Economics

The Earnings Bar is High for Corporate America

The Earnings Bar is High for Corporate America Stocks entered a cyclical bear market in 2022, and perhaps for good reason. Yes, interest rates were on the rise. Yes, valuations in 2021 were extended and needed to cool off. Yes, geopolitical turmoil and inflation weighed on the market’s collective mind. Yes, economists were practically unanimous…

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Quarterly Client Letter: Q2 2024

Quarterly Client Letter: Q2 2024 When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable. -Warren Buffett We were pleased to see that the five most profitable companies of the Fortune 500, based on profits generated in 2023, were, in…

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Quarterly Client Letter: Q4 2023

“I think that a life properly lived is just learn, learn, learn all the time.” Charlie Munger, 2017 Berkshire Hathaway Annual Meeting Investing in financial markets is a constant education. A year ago, a Bloomberg survey of economists forecasted a 65% probability of recession for 2023. As the year progressed, there were plenty of reasons…

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Obsessing Over Interest Rates

Obsessing Over Interest Rates “The theory of interest bears a close resemblance to the theory of prices, of which, in fact, it is a special aspect. The rate of interest expresses a price in the exchange between present and future goods. Just as, in the ordinary theory of prices, the ratio of exchange of any…

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Quarterly Client Letter: Q3 2023

Quarterly Client Letter: Q3 2023 A soft landing is a primary objective, and I did not say otherwise.  I mean, that’s what we’ve been trying to achieve for all this time. The real point though, is the worst thing we can do is to fail to restore price stability… Federal Reserve Chair Jerome Powell, Responding…

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Rolling with the Punches

Rolling with the Punches The Federal Reserve has raised the effective Fed Funds rate over the past 18 months from 0% to 5.33%. The 10-year US Treasury Yield just hit a 15-year high around 4.30%. Mortgage rates are back above 7%. Source: YCharts via Peak Asset Management   If we had known that this is…

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Fool Me Twice: The U.S. Housing Market

Fool Me Twice: The U.S. Housing Market As markets internalized the risks of COVID-19 in March 2020, stock prices for home construction companies crashed (proxied here with ITB, the iShares U.S. Home Construction ETF). A precipitous drop in economic activity is historically bearish for home builders; perhaps in understandable fashion, investors rushed to sell their…

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Quarterly Client Letter: Q1 2023

“Recent indicators point to modest growth in spending and production. Job gains have picked up in recent months and are running at a robust pace; the unemployment rate has remained low. Inflation remains elevated. The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and…

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A Classic Bank Run

A Classic Bank Run By now you’ve likely seen the headlines or done some deeper digging into the recent collapse of Silicon Valley Bank (SVB). As of Sunday, March 12th the Federal Reserve (Fed), in coordination with the US Treasury and Federal Depository Insurance Corporation (FDIC), has implemented a new program to provide liquidity to…

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Not-So-Boring Bonds

Not-So-Boring Bonds At the top of 2022, we wrote that stock market multiples were precariously perched after soaring well above historical averages. Since then, multiples have pulled back to more benign averages: Source: J.P. Morgan Asset Management, Guide to the Markets, 12/15/2022 We had also noted that after a relatively calm year in the S&P…

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