To Our Investors and Friends,
After a brutal sell-off over the first nine months of the year, the S&P 500 Index rallied nearly 8% in October. Oil bounced more than 10% in the month, closing at $88 per barrel. Fueling the rally are market hopes that Federal Reserve (Fed) rate hikes are coming to an end. The 10-year Treasury ended the month at 4.1%, a 27-basis point move from September. The two-year Treasury increased 23 basis points to 4.48% and remains higher than the 10-year Treasury by 38 basis points. Anticipating an end to the rate hike cycle, all major indexes rose in October. The Bloomberg 2000 Value Index rose 14.1%, the Bloomberg 1000 Value Index increased 12.6%, the Bloomberg 2000 Growth Index gained 8.5% and the Bloomberg 1000 Growth Index moved up 5.5%.
The Fed’s aggressive rate hikes this year are an attempt to moderate inflation, which many fear is on the verge of a 1970s repeat when corporations and employees alike suffered from reduced purchasing power. Back then, a significant amount of continuous inflation was caused by a wage-price spiral in which companies increased wages to help workers survive higher inflation, only to need to increase prices to pay for these higher worker expenses. We believe the economy is significantly different from the 1970s and most likely will not have the same experience today. One of the greatest differences between these periods is that today we have a decimated male workforce with a larger percentage of prime working-age men not working than during the Great Depression.
According to Nicholas Eberstadt’s Men Without Work, “Between 1948 and 2015, the work rate for US men 20 and older fell from 85.8% to 69.2%. When 65+ is excluded, 22% of men between the ages of 20 and 65 were not engaged in paid work of any kind; 12.5% below the 1948 level.” Eberstadt dismisses the highly-flawed Bureau of Labor Statistics unemployment statistics that the government and the Fed both rely on to gauge economic health. “The unemployment rate was created in an age where mass withdrawal of the workforce was inconceivable…it takes no account of the very group that has been growing most rapidly…a group that now vastly outnumbers those formally unemployed.” In fact, there are more than three times as many men that are unemployed and not looking for a job than those that are unemployed and looking for a job. The societal costs are tremendous as these men are not only disengaged from the workforce, but also from family and community life, creating a significant drain on society and the economy. This unfortunate phenomenon invalidates a labor force comparison that led to the 1970s wage-price spiral.
While we cannot offer any long-term solutions, we do note that the consistent outsourcing of jobs to China and other foreign locations over the last 30 years has had far greater negative consequences for our economy than government statisticians can measure. This is another reason why we seek to invest in companies that are led by founders that take pride in both the products and services they offer as well as in the workers that they depend on to deliver them. We believe that such companies will produce better results over time than those companies that demoralize their workforce with multiple rounds of layoffs; decimated workforces carry a long-term cost that the statisticians and the algorithmic quantitative hedge funds will never be aware of.
All the best to you,
Arthur K. Weise, CFA
*Effective January 12, 2022, the Kingsland Growth Advisors name changed to Kingsland Investments. The views expressed are those of Kingsland Investments as of November 1, 2022, and are not intended as investment advice or recommendation. For informational purposes only. Investments are subject to market risk, including the loss of principal. Past performance does not guarantee future results. The stocks mentioned are for illustrative purposes only and are not a recommendation to buy or sell. There can be no assurances that any of the trends described herein will continue or will not reverse. Past events and trends do not imply, predict, or guarantee, and are not necessarily indicative of future events or results. Investors cannot invest directly in an index.