October 12, 2024

 

The S&P 500 rose 1.1% this week, shrugging off a stubborn inflation report. The index is up 21% for the year. Meanwhile, the US Aggregate Bond index lost 0.5%, gold rose 0.2%, and Bitcoin rallied 1.2%.

The Consumer Price Index (CPI) came in hotter than expected at 2.4%. Core CPI (ex food and energy) was 3.3%. Shelter inflation remains a big contributor to overall inflation, rising 4.9% YoY. Consumer confidence fell in the University of Michigan's latest survey, as many consumers expressed frustration about elevated prices.  

Fun highlight this week: I did an interview at the 13th annual Hedgeye Investing Summit. Keith McCullough and I talked about my book, why I started Silverlight, and key investment themes.  

 

 

 

Hurricane Milton Batters Florida - What Are The Investing Implications?

 

 

Hurricane Milton became the latest major storm to batter the Florida coast.

In addition to the hurricane, Florida residents had to contend with over a dozen tornados swirling around the state. Losses may reach $60 to $75 billion, according to Enki Research. This staggering sum comes just after Hurricane Helene created damages that Core Logic estimates will range between $30 to $47 billion.

As climate change appears to be producing bigger storms, I've started contemplating potential investment themes. One decision I have already made is to avoid companies whose business could be damaged by being geographically located in Florida. For example, when I wanted to add a utility a few weeks ago, we passed on NextEra Energy (Florida utility) in favor of Southern Co. (Georgia utility). Another theme is to carefully scrutinize any insurance investments. For now, the S&P 500 Property & Casualty Insurance sub-industry is up 40% YTD, largely due to a favorable pricing environment. 

 

 

 

Google May Get Broken Up By The Government

 

 

Google controls around 90% of the global search engine market and pays companies like Apple billions to remain a preferred search option.  

Federal prosecutors hinted this week at the possibility of breaking up Google to address its monopoly over internet search, following a judge’s ruling in August that deemed Google an illegal monopoly. The Department of Justice (DOJ) is considering various remedies to prevent Google from using products like Chrome and Android to maintain its dominance. However, analysts believe that a breakup is unlikely, with the DOJ likely to seek compromises instead. 

Would a breakup be bad for the stock? My guess is it would be. It would reduce the market capitalization of the overall company, which would reduce the passive flow advantage Google presently enjoys as a top member of the S&P 500. Silverlight owns Google shares and we will revisit our investment thesis if a breakup looks imminent. For now, that's not the case. 

 

 

 

The Bond Bear Market May Soon Return

 

 

Bond yields rose this week after a higher than expected inflation report. Ten-year yields are now bullish trend on a daily and weekly duration, which probably means the bond bear market is resuming. 

There are a few reasons why bonds may be selling off. First, the bond market may be spooked by the Fed's overly aggressive rate cut of 50 basis points. Second, fixed income supply is about to surge due to extraordinary government spending to pay for the war in the middle east and flooding in the south, the deficit's seasonality, and primary dealers' high inventory. 

Long-term bond yields broke out from a 40-year downtrend a few years ago. We take that to mean gold, bitcoin, and other alternative investments are probably a better hedge in balanced portfolios than a traditional 60/40 equity/fixed income portfolio.  

 

 

 

Both Candidates Are Making Promises They Can't Pay For 

 

 

In his Bloomberg Opinion piece this week, Michael Bloomberg criticized the tax plans proposed by Donald Trump and Kamala Harris, labeling them as fiscally irresponsible and deceptive to voters. Both candidates have suggested exempting tips from income tax, a move Bloomberg sees as pandering to voters in key battleground states like Nevada. He argues that these tax cuts are financially unsustainable and would exacerbate the national debt. Bloomberg highlights that while pandering is common in election campaigns, the current proposals set new lows for fiscal dishonesty. Bloomberg calls for more honest and responsible fiscal policies. 

If the government is going to keep piling on debt without regard for long-term fiscal solvency, why not just go bigger? Why not just print a trillion and solve world hunger, homelessness, and make college education free for everyone? The current fiscal debt may not be a near-term market risk, but we own gold and bitcoin as a hedge against the US dollar. 

 

 

 

Dog Rescues Owner

 

 

In Washington state, an elderly man named Keith Johnson, 84, fell and broke his hip in a remote wooded area. His 13-year-old rescue dog, Gita, played a crucial role in saving him. Gita sat in the middle of a road until a passing car stopped. The dog then led Deputy Colton Wright deep into the woods to Johnson, who had been lying on the ground for over six hours. Johnson, who also has other medical conditions requiring regular medication, was unable to move and feared he might die. Thanks to Gita’s persistence and Deputy Wright’s quick response, Johnson was found and received the necessary medical attention. Authorities praised Gita as a "true hero" for her actions.

 

 

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This material is not intended to be relied upon as a forecast, research or investment advice. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and non-proprietary sources deemed by Silverlight Asset Management LLC to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Silverlight Asset Management LLC, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.​​