April Insights
Happy Spring!
After a significant winter here in Colorado, I’m definitely looking forward to Spring and Summer! I hope that you all are enjoying the change of seasons with hopefully the promise of more sunny days! For those of you that celebrate Easter, I hope you have a blessed day however you mark the occasion.
My last newsletter on the heels of the collapse of Silicon Valley Bank and Signature Bank was then quickly followed by First Republic and Credit Suisse. I believe these are significant events and the fallout from them continues. I am going to depart from Schwab analyst commentary on this issue as they feel the banking failures and fallout are mostly contained. I don’t believe this is true. At the very least I believe we will continue to see fallout and the impact of the Fed’s unprecedented aggressive nine rate hikes totaling 4.75%. When we couple this with what is transpiring in the crypto space – mass government intervention and litigation as people are turning to the space given the bank failures – question marks arise. Others are seeking safety in gold and silver as a means of transaction and backup.
There is no question that small and regional banks are feeling the impact of the Fed’s new lending facility and back stop measures. I’ve asked Crystal Capital, an alternative investment partner, to also comment in their insights on this which they will be releasing this Friday. I’ll be sure to forward that link to all of you for more perspective. The moves certainly favor big banks and those who deal frequently with the government, to my mind this isn’t a good thing. If the interference in the crypto space is somewhat intentional on the part of the government, then the question has to become – why? There has been noise that this could all be an attempt to move the US towards a Central Bank digital dollar currency without other alternatives. This would mean the government would be able to see into everyone’s account at all times with no privacy or security. While I hope it doesn’t come to this, I think it is important to have this potential on our radar screen as we look at policy and regulation, as well as what the impact of this kind of move would mean for the US market and economy, not to mention globally. I like to think ahead and consider all options.
As I’ve written about extensively, financial historical models are based on a “Black Swan” event occurring about once a decade, two at most. What’s happened in the last few years alone in terms of surprise events has already surpassed that number and I believe it will continue to. This means we must think ahead and build portfolios that are immunized to the greatest extent possible from radical news and surprises. This is why I do active and tactical management instead of passive in a time when so much is changing so fast.
What this means on the investing front is the continued need to be very research heavy to sort out the best investments with this kind of change and obviously within the context of a bear market with a rolling recession that may hit an outright defined bottom with more of a shock given the bank concerns. What the Fed will and won’t do continues to top media headlines and leads an overreactive market. The market seems to feel that the Fed will pause on rate hikes and potential lower rates into the second half of the year, there are analyst questions as to if this will happen or not, many feel the Fed might pause but that lowering rates might be something further afield into 2024. There also remains the debt ceiling question which for those who are concerned deeply about it might mean very conservatively being out of short-term US treasuries this summer with this comes to head. Analysts believe there will be a last-minute solution, but the turbulence remain something the investor has to stomach.
Since OPEC has cut production, this means that energy is potentially an area of opportunity. Quality fundamental companies remain attractive, high-quality bonds, and hedges to the current market dynamics offered by futures and even dividend strategies continue to be areas of positive returns. We do expect a credit crunch and as lending tightens, growth will slow.
You will continue to see moves in your accounts to maximize opportunities this market presents. If you have any questions, please don’t hesitate to ask.
Again, have a wonderful Spring!
