Making Hay Monday – October 28th, 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.
Special note: As you will soon see, we are making a format change in order to condense our Making Hay Mondays. The primary alteration is to move most of our line-item asset-class lists and specific security guidance (to the extent we can convey the latter) to a separate page, which is linked at the end.
This will make for an easier read for those who only want to see the most recent items we’ve highlighted. For MHM readers who would like to see the full list of those suggestions, you can still access those via the link. Hopefully, this revision will be all upside and no downside!
Charts of the Week
Felder
My good friend Jesse Felder, one of the best newsletter writers we know — and we know a lot of them — recently ran this chart dissecting the broad market’s reported cash flows. You’ll notice that the above is not the S&P 500 but the S&P 1500. This is because it includes a far larger quantity of small companies than does the main S&P. Clearly, those small enterprises are in the midst of a severe earnings recession. (Note that the above is based on EBIT, or earnings before interest and taxes.) For the S&P 500, the Magnificent Seven-type names have provided tremendous ballast to aggregate cash flows. Backing out the top 10% of largest market value companies results in a much less impressive picture.
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Muir
It continues to be our belief and, we feel, simply stating the obvious, that the main reason the U.S. economy is growing faster than the rest of the developed world is America’s willingness to deficit spend at a rate far above its peers. In this regard, one of the most head-spinning factoids we’ve seen lately was courtesy of Sven Henrich, also known as the Northman Trader. In a CNBC interview last Friday, Sven stated that U.S. federal debt increased by $450 billion in three weeks and, likely, closer to $500 billion for the past month. Interestingly, this spending blow-out occurred after the end of the federal fiscal year on September 30th, possibly obscuring it from public scrutiny, at least for now.
“There is a lot of pressure on [environmental] compliance. The lower [U.S.] demand for EVs…. means that CO2 credits are now likely going to be needed for fleet flexibility and optionality and will be a critical strategy choice for any company.” -Ford CEO Jim Farley, effectively admitting his company will need to buy more emission credits from Tesla
“The consumer has held up remarkably well for us.” -GM’s chief financial officer, Paul Jacobson
High on Hybrids
Regular readers of this newsletter are aware that we are very optimistic about the future for hybrids. In general, that applies to automotive hybrids, but there is another type we believe has considerable investment appeal: those yield securities that are known as fixed-to-floaters but more colloquially as hybrids. They are this week’s Champion highlight…
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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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