaq is better by 6.68%.  With all major states in the country set to open with far fewer restrictions by the end of July, Federal Reserve Chairman Powell and Treasury Secretary Yellen have fully embraced the idea that inflationary pressures are transitory.  Moreover, the immediate and long-term priority will be employment.  Market participants see the dichotomy between pricing pressures across a range of items like nearly every commodity, quite a few high-ticket items (washers, dryers), and semiconductor chips, and certainly have reason to question the party line of ‘transitory inflation.’  On the employment front, the most recent job report was a huge disappointment in terms of the number of jobs created.  Many, including yours truly, believe the idea of the federal and state government paying citizens more than their typical wage rate is a bad incentive system.  Indeed, some states have stopped paying benefits to those who aren’t actively seeking employment.  With federal payment running through the summer, citizens will remain full of cash.  Many believe the inflationary pressures are a result of breakdowns in the global supply chain, and as those get resolved, price pressures will abate.  Clearly, government leaders fall into this camp, hence the party line of ‘transitory inflation.’

In the financial markets, the recent volatility of the cryptocurrency asset class is keeping regulators across the globe highly aware of its enormous public attention.  Knowing the first question out of anyone’s mouth is going to be about Bitcoin, government officials are highly motivated to work on their own form of government authorized digital assets.  The first working paper on the digital dollar effort is expected some time this summer.  Something for all investors to pay attention to, especially with China’s efforts already underway with a digital yuan.  On the equity side, with earnings coming in strong, corporate activity looks healthy throughout the summer (mergers and acquisitions, IPO’s).  The SPAC boom has seen the starch come out because of the addition of accounting requirements for the process (options classifications).  As for equities, barring any unexpected surprises, interest rates are going nowhere anytime soon, and summer volumes probably will trend lower as they historically do.  Of course, the caveat remains the dollar and inflation.  Markets are buying the transitory story, whether each participant does is an entirely separate matter.

Global Economic & Financial Markets Outlook-World Markets Show Solid Gains as Liquidity Remains Bountiful! (All country index data provided by countryeconomy.com, May 30, 2021.)

Equity markets across the world have rallied during the first five months of 2021.  With negative interest rates still available in major countries like Japan, Spain, France, Ireland, and Portugal, clearly the relative hurdle of bonds versus other asset classes remains very minimal.  Importantly, the carry trade of borrowing in a low yielding country and investing in places where returns may be much higher remains popular.  The weakness of the strategy is always the currency risk between the two countries where borrowing and investing take place.  With most global equity markets offering high single digit to low double digit returns so far, 2021 has seen the carry trade work nicely for those borrowing near zero and investing in global equities in some way.

One country which stands out as an example of why currency weakness and awful economic stewardship by the government are poisonous for equity investors is Venezuela. In 2021, the IBC Caracas stock exchange has lost 99.65% of it’s value.  For clarity purposes, a one-hundred-thousand-dollar investment would now be worth, uh, 350 dollars. It should serve as a stark reminder to those who advocate autocratic or socialist economic policies versus capitalism.

The Art of Contrarian Thinking-Navigating Through Incomplete Information as You Build a Position! (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)

When you are investing in individual securities, specifically any kind of equity, normally you are not going to have as much definitively accurate information which you can rely on.  There are always company specific activities which you are not going to be privy to.  The larger the company, the more information you’re going to be able to find, especially in the normal SEC filings (10q’s and K).  Much of the information you will find for larger companies needs to be combined with press releases, conference call transcripts, investor presentations, and industry news.  Assuming you collect as much pertinent information as possible and you decide to buy the stock, it is good practice to buy slowly and over time.  This is especially true with smaller companies because their results can be quite volatile.  Most management teams are working diligently to execute their strategic plans, but not everything succeeds.  Over time, you gain more knowledge about the company and a more complete picture about the business emerges.  If it meets or exceeds your initial expectations, chances are you should be adding to the position when opportunity arises.  In the unfortunate circumstance the management team and business disappoint, well, that is part of investing, and it is probably time to move on.  You gather as much data as possible at the outset knowing more will present itself in due time.  Your information is always incomplete at the outset, so don’t let it dissuade you from getting ready for your next purchase!

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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)