Recession

Last year the United States endured a technical recession.

Is the US going to get a real recession in 2023?

Trading Portfolio; Momentum Market Commentary

Two consecutive quarters of negative growth is the definition of a technical recession. The most recent last two quarters showed positive growth in the US again.

The yield curve signals that America is not out of the woods yet and a recession can be expected in the near future.

Google’s Bard AI experiment is up and running. Bard was asked; Outline my blog post about a US technical recession. Bard’s reply is below;

Sure. Here is an outline for your blog post about a US technical recession:

· Introduction: What is a recession? What are the signs of a recession?

· The US economy in 2023: What are the current economic conditions?

· The possibility of a US recession in 2023: What are the factors that could lead to a recession?

· The impact of a US recession: What would be the consequences of a recession?

· Conclusion: What can be done to prevent a US recession?

There are a number of things that can be done to prevent a US recession.

These include:

· The Federal Reserve should continue to raise interest rates in an effort to combat inflation.

· The government should implement fiscal stimulus measures in an effort to boost economic growth.

· Businesses should invest in new technologies and products in an effort to boost productivity.

· Consumers should save more and spend less in an effort to reduce their debt.

So there you have it.

AI can now replace writers’ right?

Not so fast.

In the small print it says Bard may display inaccurate or offensive information.

Well quite. Focus for a second on the conclusion of Bard.

If the FED continues to raise interest rates how would that prevent a recession?

As the cost of money goes up even more activity will slow down. So not sure how this would prevent a US recession. The opposite is more likely. Recessions usually happen when central banks have raised interest rates too high.

The last one consumers should save more and spend less is awkward as well.

If consumers en masse stop spending money this would cause a recession.

So maybe only 50% of the arguments in Bard’s conclusion make any sense.

Bard AI experiment will need to improve the accuracy of the information going forward.

Nice tool though.

Good news for stocks.

The FED broke something in America’s financial system.

The collapse of Silicon Valley Bank and others happened fast. The joys of internet banking mean that a run on deposits can happen a lot faster now than in the 2008 financial crisis.

The FED can be compared to a captain sailing a ship blindfolded. The big experiment of negative money growth, quantitative tightening and hiking interest rates by 100% every 3 months was always going to end with the ship crashing onto the rocks.

What financial stability?

The 2 year Treasury Rate is 4.08% now. The FED should bring interest closer to the 2 year yield and not drive interest rates higher and further away from the 4.08%. Central bankers globally put way to much belief in their models and not enough belief in common sense and balance. Hubris comes before the fall.

All of the global economies big problems stem from the past mistakes of central bankers.

Every interest rate hike filters through the real economy with a time lag of 6 to 18 months.

Earnings of companies are already falling in Q1 2023.

Inflation is already coming down slowly but surely.

The oil price is around a third lower than this time last year.

The dollar index is pretty much unchanged from a year ago.

US interest rates are hundreds of percentages higher than in April 2022.

What is the FED doing?

The central bank is looking and waiting for employment indicators to become less positive.

Why are they looking at one of the most lagging indicators there is?

On top that banks all at the same time have stopped lending out money. This causes a credit crunch. That is recessionary as well.

So the outlook for 2023 is once again tough for equities.

Only when the FED stops with this quantitative tightening madness and lowers the interest rate in the direction of the 2 year will earnings of companies get a reprieve.

Hopefully because the FED has managed to blow up some of their own banks the above actions get implemented in 2023 at some stage.

A real recession now seems inevitable for the US economy in 2023.

Stimulus money and lockdown savings will have run out by now for most main street Americans. Money has a real price again so slowing down spending is a cheaper option than adding to credit card debt for ordinary Joe and average Jane.

Buckle up, tin hats on, real recession here we come!

Almost 3 years ago this real money portfolio was started in order to beat the S&P 500 index using a proprietary momentum equal weighted method.

In this blog it is now time for a relative return evaluation.

This blog is for information and entertainment purposes. If the reader uses information in this blog for investment decisions, the reader will lose money. Holland Park Capital London ltd is in no way, shape or form liable for what the reader decides to do after reading this blog.

First things first; on the 1st of July 2020 Q3 the Trading Portfolio; Momentum strategy started with $50000 in investments in S&P 500 index companies. Now on the 15th of April 2023 the portfolio is worth $67844. There is still some cash from dividends in the portfolio that has not been taken out yet. The value of the cash was about $67. The value of the portfolio stock holdings adjusted for cash is about $67777.

In the last two quarters the portfolio was purely invested in an equal weight way because of the risk of a toxic waste rally in a technical recession.

The absolute return was about 2.5% Year to Date (YTD) for the Trading Portfolio; Momentum.

The absolute return of the S&P 500 index was about 7.85% YTD.

How has the relative return versus the S&P 500 index fared so far this year?

The relative return was about -5.35% YTD.

Nearly 90% of the S&P 500 returns this year came from the success of just 20 S&P 500 firms. Such narrow market breath doesn’t bode well and this usually happens just before a recession hits.

The VOO Vanguard 500 index fund ETF was put in a paper portfolio with two portfolio tracking websites on the 1st of July 2020 with $50000 as well. On the SigFig website the paper VOO holding would now be worth $67081. In the Stockrover website the paper VOO etf holding would now be worth $66858.

So the Trading Portfolio; Momentum lost in Q1 most of the outperformance from Q4 versus the VOO Vanguard S&P 500 ETF.

Equal weight didn’t work at all in Q1 2023.

Almost 3 years is still way too short to be able to draw any conclusions with some amount of conviction; time horizons of between five to seven years are needed for that.

Still the early conclusion can be that so far the Trading Portfolio; Momentum is NOT worth the time and effort.

For Holland Park Capital London for the Trading Portfolio; Momentum to be worth it long term the outperformance needs to be at least 2% a year.

As discussed the US is not anymore in a technical recession according to Holland Park Capital’s recession definition and so the Trading Portfolio; Momentum did do a rebalance at the beginning of Q2 2023. The portfolio is now aligned again with momentum stocks within the S&P 500 in an equal weight manner.

So far in this experiment the conclusion stands that;

Time in the stock market is more important than timing the market

Anyway thanks for reading and good luck! May the force be with you!

The blog is not advice on what you should do with your money and was written for information and entertainment purposes only. When you invest in the stock markets it is possible to lose money. Please do your own research. If in any doubt what is best in your individual situation, please hire a licensed financial advisor. Good luck on your investment journey.

Here is a nice picture of the tulips in Holland Park with some dark clouds in the Dutch Garden.

Holland Park Capital London hopes you enjoyed the information in the blog. Holland Park Capital London Ltd is not receiving any compensation from anyone to write this blog. Holland Park Capital London is long most of the stocks in the S&P 500 index and is also long the S&P 500 index ETF. Holland Park Capital London has no business relationship with any company whose stock is mentioned in this blog. Holland Park Capital London expressed its own opinions. This is not advice. Make your own decisions please. Please go and see an authorized financial advisor before making any investment decisions. What works for Holland Park Capital London may well not work for you and your personal situation is unknown to Holland Park Capital London. Stocks go up as well as down and you may get back less than you invest. Any information in this blog should be considered general information and not relied on as a formal investment recommendation. This blog is for information purposes only and helps Holland Park Capital London expand on the book “Beat the Stock Market Casino” and brings extra discipline in the investment process. Holland Park Capital London is not liable for any mistakes in this blog. This blog cannot be a substitute for comprehensive investment analysis. Any analysis presented in this blog is illustrative in nature, limited in scope, based on an incomplete set of information and has limitations to its accuracy. The information upon which this blog is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore the accuracy cannot be guaranteed. Any opinions are as of the date of publication and are subject to change without notice.