February 24th, 2023
Today’s Big Questions
Over the past few months, I have fielded questions from clients on a wide variety of worries. I have recounted some of those questions and made some brief comments, below. At the end of this article, I will conclude with how Shadowridge deals with big hairy issues like these.
Q: What will happen if Congress does not raise the debt ceiling and the government shuts down or defaults? A: First of all, this is political theater that plays out every few years, and always resolves itself. I don’t see anything different this time.
Q: I’ve heard that the Federal Government is running low on cash. What happens if they run out? A: Despite falling revenues, the Feds won’t run out of cash since they have those government printing presses that can churn out more money as needed.
Q: Are my investments going to be OK if inflation stays high? A: Shadowridge strategies outperformed the broad market indexes last year as inflation soared, so I would say yes, I believe you will be OK.
Q: What does it mean for investments if Russia’s war in Ukraine drags on? A: The energy market will likely stay strong, food prices may remain elevated with limited wheat production available from Ukraine, and defense stocks ought to do well. Otherwise, it will be business as usual in the other 99% of the world.
Q: What will happen if China invades Taiwan? A: Computer chip prices will probably soar as 85% of the world’s semiconductors are manufactured there. However, Taiwan Semiconductor, the world’s largest producer of computer chips, is building several huge plants in the US to mitigate this risk. One of their $12 billion plants, scheduled for completion next year, can be seen under construction in north Phoenix, (West of I-17 on the loop 303 for you locals) and a second, even larger plant in Phoenix is in the works. CNBC estimates that the two plants will be able to supply enough chips to meet the annual chip demand in the US.
Q: Are our holdings going to be OK if the recession really happens? A: The recession began rolling through certain industries in early 2022. After recognizing this and making portfolio adjustments, our clients’ holdings did better than the indexes during 2022. So I believe you will be OK.
Q: What will happen to the stock markets if interest rates keep rising? A: Bond prices will continue to drop, but bonds will eventually become more attractive as they yield higher and higher rates. This may cause some stock buyers to start looking at bonds instead, which may weaken stock markets. However, the time to buy bonds is after the rate rises are largely over, not before. Be patient.
Our style at Shadowridge is not to depend on some magic crystal ball that tells us what various markets will do. We merely follow indicators that tell us what the markets are actually doing at the moment. History then shows us what is more likely or less likely to happen after these occurrences. We follow the probabilities.
Is our system perfect? No. There is no perfect way to invest. Our methods are merely very good.
Shadowridge has our fingers on the pulse of the markets so you don’t have to watch them. Our trading team is made up of Ryan Redfern, Chief Investment Officer, Christine Ely, Trading Specialist and myself as Investment Counsel. Between the three of us, we have eyes on every investment we have bought for our clients, every day. We can’t say specifically what economic or political factors will affect the financial markets, but with the discipline of our daily analyses I believe we will recognize when these issues begin to affect markets so we can react to them, quickly.
Do we have biases or opinions on which way some of these factors may break? Do we read the news? Sure, but 90% of what we do is based purely upon the data of what is actually happening today, not on the daily news that is crafted to get us all excited.
So, relax. We got this, so you can do something you find more interesting!
* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Performance and activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account. Not all trades are profitable. It should not be assumed that current or future holdings will be profitable. A list of all trades in these accounts for the past 12 months will be provided upon written request.
** Indexes are unmanaged lists of stocks considered representative of a broad stock market segment. Investors cannot invest directly in an Index.
This newsletter may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information in this newsletter may be derived from sources deemed to be reliable, however we cannot guarantee its accuracy. Please discuss any legal or tax matters with your advisors in those areas. Neither the information presented nor any opinions expressed herein constitute a solicitation for the purchase or sale of any security.
In all investing, past performance cannot assure future results, and as such, our efforts are not guaranteed. Losses can occur. All strategies offered by Shadowridge Asset Management, LLC, adapt to changes in the markets by changing the investments they hold, therefore, comparisons to broad stock market indexes such as the unmanaged indexes mentioned may not be appropriate. Sometimes client accounts are invested in stocks or markets not included in these indexes. Past performance does not guarantee future results. Investment return and principal value will vary so that when redeemed, an investor’s account values may be worth more or less than when purchased. Mutual fund shares and other investments used in our managed accounts are not insured by the FDIC or any other agency, are not obligations of or guaranteed by any financial institution and involve investment risk, including possible loss of principal. Advisory services offered through Shadowridge Asset Management, LLC, a Registered Investment Advisor. Adviser will not transact business unless properly registered and licensed in the potential client’s state of residence.
Copyright (C) 2023 William T. Hepburn. All rights reserved.
