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Y H & C Investments October 2021 Monthly Update- Edition 159

 

Index/AssetSeptember 20213 Month ReturnYTD Return (9 months)
Dow Jones-4.51%-2.28%+10.58%
S&P 500-5.06%-.29%+14.68%
Nasdaq-5.76%-.51%+12.11%
Russell 2000-4.32%-5.37%+11.62%
Oil+8.49%-.29%+54.83%
Gold-3.17%-1.29%-8.23%
Silver -7.77%-15.55%-16.76%
10Yr Treasury Jan 2021-.917

September 30- 1.482%

+15 Bp+4.2 Bp+56 Bp
U.S. Dollar Index+2.44%+2.23%+4.84%
Bitcoin-Jan 2021-29,374.15

9/30/2021- 47,738

 

+1.28%42.32%+50.55%

U.S Economic & Financial Markets Outlook-Inflation Readings Go Higher and Fed Sets Taper Date for Late 2021! (Return figures in this section come from the September 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)

In September, the Dow Jones Industrial Average lost 4.51%, the S&P 500 dropped 5.06%, and the NASDAQ gave up 5.76%.  In the most recent quarter, the Dow fell 2.28%, the S&P was essentially flat (-.29%), and ditto for the Nasdaq (-.51%).  Over the first nine months, the Dow is ahead by 10.58%, the S&P jumped 14.68%, and the Nasdaq splits the difference, up 12.11%.  As the country heads into the final quarter of the year, the economy is on firmer ground than when the year started.  With GDP growth trending towards an annualized rate of 5-6%, economists project 2022 with a slightly slower rate of expansion (4-5%).

The return of office work remains on the table for a 2022 return.  Other sectors in the economy continue to fuel better growth.  Housing remains a strong area, with real estate prices sharply higher in much of the country.  In a similar fashion, energy prices are noticeably better for the entire complex.  With natural gas breaking $6 per million BTU and oil recently hitting $80 per barrel, there are many who believe it is only a matter of time before oil hits the century mark (mid 2022).

With so much demand for products, especially from on-line merchants, supply chains remain under pressure.  The largest port in the country (Long Beach, CA) is backed up with record numbers of ships waiting to unload cargo.  The Federal Reserve is focused on employment levels.  With a reappointment pending, Chairman Powell continues the policy of prioritizing jobs over inflation.  However, the ten-year treasury yield recently broke 1.50%.  Investors anticipate Mr. Powell beginning the reduction of the rate of purchase of fixed income instruments by the end of the year.  With bond yields starting higher, volatility is probably in the cards.

As for the equity market, third quarter earnings season begins in a few weeks.  The IPO market has a full pipeline and with interest rates still at rock bottom rates, investment banks should post strong numbers across their business lines: fixed income, currencies, asset management, prop trading, and mergers and acquisitions.  On the regulatory front, the lingering questions of debt ceiling, an infrastructure bill, and the 3.5 trillion-dollar spending monstrosity all remain front and center.  As of this writing, those issues remain mostly unanswered.  For investors, the final three months usually are strong once October is complete.  Inflation, energy, and interest rates remain the key areas to focus on.

Global Economic & Financial Markets Outlook-Central Banks Reacting to Inflation as Energy Prices and Supply Chain Disruption Take Hold! (All country index data provided by countryeconomy.com, September 30, 2021.)

Billons of dollars of global debt are tied to interest rates which are either at or below zero.  The current situation in debt markets has existed for nearly a decade.  Classical economic theory revolves around an argument of too much chasing too few goods is inflation.  If the current circumstances don’t fit the description, when would they?  The most recent statistics across the globe show inflation rates moving quietly towards double digit gains (year over year).  Besides years of extremely accommodative monetary policy, what other factors are involved?

The most obvious answer is energy prices.  Over the last few weeks, natural gas and oil continue to trend higher.  Across Europe and Asia, strong demand from China and limited production capabilities increases the dependance on the energy producing areas of Russia and the Middle East.  With alternative energy sources like wind, solar, nuclear, and hydro-electric relatively small percentages of total energy consumption, the world remains dependent on carbon-based sources.  Winter is shaping up as a period where global energy prices could spike dramatically higher.  Worldwide equity markets are just noticing the energy issue, so let’s look at a few geographic regions results, shall we?

In Europe, the major mature countries (UK, France, Germany, Spain, Greece, Italy, and Portugal) year to date returns range from 10-15%.  Eastern Europe sees even stronger results, with most individual countries posting results from 15-25%.  Asia has a wide disparity of outcomes, with China’s Shanghai (+2.34%), Hong Kong’s Hang Seng (-9.75%), and Taiwan’s TAIEX (+14.95%) a nice sample of the wide possibilities.  In the Western hemisphere, plenty of variation exists as well with Canada (+16.90%), Brazil (-6.65%), Mexico (+15.93%), and Costa Rica (+54.75%) prime examples.  Looking forward, how global central banks handle the ongoing story of inflation requires continued focus for investors.

The Art of Contrarian Thinking-Crypto: Should I Take the Plunge? (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)

Over the course of the last 35 years, my experience in the capital markets is one of surviving.  It is based on paying attention to everything but doing very little most of the time.  The capital markets are constantly full of crazes.  Ever hear of Beany Babies?  What about optical networking?  Rare earth materials, anyone?  E-cigarettes for a buyer?  Naturally, we must mention Cannabis, right?  Of course, the most recent rage is cryptocurrency.  Many years ago, I invested in a cryptography company which ultimately was acquired.  You can see that crypto anything is not new investment ground.  About ten years ago, Bitcoin was on our radar screen, but the price was below $300 per coin.

The latest derivative of crypto related assets are NFT’s, or non-fungible tokens.  In reading about NFT’s, there are some who believe these crypto assets are destined to completely transform the financial system.  They do offer a great deal of flexibility and speed in many areas of finance.  My observation is a user really needs a high level of financial knowledge to use NFT’s.  There are a wide variety of applications of NFT’s, but many revolve around the different aspects of credit and collateral.  The idea of mainstream users replacing their banking relationships because a NFT is easier to use is mistaken, in my opinion.

If you are interested in NFT’s and wants to experiment with their possibilities, there is plenty of opportunity.  It helps if you have a strong background in finance.  Personally, I think there is plenty of opportunity in traditional financial assets without being involved directly in NFT’s and other crypto based instruments.  It includes ownership of assets which already benefit in the sector.  In five years, we will know much more about crypto, NFT’s, and their adoption.  I suspect there will be a different craze popping up as well.

Thanks for reading the newsletter this month and if you know of anyone who can use investment management services, a referral would be much appreciated!

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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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