To Our Investors and Friends,
For the second month in a row, the S&P 500 Index (S&P 500) continued to recover from a brutal bear market, rising 5.4% in November. Oil prices sank by almost 7%, closing at $81 per barrel as demand continued to moderate. The 10-year Treasury bond retreated to 3.68%, down 42 basis points for the month on the view that Federal Reserve rate hikes will moderate from here. The two-year Treasury fell 13 basis points to 4.38%, ending higher than the 10-year by 70 basis points. All major indexes advanced in the quarter, driven by a robust recovery in both larger market capitalization companies and value stocks. The Bloomberg 1000 Value Index rose 5.8%, the Bloomberg 2000 Value Index increased 4.0%, the Bloomberg 1000 Growth Index gained 4.8% and the Bloomberg 2000 Growth Index moved up 1.7%.
The stock market’s recovery since the brutal October selloff has been largely driven by a view that the US economy is poised to hold up better than past slowdowns, largely due to a better labor market, especially for blue-collar workers. The past two years have been a hard lesson about the drawbacks of the globalization of our economy. Just-in-time inventories sourced primarily from China proved to be a poor strategy. The COVID crisis revealed that many global supply chains are frail and will break down under stress compared to the normal course of business. In response to COVID, the industrial economy is undergoing a dramatic overhaul driven by more localized sourcing of products. This is creating the beginnings of a manufacturing renaissance in the US. According to Rana Foroohar’s Homecoming, The Path to Prosperity in a Post Global World, “64% of manufacturing companies are planning to re-shore some production to North America because of the fallout from the pandemic.”
In her book, Foroohar explains that the US’ blind confidence in laissez-faire free trade policy, which trusts solely in efficient markets and shareholder profits above all, has failed our country. Foroohar explains, “free trade doesn’t work as well when there is no shared political economic value system between partners,” especially given the vast differences between the west and communist China. “The Chinese used the world economy to advance their own domestic policy agenda,” Foroohar explains. The path forward is one focused on resilience over efficiency, and a return to local production versus global sourcing of goods. Foroohar further explains that “the antidote to neoliberalism is mutualism…which is getting back to a notion of capitalism that is rooted in community.”
At Kingsland Investments, our focus on high-margin businesses leaves us with little exposure to the US industrial base that we believe will benefit from this emerging near-sourcing trend. Instead, we focus on companies that help enable these industrial businesses to improve their supply chains through robust technology solutions. Such solutions are using the internet of things, Artificial Intelligence and robotics to help companies build the factories of the future. All these efforts should enable the US to recapture its manufacturing leadership in the years ahead and provide great investment opportunities for the tool providers that will make it possible.
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 December 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.