Making Hay Monday – January 8th, 2024
Making Hay Monday
High-level macro-market insights, actionable economic forecasts, and plenty of friendly candor to give you a fighting chance in the day’s financial fray.
Some Like It Too Hot
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Evergreen Compatibility Survey
“There is more dementia about finance than there is about sex.” -Charlie Munger
“It’s perhaps the greatest example of confirmation bias in the financial markets. The television outlets will feed whatever emotion you’re feeling at the moment and probably dial it up to the next level. After all, that’s how you get viewership and ratings.” -Michael Gayed, author of the Lead-Lag Report
Champions
To say that market conditions at the end of 2023 were somewhat on the toasty side is a bit like saying the University of Washington Huskies’ Michael Penix played well this season. (Similar to almost all Seattle-area natives, I’m rooting beyond hard for him and his team to beat the Michigan Stealers, sorry, Wolverines, tonight in their national championship contest.) As you can see below, the S&P 500 was radically overbought in mid-December and it got more so from there. Even the long ignored small caps, a Haymaker favorite from last year, when they were still moribund, have seen inflows into that style go postal.
Rosenberg
Hartnett
Yet, for most it seems, it’s a case of “buying high and buying higher still”. The allure of momentum and instant gratification seems too great for most to resist. Then, when the inevitable reversion to the mean occurs, it’s a very mean reckoning indeed for the blundering thundering herd of performance chasers. This proclivity has undoubtedly played a starring role in the decidedly inferior returns generated by the average investor shown below.
J.P. Morgan
It is further astounding, at least to me, that investors seem oblivious to the obviously ominous national political and societal trends. It’s as if we’re still in the prosperity-drenched and bipartisan-spirited 1990s. In reality, nothing could be further from the truth. Of course, so much money is moved mechanically these days, with little interpretation of big-picture trends, no matter how glaringly apparent, I guess it’s not all that surprising. But, in my view, it is dangerous in the extreme. The most graphic example of that is the utter nonchalance toward the increasingly out-of-control Federal Fiscal Funding Fiascos on which I’ve so frequently written and spoken.
Rosenberg
Rosenberg
But since this is the Champions section, I need to highlight some securities that might weather any unexpected (at least by the consensus) tempests. Logically, I think, that means avoiding stocks at inflated valuations. The poster child for that continues to be the purveyor of one of the most mundane consumer products, the liquid lubricant that comes in a blue and yellow aerosol can. Incredibly, it continues to trade at 50 times its slow-growing earnings. (We’ll look at another super-pricey stock in the Down For the Count section, though its brand is perceived as sexy in the extreme.)
So, what are some names that might fare better in a much overdue market correction (that may be already in progress)? Please note the “might” and, as always, do a much deeper dive into them than I have the space for or check with your trusted financial advisor.
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IMPORTANT DISCLOSURES
This material has been distributed solely for informational and educational purposes only and is not a solicitation or an offer to buy any security or to participate in any trading strategy. All material presented is compiled from sources believed to be reliable, but accuracy, adequacy, or completeness cannot be guaranteed, and David Hay makes no representation as to its accuracy, adequacy, or completeness.
The information herein is based on David Hay’s beliefs, as well as certain assumptions regarding future events based on information available to David Hay on a formal and informal basis as of the date of this publication. The material may include projections or other forward-looking statements regarding future events, targets or expectations. Past performance is no guarantee of future results. There is no guarantee that any opinions, forecasts, projections, risk assumptions, or commentary discussed herein will be realized or that an investment strategy will be successful. Actual experience may not reflect all of these opinions, forecasts, projections, risk assumptions, or commentary.
David Hay shall have no responsibility for: (i) determining that any opinion, forecast, projection, risk assumption, or commentary discussed herein is suitable for any particular reader; (ii) monitoring whether any opinion, forecast, projection, risk assumption, or commentary discussed herein continues to be suitable for any reader; or (iii) tailoring any opinion, forecast, projection, risk assumption, or commentary discussed herein to any particular reader’s investment objectives, guidelines, or restrictions. Receipt of this material does not, by itself, imply that David Hay has an advisory agreement, oral or otherwise, with any reader.
David Hay serves on the Investment Committee in his capacity as Co-Chief Investment Officer of Evergreen Gavekal (“Evergreen”), registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940. The registration of Evergreen in no way implies a certain level of skill or expertise or that the SEC has endorsed the firm or David Hay. Investment decisions for Evergreen clients are made by the Evergreen Investment Committee. Please note that while David Hay co-manages the investment program on behalf of Evergreen clients, this publication is not affiliated with Evergreen and do not necessarily reflect the views of the Investment Committee. The information herein reflects the personal views of David Hay as a seasoned investor in the financial markets and any recommendations noted may be materially different than the investment strategies that Evergreen manages on behalf of, or recommends to, its clients.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this material, will be profitable, equal any corresponding indicated performance level(s), or be suitable for your portfolio. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
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