Market Pulls Back On Inflation And Fear Of Slowdown!

Summary

• Delta Variant and Inflation Fears Spook Investors.
• Focus On Others Can Hurt Investment Performance.
• Democrats Tax Plans Face Long Odds (In Most Cases).

‘Some things are in our control and others not. Things in our control are opinion, pursuit, desire, aversion, and in a word, whatever are our own actions. Things not in our control are body, property, command, reputation, and in one word, whatever are not our own actions.’ Epictetus

Twenty years ago on this date, foreign hijackers flew two planes into the World Trade Center towers. It is considered the largest terrorist attack in United States history. Over three thousand families lost relatives or immediate members. The aftermath brought various political and military actions which still are a part of the political and social environment to this day. If one thinks about the rationality of an act like intentionally flying an airplane into a large building, or planning something like that, the vast majority of people would probably not think it a smart, wise, or thoughtful thing to do. Clearly, there were motivations by the actors which are nearly impossible to understand, or even remotely consider. If we take this a step further, all over the world people take actions every day where you could analyze and question their logic. Naturally, we can also extend this concept to entities as well, including corporations and yes, the wacky domain of local, state, federal, and international governments. Yes, indeed, on an hourly and daily interval, many things take place which are not rational, one might even consider them ill-considered, and I bring them up to relate them to one’s own actions, including investment.

It is quite natural for people to look at what others are doing. Maybe they are bored, maybe they are in a similar occupation, or it is possible competition makes it worthwhile to investigate what others are up to. There are studies of human behavior which denote the observation and imitation of others as a rational way of acting. In teaching, using a model for students as a way to instruct is a standard approach to help people learn. In the case of the investment profession, the actions of other firms is typically used as a basis of comparison, along with bench-marking performance. Essentially, society deems it acceptable, indeed, probably expected, to look at what others are doing. However, with respect to investing, one can make serious errors when you spend too much time learning about what others are doing. As the money management profession is quite competitive, reading about the massive returns of others might lead to an investigation of their holdings to see where the source of these excellent returns come from. In doing so, a failure to analyze the firms investment process and the way they go about reaching the investment in these positions would be a crucial mistake. On a personal level, I recently listened to a very intelligent investor talk about how he invested in the debt claims of a well-known bankrupt bitcoin exchange. The investment took place a few years ago. Today, the investment is up 500 fold. Well done, sir, well done. My investment training does not involve specific knowledge of bankruptcy priority, and this gentleman grew up in this area. One can always find others who have done a fabulous job in their field, but their method of operation worked for them, and trying to apply it to what you do probably won’t work in a similar fashion. Over time, it may be worthwhile to learn how they achieved such a fine result, and if you can incorporate it into what you do in a way that makes sense, naturally, it could be something to try. Personally, my own approach is to focus on my own disciplines with respect to the investment process. When you look at what is taking place across all forms of the regulatory environment, especially some of the recent government proposals to raise taxes, focusing internally allows me to concentrate on what is going on with the companies which matter to our future. I am not saying to ignore the world around you, including what might take place in the next few years. Instead, given the wise words of Epictetus, well, applying those concepts seems an intelligent course of action irrespective of the time period, but certainly in today’s uncertain world.

In the markets last week, a big wholesale inflation number and the elevated numbers of Covid infections weighed heavily on market sentiment. On the earnings front, excellent numbers by Lululemon, Restoration Hardware, and Copart were overshadowed by the downcast mood. Congressional Democrats unleashed a variety of tax proposals to try and pay for the massive amounts of spending they have planned. In most cases, the chances of those taxes being implemented remains remote, although given the flighty nature of Senator Manchin, some may have a chance. The prospect of something like an unrealized gains tax on all investment positions (the brilliance of Ron Wyden) seems far fetched, especially after the real estate, venture capital, and private equity industries get hold of it. Let’s not even get into the practical aspects of trying to implement it. Elsewhere, Janet Yellen and others from the Treasury met with various leaders in the financial industry to look at stablecoin regulation. With billions of dollars of market value in cryptocurrencies, the idea that regulators are going to leave it alone is far fetched. This week, California will vote on recalling Governor Newsome, who will probably survive. The next week, Canadians will weigh in to see if the country retains Prime Minister Justin Trudeau. Regardless of what happens, yes, it is important to pay attention to the results, but focusing inward will probably be more productive.

Thank you for reading the blog this week, and if you have any questions about investing, please email me at [e-mail].

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Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog, Investing in securities involves risk and the potential loss of ones principal. Past performance is no guarantee of future results. All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one’s overall financial situation. The fact that Yale Bock has earned the right to use the CFA designation does not mean Y H & C Investments will outperform broad market indexes.