What a great time of year! The temps are warming, and the snow and ice have (hopefully) melted away for good. And yeah, I’m not talking about the IL snow – I’m talking about the FIVE INCHES of snow that fell on coastal Mississippi this winter?! Crazy. And since it is such a glorious time of year – and because so many of you commented on the brevity of our last update – I’m not going to kill the vibe with 27 pages of commentary here. A nice, simple and easy to read update on what we are watching most through the first quarter of 2025….
The most interesting development so far has been the rather shocking shift in narrative about markets from the oligarchs in DC. We talked at length in both of our recent updates about the dangers of politicians or Fed creating too much uncertainty – regardless of the intentions behind their communications – especially when markets were already “priced for perfection”. Well, here we are. Every day seemingly brings an announcement on new tariffs being implemented, removed, or just “possibly” implemented or removed. In one instance, a tariff was both announced and removed - all during trading hours on that same day! Chaos.
Much more importantly, at least in our view, is the messaging from the White House saying basically “the country is more important than the stock market”. Wait, what?? I don’t recall sentiments like coming from the oligarchs since Greenspan declared “irrational exuberance” some 25+ years ago! In fact, if anything, they have spent the last 25 years communicating the exact opposite – that stock prices were in fact more important than anything else. Now, please don’t confuse my “surprise” at this development with “discontent”. In fact, I clearly remember saying to Dave a couple of months ago that “if Trump actually meant anything that he said, he would get on X and tweet what he said when he ran the first time – that he ‘doesn’t care about stocks’…”. And I remain adamantly of the opinion that the long-term problems facing our country (largely unsustainable spending and debt) cannot be properly addressed until we are willing to finally let free markets be free. So, color me both thrilled and shocked at the same time on this one.
And we know that this wasn’t just a momentary “Trump being Trump”, because he immediately sent his team out there to deliver the same message to the press. What we don’t know is how long he is willing (or able) to stand by this rather large change of heart. But for those of you following along as we progress through the year, I’d suggest paying more attention to this than just about anything else you may see or hear as it pertains to financial markets. It matters. A lot…
The result of all of this – coupled with increasingly weakening economic data – has been very volatile markets. The volatility has affected the most popular (and thus expensive) segments of the market the most – as one might expect in a very concentrated (and expensive) market overall. Thankfully, for the majority of you reading this, you may have been largely unaffected by recent volatility. In fact, if anything, you might have benefitted from it. For both simplicity and compliance reasons, I will not delve into this in greater detail. But much like the last similar episode (2022), this year (so far) has been one where one can benefit from having significantly reduced exposure to the most egregiously expensive areas of financial markets.
Of course, three months is a very short period in the grand scheme of things – and you don’t need me to remind any of you of our disdain for focusing on the short-term, whether good or bad. We sent out an update over 2 years ago now, the purpose of which was to analyze similarities between markets then vs. markets of the mid-1990s. Now two years later, I still marvel at the similarities that exist. As a reminder, the mid-90s was a period of rising interest rates along with heightened economic uncertainty. Stocks were growing ever increasingly expensive, yet it still ended up being one of the greatest periods for stocks overall…until of course, it wasn’t (2000). I cannot believe that was 30 years ago, as it seems like yesterday…
Point being, we don’t know with any level of certainty where stocks are headed for the rest of this year. We could make both the optimistic and pessimistic cases here today if we so chose. We won’t, but gun to my head, because of the technical damage that has been done to the major indices – and even more importantly because of the shifting narratives as described earlier – I tend to doubt we’ve seen the lows for the year in stocks. For this reason – and of course because the Shiller PE sits at a still egregiously expensive 36+ as I write – we are ever so cautiously discussing the possibility of even further reduction of stocks. If we do, it will almost certainly be done with very “tight stops” – using technical levels deemed (by us) to be significant. But I’d guess it unlikely, as we have already sufficiently managed our risk exposure, and quite honestly are more than pleased with the way portfolios have performed thus far. As such, there is likely no reason to try and get too cute from here. Then again, never say never…
So that completes my quick summary of the first quarter of 2025 – again shocked at how quickly it has passed. Items on our bullet list which were intentionally left out of this update included the price of gold and what it might be saying, the ever increasing “politicization” of individual stocks and dangers that it might present long-term, a further delve into current market technicals, an update on ongoing government deficits, and a deeper dive into some of the economic indicators/trends as they have evolved. And if you find yourself saddened that all of those goodies were left out – fear not:
Our own Gary Richied – fresh off passing his Series 7 securities exam – has asked to submit his own (and first) “special update”, which we hope to be out within the next month or so! He’s a better writer than Dave and I combined – and a published author - so we have high hopes…
With that, I hope that everyone reading this enjoys every single minute of the rapidly approaching spring. And as always, we thank you for the trust and confidence that you have placed in us over all these years.
Sincerely,
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