Weekly Reflection for June 16, 2023

The Week - An Update in Charts

"Hope for the best and prepare for the worst" is the advice coming from many economists' desks. There is worrisome news about jobs, falling corporate prices and of course, not enough cash sloshing around in the economy to meet everyone's needs. Hotel owners in San Francisco are defaulting on their mortgages, recession around the world seems to be here or on the way and the war in Ukraine is relentless.

But stocks seems to be saying that they considered all that last year in the sell off. What? Me? Worry?

Liz Ann Sonders of Charles Schwab does a nice job of explaining this tiny chart. The unworried NASDAQ index is up, like the other major averages, and signaling that stocks are doing well. The truth underneath the surface is that most stocks are "meh". In the NASDAQ technology-dominated index, there are 3,000 companies. Only 3% of those companies, or 90, are hitting new high prices and pulling up the rest of the 2,910.

The Federal Reserve’s announced on Wednesday that it would leave interest rates at their current level in a unanimous decision. They are clear in saying that this is a “pause”, not an end to potential future rate hikes. The Fed does not know what move it will make when it next meets on July 25th. However, the steepest rate hike in modern history has not been enough to slay the inflation dragon, yet.

You did not image those price hikes on some of your favorite foods over the last year - they really happened and they were really that much. For some of the largest packaged food brands in the world, these bold double-digit price increases lost them customers last year. This chart shows the quarterly increase in prices on the top and sales volume growth, or loss, on the bottom.

While companies continue to increase prices by 14-16%, sales volumes have been slowly but steadily dropping as buyers look to store brands and cheaper options.

Spending on luxuries, things that we do not need or cannot afford, but are fun or make us feel good, is called the Lipstick Effect. Researchers have found that lipstick sales tend to jump during recessions, even when consumer spending is otherwise depressed. Besides beauty products, consumers splurge on travel and entertainment while cutting back on essentials or buying cheaper brands of goods.

The average domestic one-way plane ticket will be cheaper this summer, $306 over $376 last summer. But people are still itching to travel and airlines are forever working on efficiency. This double-decker arrangement has gone viral for all the wrong reasons but airplane seat designer Alejandro Núñez, who has been bringing his concept to aircraft conventions thinks it is the future of flying. Just one question - which seat is cheaper?

Show Your Sophistication

There have long been rules about which investors could go behind the velvet ropes to access private investments. A special class called the "accredited or "sophisticated" investor has existed for decades. The designation has nothingto do with anything, other than how much money a person earns or already has laying around. It suggests that one can afford to take investment risks in new and, or, risky businesses like private equity or hedge funds.

Per the Securities and Exchange Commission (SEC), the definition of an accredited investor is an individual with gross income exceeding $200,000 in each the past two years (or joint income exceeding $300,000) or someone with a net worth of $1 million. At this level the

SEC determined broadly that one would know their way around finances enough to make good decisions and if something went wrong, would not become destitute due to the failure. Some 10% of Americans are accredited under the current rules. (Also, some licensed investment professionals qualify, regardless of their personal finances.)

This wealth and income test might be going away in favor of an actual test. The House lawmakers have passed a bill asking the SEC to create an exam to evaluate knowledge and understanding of these complex securities.

Per reports in Barron's, advisors hate the proposed Equal Opportunity for All Investors Act. Because private investments usually have high minimums (think hundreds of thousands of dollars at least), the holding could be a big gorilla amongst other holdings in an account. These are almost always illiquid

so by their nature, are held for years. The odds of every one of these private funds being successful is low so in order to increase the likelihood of success, you need to invest in many for opportunity and diversification.

While being rich does not automatically mean you are smart, being smart does not mean that special, illiquid, unique investing strategies that you understand is the one way to get rich.

Juneteenth

Juneteenth, a federal holiday since

2021, is our country's most poignant

commemoration of emancipation. On

June 19, 1865 Union troops marched

into Galveston, Texas to announce the

end of the war and the freedom of the

state’s 250,000 enslaved people.

These were among the last remaining slaves and thus June 19th became a celebratory day. Although celebrated through family gatherings, parades and public readings of the Emancipation Proclamation, the date only broke through to greater public awareness in the last several years.

On Monday the financial markets are closed as will banks and government offices.