We hope you are doing well.
Before I dig in to the meat of this post, I wanted to first start off by saying that if you, or anyone else, is experiencing a rough time right now, for whatever reason, reach out, or have someone else reach out, and I will do my best to try and make a connection for those in need. I can’t promise a solution to every problem, but I can guarantee there are no solutions if we don’t try. We will all get through this together by looking out for what is best for each other, not merely ourselves.
Now, on to some business…
If you would like to discuss any of the factors below, please let us know; but just know that we recognize that we will probably receive plenty of phone calls, so please be patient as we try to address each and every one of you.
As you have probably observed, our current environment is dynamic and evolving. While this is certainly always true, there are times where the dynamism that defines our world picks up the pace a bit, and this appears to be one of those times. We would never be so bold as to call for anything specific to occur in the markets, but we absolutely recognize that there are times where the level of uncertainty in the markets rises to a point where prudence is justified.
To illustrate the specifics of what I am discussing here, I will use the framework of our quarterly Asset Management newsletter.
While a recession can only be confirmed after the fact, you can always evaluate the fundamentals of the economy in the moment. Here are some key details that are of concern:
- Nearly 11,000,000 Americans are receiving jobless benefits.
- Stimulus checks might be inadequate and disproportional to the problem.
- We are unaware of any solutions that have been proposed for eviction deferments. A cursory search for data on nationwide eviction deferments didn’t yield much to use here, but one example we can point to is San Francisco, which might have as much as $300 million in unpaid rent debt, alone.
Commodity prices are surging and some are calling for a “supercycle” in commodity prices.
Aggressive Federal Reserve
Any concern that we have here would not necessarily be directly attributable to the Fed, but would simply be a function of what supply and demand might do to the interest rate environment, which could inevitably force the Fed’s hand.
- Mortgage rates have begun to rise and mortgage applications have begun to fall.
- The recent and substantial growth in the real estate market might not be a bubble, but that is also something that you might not be able to see clearly until after the fact.
Extreme Stock Valuations
The concern here is not necessarily specific or exclusive to stock valuations. While we have certainly discussed here, here, and here the fact that the overall market, as represented by the S&P 500, has been overvalued for some time, we have also pointed out that the party has not been all fun and games for all sectors or classifications of stocks. Now, it appears, however, that whatever “irrational exuberance” might exist in the stock markets has begun to spread to some niche asset classes.
- To some, the current investment environment echoes the 90s dot-com bubble.
- The special purpose acquisition company (SPAC) market is one area, in particular, where concerns of a bubble are being raised.
We believe that the best way to classify our current stance on the markets is that we simply lack conviction. Again, this should not be taken as a prediction of anything definitive, but this is to say that uncertainty has built to the point that we believe prudence should be used to inform our thoughts and decisions. Please let us know if you would like to discuss anything mentioned here, and we will certainly do our best to get to you just as soon as possible.