Chaim Investment Advisors
End of Summer Newsletter
Holiday Schedule
The big news this time of year is always the Holiday schedule. For most of these days, we observe “Shabbat” style rules with no phones, email, work, etc. These are the times we’ll be off for the Holidays:
Rosh Hashanah
October 2nd-October 4th.
This is among the most important holidays of the year. It starts at sundown on the 2nd and ends at sundown on the 4th.
Yom Kippur
October 11th- October 12th.
Also among the most important holidays of the year. It starts at sundown on the 11th and ends at sundown on the 12th.
Sukkot
October 16th- October 18th.
The holiday goes on longer than sundown on the 16th to sundown on the 18th, but the first two days are days off.
Sh’mini Atzeres &
Simchas Torah
October 24th- October 25th.
The holidays end with Shmini Atzeres on the 25th of October.
I Went to the Morningstar Conference
I go to due diligence sessions, asset manager meetings, and industry events from time to time. I talked about attending the Morningstar Conference with many of you and on Social Media, so I figured I’d say a couple of things about how that went.
There were some themes:
- Asset Managers want to sell you Active ETF’s. Some of these are good; many investments that are essentially rules-based or Smart Beta/Factor weighted index approaches are labeled “Active.” Some of these investments are bad: expensive and make less money.
- A.I. was a theme, but I’d argue that some of the conversation was delusional. One of the presenters voiced the opinion that due to A.I., humans would live for ever and we will soon cease to die. Need I say more?
- Private Credit- an asset class I’m intensely wary of- was hyped beyond belief. I did speak with one manager in this space I was intrigued by.
- Behavioral Finance is having its moment in wealth management, and I’m here for it.
Market News & Events
The market has hit a number of all time highs. The particular day I’m writing this- the 4th of September- was not a great day for markets, but we’re sitting in the middle of a long sequence of all time high prices for Dow Jones, S&P 500, and NASDAQ indexes. Other markets- bonds & small caps- have still struggled to catch up.
The reality is that both the Russell 2000 and the Bond Market are waiting for interest rates to come down to achieve stronger performance. Small Companies are more sensitive to interest rates because frankly, they have less money. If they had the kind of cash that Large Cap stocks had on hand, they’d cease to be Small Caps implicitly. Quality bonds are very sensitive to interest rates as well for obvious reasons- if interest rates come down, the prices of bonds with higher interest rates go up.
Beneath the surface, most of the S&P 500 is having a bad time with earnings. The top 10 stocks contributed the entirety of the Index’s positive earning growth thus far in 2024. That is, taken together, the bottom 490 companies in the S&P 500 have experienced negative earnings growth (i.e. they lost money); if you stripped out the top 10 stocks, the S&P 500 would have a loss of 2.4% in earning growth to date (data from State Street Global Advisors). This doesn’t mean the market will stop rising actually. It does mean that if the bottom 490 stocks make earnings growth happen, the market is cheap.
All of this leads me to share that unless we get great earnings for small firms and strong guidance on earnings throughout the next 6 weeks, the September Spookies appear set for yet another creepy effect on markets (more on that in the September Effect post below).
The September Effect on Stock Markets
To the right, you’ll see a chart of monthly average returns for the S&P 500 index of stocks. The main take away is that September is the only month with negative average returns, with only 3 positive Septembers in the past decade. Call it the September Spookies if you like.
One reason it has earned this name is the bad vibes of losing money. The other is that
September contains the most extreme technical-driven (i.e. not because anything has actually happened) event of the year: the September 20th Quadruple Witching. Woe unto anyone who checks their portfolio on that day. Jokes aside, its’ a day where 4 different sets of Futures & Options on major indexes end completely, rolling over at once. This can create volatility.
This September is starting off rough as well. Keep market events this month in this context.
The Art Market
It’s not a secret that Chaim Investment Advisors deals with the art world. Many of you reading this are artists, gallerists, or collectors. Many of you are not, and you might be wondering, Chaim, why do I care?
If the only reason you cared about the art market is that it says a great deal about the confidence of the top 1% in their economic status... that’d be a pretty big reason in its own right.
The art market has seen itself in a bit of a slump since late 2021 highs. Gallerists are under a lot of financial pressure right now as rents & insurance costs, as well as personnel costs, have spiked in L.A. & NYC. Another phenomenon is the financial pressure of participaing in Art Fairs such as Maastricht, Art Basel, Frieze, and a host of others.
On the one hand, art businesses have tried to enhance resiliency by cutting costs. If you’ve been to Frieze or Basel, you probably didn’t notice fewer galleries because there are a ton. But galleries are purporting to be cutting costs by going to fewer art fairs (see chart).
Art Basel just happened and was watching anxiously by artists and gallerists. Good news: blue chip sales were strong. Bad news: market breadth was not as strong as optimists may have hoped for. Conclusions: the market is cautiously optimistic (emphasize catious).
This Joan Mitchel piece sold for $20 Million
Source: Artsy
Gold Price Highs
Gold has been hitting many sequential all time highs. That might sound like a bad thing going forward for gold. Some people are calling this a “mystery.” I thought I’d offer some perspective. As many of you know, my history with gold investing long predates my time as a financial planner, and it’s something I own myself in multiple formats.
The reason that gold tends to hit many highs in a row in cycles is that the largest driver of gold prices for US dollar based investors is currency weakness. While the US Dollar is not actually weaker right now, what gold markets are pricing in is future weakness.
The price today of any asset is the sum of all of the future cash flows discounted back to a current dollar, and gold prices are extremely sensitive to both demand changes (because there’s not that much of it!) and future changes in currency values.
Both of these factors are positive for gold, with central banks purchasing & a good correlation set up.
The C.I.A. Reading list
What we're reading about right now
The US Treasury Yield Curve has normalized for the first time in 2 years. As of this exact moment, we don’t have a Yield Curve Inversion. That’s huge news, but this will be a long, wobbly path to normalization.
The Beige Book- a soft survey, but one of my absolute favorite reads in Macroeconomics- has bad news for us.
I’ve chronicled the China slowdown on this reading list. Now, JP Morgan has thrown in the towel on pushing China shares as an election hedging strategy.
JPM Morgan Sours on China
C.I.A. on Instagram
Did you know that I post on instagram about investing, markets, politics (only when people ask me to do so really, really nicely)? I don’t all of the time, but I tend to post videos there on my Stories as well as charts & articles when I have a minute in the busy day.
The link on the left is to the official Chaim Investment Advisors Instagram (not to be confused with the instagram @instachaim_ account where I post about my toddlers, challah, travels, etc.).
On the right, an illustrious hot take on charts that I get sent to me from analysts & asset managers. Follow for more frequent/random updates!
Personal Notes
I haven’t written a Personal Notes section to the Newsletter recently, and it’s the most read/commented-on section. L’chaim to personal notes returning.
This has been the best year for business at Chaim Investment Advisors by a pretty healthy margin. The most recurring clients, new clients, and Assets Under Management have all happened at the same time. I’ve been welcoming and enjoying this fact this time around (it gets exhausting sometimes but I’ve managed this year well). The total Assets Under Advisement for the firm are somewhere around $149 Million presently, which is an all time high.
It’s also been the busiest summer season for new clients, with ~24 new clients over the summer months. That’s been welcomed as well, because I actually have the energy to work with all those new projects over summer months (compared to the winter, where I admittedly suffer from S.A.D.).
In recent weeks, my 4 year old (Amirah), wife (Maia), and 2 year (Sofia) have all had Covid 19. I finally got it, after not getting it for many years. I don’t recommend it. All of this to say that I have had this newsletter as a draft for 3 weeks... Everyone is doing really well at this point (I’m still a bit under the weather, but I won’t complain too much since I am now on the other side of it).
I’ll be traveling up to Portland for the Holiday cycle. I’ll be staying at the Hotel Vance in Southwest Portland and davening at Shaarie Torah like usual. I stay there because it’s easy to do in-person meetings, and I’m looking forward to seeing many of you in person this time around!
We’re traveling a lot: Art Basel Miami in December, somewhere in January (suggestions?), Italy in March.