RESILIENT ECONOMY HAS, SO FAR, AVOIDED DISASTER o Inflation is under control and continues to (generally) decline o Unemployment rate is low and has recently dropped (3.6%) o Long term rates, though rising in recent days, are still well below historical averages o Rising 30 year bond rates can cause problems for regional banks that invested long-term o Mortgage rates above 7% should slow down real estate market o Mortgage rates (30 yr fixed) are now at highest levels since July 2001 (22 yr ago)
INVESTORS SHOULD AVOID THE FOLLOWING AREAS: o Long term bonds — rising interest rates will cause bond prices to fall further o Commercial real estate — rising interest rates, falling occupancy levels and soft prices will continue to cause problems o Regional banks — rising interest rates, coupled with potential cash run, increases exposure to liquidity risk on LT bond investments o Highly speculative stocks with long-term horizon — as interest rates rise, future cash flows have lower value CONCENTRATION RISK AMONG MAJOR INDICES IS NOW GREATER THAN EVER • Russell 1000 Growth Index has generated 50% of returns YTD from 3 stocks (AAPL, MSFT and NVDA) • Russell 1000 Growth Index has generated 75% of returns YTD from 6 stocks (AAPL, MSFT, NVDA, AMZN, TSLA, GOOGL) • Many funds also generate most of their returns from 5-10 concentrated positions • Concentration risk in major indices is now among the highest ever • Investors are exposed now, more than ever, to a handful of stocks that could plummet. • Investors should examine that concentration risk of their investment portfolios and reduce the weight that is generated by only a few stocks • Investors should try to spread out their holdings to many stocks or investments to improve safety
WHERE WE ARE INVESTING NOW o
Entrepreneurial companies — with diversification across many holdings o Reduce concentration risk — more equity positions o Entrepreneurial companies with shorter duration o Entrepreneurial companies with low debt (bank exposure to companies that have refinancing needs) o Entrepreneurial companies that do NOT have elevated Market Cap/Rev or relative valuations o Markets will recalibrate with new interest rate scenario — stock pickers market o Pockets of optimism still exist, earnings have provided mixed results, short term horizon is less bullish o September/October will remain choppy o November/December may end year on higher note (compared to September) o CPI continues to drop o Fed may FINALLY signal rate hike end on Oct 31/Nov 1 meeting
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