SPECIAL ADDITION BCA Weekly Commentary 9/23/22: False Narrative of Growth
ECONOMIC IMPACT. The Feds narrative of positive GDP growth isn't reality. Far from it. On Fedex's eps call last night mgt confirmed the accelerating economic growth deterioration that is unfolding (stated occurring suddenly in August but building thru the quarter). We have been saying this for sometime. The Fed's basis of further rate hikes which economists and markets have believed hook line and sinker is positive GDP growth of 0.2% in 2022 and 1% or so in 2023. For 2022 to be positive since 1H22 growth was a minus 2.5% it would imply 2.7% 2H22 growth. If Fedex is to be believe (and many on eps call questioned whether demand fall was specific to Fedex or not ie the false narrative of growth) as well as our research and even the Atlanta Fed with near ZERO 3Q22 GDP growth this may be confirmation of yet another major policy error by the FED. In essence, the concern on growth is predicated on higher rates to squelch inflation which we deem flawed completely. Soon enough that will be understood and long term interest rates may fall to reflect this reality that the economy is slowing faster than people perceive and so is inflation. We do agree we are in for a sustainable slow growth if at all environment. Overall the Fed is pushing a a string as what's left of inflation is tied to commodities effected by supply disruptions by war (maybe that's what should be resolve? Duh) not strong demand in the world economy.
INVESTMENT IMPACT. Given the above we have began easing into high quality dividend paying stocks after raising cash this week while reducing exposure to high valuation stocks in medical/health care. Our smaller company stock holdings with market liquidation ie panic selling unfolding are being held given low valuation relative to potential growth. The process for markets to catch up to our beliefs takes time assuming we are correct and if correct we believe higher dividend stocks may benefit the most as long term rates fall while growth remains stagnant. Panic creates opportunity if one has patience for the reward.
We remind investors that going forward expectations for returns for the overall market over the next decade remain low as we expect well below returns vs history. Be that it may we are hopeful our models can improve on that going forward.
Our model portfolio performance has been updated as of the date of this newsletter.
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