PWA 2024 Year-End Letter, Part 2: Goldilocks Caught Between a Rock and a Hard Place

Staying with the topic of US stocks for the moment: We can assume, with confidence, that the durability of the current bull market is largely due to the overwhelming consensus among investors that an economic "soft landing," and, with it, ever-rising corporate profits is essentially at hand.

A soft landing for stocks would presumably mean continued higher prices amid declining bond yields -- the proverbial best of both worlds, or, let's say, the ideal Goldilocks scenario.

PWA 2024 Year-End Letter, Part 1: Rules, Risks, US Equities, and Stuff That Truly Counts

The Essential Rules of Investing:

1. Risk Control First: Focus on managing downside over chasing upside. 

2. Value Over Price: Buy for less than something’s worth. Quality means nothing if you overpay. 

3. Long-Term Patience: Success doesn’t happen on a schedule. 

--Howard Marks

Or, simply:

Rule #1. Never lose money.

Rule #2. Never forget rule number #1.

--Warren Buffett 

And the question we (at PWA) must answer yes to every single day: 

What Fundamental Dynamics Presently Allow (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Side Note on Nvidia, Goldilocks Priced In, And Will the Fed Circumvent Santa? (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Inflation Reality, Homebuilders Have Feelings, Encouraging Earnings Calls and The Next Bull Market Will Be (globally) Different

Inflation I suppose is a different thing to different people...

At the end of the day, or, let’s say, in reality, while politicians, and financial markets, may celebrate a calming of inflation’s go-forward rate-of-change (purple line), consumers – particularly those in the lower 40% of income earners – continue to suffer (some, devastatingly) from inflation’s 4-year cumulative effect (blue line). 

Priced For Perfection (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Stay On Your Toes

Attention Clients, this is an important post to take in... Thanks for reading!

The following are excerpts from the latest entries to our internal market log.

In summary.

1. Since the election:

• 6 of the US major equity sectors are up, 5 are down.
• The US is the only major regional equity market in the green... The others featured are notably in the red.
• Among the major industrial commodities we track, all have sold off significantly, save for natural gas.
• Among the ag commodities we track, 8 are up, 6 are down.
• US Treasuries have taken quite the hit (as interest rates popped higher), Investment grade corporate bonds are flat, junk bonds are up slightly.

2. Foreign equities are all-time cheap relative to the US.

3. US equities are, by themselves, at (or near) all-time expensive valuations.

3. Zip Recruiter warns about the state of the labor market and, therefore, the economy.

4. Me (via an email with a friend) on the prospects for commodities going forward, the nat'l debt, and the history of the early stages of world-changing technologies.

Bottom line, the rip-roaring rally of the past week has been the definition of concentrated. I.e., not so great for balanced portfolios that diversify across asset classes, sectors and regions... But, make no mistake, the setup, as we ultimately move into the next cycle, offers many historically-attractive opportunities for macro-centric portfolios.

Read on for context.