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Y H & C Investments May 2021 Monthly Update- Edition 154

 

Index/AssetApril 2021
Dow Jones2.18%
S&P 5004.01%
Nasdaq3.58%
Russell 2000.56%
Oil3.67%
Gold2.23%
Silver 3.73%
10Yr Treasury Jan 2021-.917

April 30- 1.625%

3/1/2021-

-9.5%

U.S. Dollar Index-1.84%
Bitcoin-Jan 2021-29,374.15

4/30/2021- 57,720.3

+96.5%

-1.72%

U.S Economic & Financial Markets Outlook-As U.S. Approaches Herd Immunity, Vaccines Bring Investor Optimism for Improved Growth with Inflation the Major Concern! (Return figures in this section come from the December 30, 2020 edition 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)

In April, the Dow Jones Industrial Average gained 2.18%, the S&P 500 grew 4.01%, and the NASDAQ increased 3.58%.  With Covid 19 vaccinations consistently reaching U.S. citizens across the country, case numbers in many major states and cities have dropped dramatically.  Operating restrictions slowly are being lifted in some major Democratic strongholds, but across the entire country there is plenty of optimism about the summer.  Many believe a return to a more normal business environment could be sooner than some skeptics believe.  Much of the positive vibe is already reflected in financial markets.  With the status quo of sub 2% 10-year yields, credit remains readily available for any borrower even a stone’s throw of needing capital.  On the capital markets side, the largest investment banks are coming off a very profitable first quarter.  All were helped by reserve releases for less credit write offs than previously estimated.  The fixed income side was particularly strong, and merger and acquisition activity should help produce solid profits the rest of the year.  Other noteworthy sectors during recent earnings reports include housing, consumer discretionary, health care, retail, and across the entire technology universe.

Naturally, there are two sides to any trade and critics point to a series of issues which could be problematic for investors.  First, is the potential rapid increase in the rate of inflation.  Any upward trend would put interest rates into question, which is at the heart of any valuation calculation for nearly every asset class.  Specifically, wage inflation could already be taking place throughout society.  There are numerous reports of employers being forced to pay higher pay to find qualified candidates in a wide variety of industries.  As the summer approaches, it will be important to learn if citizens are willing to go back to work versus foregoing government assistance.  The question of whether the country is at a point where those who have suffered from Covid related unemployment need more assistance?  Government officials decide economic policy, but the basic premise of paying people to stay home creates a non-productive society and gives improper incentives for inactivity.

Speaking of government, the question about the sustainability of 3-5 trillion-dollar deficit spending while unemployment trends show tightness in the labor market is serious.  In combination with aggressive monetary policy notable for its amount and length, any serious analysis should consider the fate of the dollar.  The lingering view that the U.S. is now fiscally overextended (50-100 trillion in unfunded liabilities?) is worthy of consideration.  While top financial officials point to a sustained recovery and a willingness to tolerate higher than expected inflation, investors are keeping their eyes open as inflation could be the key to how financial markets fare during the rest of 2021.

Global Economic & Financial Markets Outlook-World Markets Push Higher on Hope for Economic Recovery and Vaccine Success! (All country index data provided by countryeconomy.com, April 29, 2021.)

Investors are buying equities around the globe based on the global economy moving past the Covid 19 crisis during the rest of the year.  If we look at the world, stock indexes generally are higher by high single to low double digits.  Central banks remain committed to accommodative monetary policy and will tolerate some inflation to pursue improved economic growth and greater demand.  With bankers pointing to excess capacity and technology as mitigating factors to dampen inflation expectations, elevated debt levels across the globe are increasingly problematic.  Those concerns are reflected in the soaring price of cryptocurrencies, the same with commodities, and oil suddenly headed toward $70 a barrel.  Gold also keeps its value at near $1800/oz.  Nevertheless, global equity indexes are solidly in the green and low interest rates across the globe are firmly in place for the foreseeable future.  One obvious country to watch is India, where the dramatic increase in virus infections reminds investors the Covid issue is nowhere close to being finished.  A few notable country returns include France’s CAC (+13.53%), Germany’s DAX (+10.46%), Greece’s ASE (+12.53%), Japan’s Nikkei (+5.87%), the UK’s FTSE (+7.75%), China’s Shanghai (.05%), Canada’s TSX (+10.94%), India’s Nifty (+6.53%), and Mexico’s MexBol (+10.96%).

The Art of Contrarian Thinking-Build Your Investment Thesis Like A Law Firm Prepares for Class Action Lawsuits! (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)

One of my long-held beliefs is a great place to look for investment opportunities are the companies where you punch in the ticker symbol and you discover ten different press releases from class action attorney’s announcing investigations into that company.  Invariably, it is because the stock price has dropped significantly.  Along those lines, experienced investors understand the role of lawyers in corporate finance.  With any kind of IPO, bond offering, merger and acquisition discussion, spinoff, or bankruptcy, lawyers and investment bankers are involved because of legal, compliance, and risk management requirements.  When you think about lawyers and finance, many attorneys move into investment banking and become CEOs because of their legal backgrounds.  Lawyers from high powered corporate firms are familiar with how to evaluate the opposing side’s legal and financial arguments before they go to court.  Many large asset management firms investing capital use the same kind of methodology when evaluating investment opportunities as these corporate law firms.  One analyst is responsible for building the buy side case, the other takes the short (sell) argument.  Evaluating a company using contrasting financial positions helps temper enthusiasm with fact-based assessments.  Ultimately, investing is about allocating capital in ways which generate returns to meet clients’ expectations and doing so while understanding the knowable risks.  If you have prepared for all the potential problems which can go wrong with an investment and are willing to live with those risks, you have probably done enough work evaluating the company.  Finally, it is good I found something nice to say about the legal profession as many people, myself included, are not their biggest fans.

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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)

 

 

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