To The Moon

I have a question.

When reading a post on the internet or newspaper, do you:

• Digest it and move on to another post? OR

• Make an effort to determine if there is/are common theme with subsequent article that you would be reading?

I identify more with the latter.

When gurus weigh in and share their views & opinions, they are talking about the same market.

The only thing difference is each veteran’s viewpoint of the market.

Some are:

• Perpetually “inaccurate”.

• “Mixed” outcome in their forecasts.

• Fairly accurate.

One of the highly respected investment gurus is Stanley Druckenmiller.

Briefly:

• He is an American investor, hedge fund manager and philanthropist.

• He is the former chairman and president of Duquesne Capital, that he founded in 1981 and closed on August 2010.

• Duquesne Capital had over $12 Billion in assets when it closed. That is a lot of money back in early 2000s.

• More importantly, Duquesne Capital Management posts an average annual return of 30% without any money-losing year.

On a recent CNBC investor summit, Mr Druckenmiller shared:

(1) A recession, as well as more difficult market conditions, could be closer than thought of.

(2) He believes it’s a matter of time before US economy tips into recession despite:

• US economy has held up well so far; Q1 2023 GDP was 4.1%.

• Persistent inflation at 4.90% in Apr 2023.

• The Federal Reserve raising interest rates from 0% to >5% in just over a year.

(3) Historically low unemployment (May 2023 - 3.4%) seems to be powering the economy through this current bout of high inflation.

(4) Over the last decade, Fed's easy-money policies of (a) low interest rates and (b) quantitative easing has pumped Trillions into the economy, artificially inflating assets like:

• Stocks.

• Real estate.

• and more….

In the current high-rate environment, these assets have become a ticking time bomb unfortunately.

$SVB Financial Group(SIVBQ)$ and $Bed Bath & Beyond(BBBYQ)$ are classic examples and perhaps the tip of the iceberg only.

(5) Further on, Mr Druckenmiller has warned of a potential credit crunch in the making as:

• Banks would slow lending to (a) preserve liquidity and (b) avoid risk against a more difficult economic backdrop.

• Banks would likely face higher capital requirements later this year.

These actions will have a chilling effect on the economy.

In a different post, according to the CNBC Millionaire Survey:

(1) >30% of millionaire-investors (households with $1 Million or more in investible assets) have up their cash holdings to 24%, an increase of +10% from 14%, a year ago.

• Of the survey respondents, 28% have reported purchasing more fixed income.

• They expect “high” interest rates to remain elevated.

(2) >50% of millionaire-investors believed that:

• Inflation will not fall to the Fed’s 2% target for at least 2 years.

• 11% were more pessimistic believing that inflation will last at least 5 years.

(3) Millionaire-investors have altered their spendings in the process:

• >33% of them cut back on restaurant spending over the past six months due to inflation.

• 18% have delayed the purchase of a car.

• >25% of them have given less to charity because of inflation, suggesting higher prices could also affect giving.

• 18% of them said they will cancel a trip or vacation if inflation persists.

• 33% of them also plan to borrow less this year with higher rates.

(4) A separate survey conducted by Capgemini yielded similar result.

• Global high-net-worth investors have a record 34% of their portfolios in cash or cash equivalents, eg. money markets, CDs and other vehicles.

• Global investors have pivoted from “growth to value” investing, preferring to protect their assets”, be safe than sorry.

What Are The 2 Posts Telling Us?

• It remains a challenging environment at least for the rest of this year and next.

• Inflation may not return to 2% by this year despite Fed’s hope.

• Recession maybe on the card.

• Assuming the millionaire-investors have financial advisors to help manage their wealth, is it time to think about diversify part of our limited resources (eg. 25%) into Treasury bills etc..

• Last but not least, the “spare” cash definitely comes in handy when the pedigree stock you have been monitoring is at a “too good to be true”buy-in price.

• Do you think “value investing” makes sense in a recession?

• Do you think retaining 25% of your total asset in cash products too much or too little?

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