Fall 2022

Unless you’ve been hiding under a rock for the past 9 months, you are already aware that the markets have been cascading down this year. As ugly as the equity markets have been, bond market values have also tumbled with the yield on the 1-year treasury shooting up about 1000% as of 10/10.

Rather than harp on something so negative and potentially upsetting, we’d rather focus on a less frustrating topic for now – politics. Joking aside, the midterms are fast approaching, it looks like republicans will take the house. The senate races appear to be more of a toss-up. As much as we like to discuss specific policy measures, when looking to the markets, our highest hope is that whatever this election brings, it brings gridlock. Less is more when it comes to political intervention in economic policies.

Turning our attention to the Fed, Chairman Powell has essentially used the format for a sophomoric essay. First, he told us what he was going to do (raise rates until they get to the low 4s and keep ‘em there for a while). Then, he started doing exactly what he said he said he was going to do. Now, we are about 2/3 of the way through the stated plan of action and the effects are widespread: the housing market is screeching to a halt, the dollar is incredibly strong versus world currency (appreciating some 20% in a matter of months), and commodity prices have plummeted for the most part. Last, he is reiterating his position and repeating what he told us he was going to do. It looks as if no matter the outcome, he is sticking to his word.

Meanwhile, on the other side of the globe, the Russia/Ukraine conflict surges as each side takes and retakes territory. In the background, Elon musk is channeling his inner Kissinger while tweeting about the war and even China/Taiwan relations – stoking fears another world resource draining conflagration may be sooner than later.

So Michael, Peter, what the heck does that mean for me?

The silver lining is that for the first time in over a decade you are getting paid relatively well to be conservatively positioned. Bond yields are 3/4/5% in the short term. At the same time, sky high equity valuations have come back to earth giving us more interesting entry points.

The technical recession in the broader economy has been one of the strangest on record. While GDP has been negative 2 quarters in a row, spending has still been record setting in many ways. We think that is finally starting to abate. The slowdown is recognizable in the homebuilding and automobile sectors; we are seeing price cuts in the former and, in recent months, used car sales prices are coming down for the first time in a long while.

The inflation rat may have finally begun to feed through the snake. Though we hesitate to call the end to “transitory”, there are major signposts that we may be through the worst of it. Transatlantic shipping rates have plummeted from over

$20,000 to almost $2000. Lumber is sitting at prices not seen since before the pandemic in 2019. Energy costs are still up year over year, but they are down about 30% from their highs. Mortgage rates rocketing through 6% has had a real effect on new home pricing and, of course, the volume of transactions has plummeted.

Every few years we must remind ourselves that trees do not grow to the sky, and though we’d prefer a consistent return year in and year out – Madoff only created the façade it was possible, not even the reality. In the end, our hunt for great management teams, strong cash flows and defensible businesses continues even in tumultuous markets. We are especially thankful for your trust and confidence in these trying times and we welcome the conversations around allocation and appropriate investments at times like this.

As always, we truly appreciate your trust and confidence and we are working diligently on your behalf.

Peter L. Bermont
Managing Director

Michael D. Gold
Managing Director

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investments mentioned may not be suitable for all investors. Past performance may not be indicative of future results. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Any opinions are those of Peter Bermont & Michael Gold, not necessarily those of Raymond James.