Market Commentary - February

Glenmore Asset Management

March 2024

Funds operated by this manager:

Glenmore Australian Equities Fund

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Wrestling the gorilla

Insync Fund Managers

March 2024

Despite incessant commentary to the contrary, the US economy is the strongest it has been in over 30 years.

We have said many times why trying to predict economic outcomes in an upcoming year is fraught with danger.

We even charted a few famous commentators and forecasts versus actual outcomes. Simply, no matter how famous or big the institution, or how clever the person, they are wrong far more than right.

Given that these macro forward views shape how most fund managers invest and make decisions, it's a worthwhile exercise for advisers to track the managers they use against how successful and aligned to their own commentary they really are.

For the record, we are not in the game of forecasting macro settings, as we see little value in it once ego is placed to one side. It's very important with this in mind to note that factually, when everything seems bleakest it is uncannily common for it to be at its brightest.

Let's look at the economic gorilla of the world - the US. At the end of 2022 and early 2023, most managers, economists and commentators warned that bad times lay ahead.

Here are eight key indicators that show that for last year and indeed for at least 30 years, the US has never been in better shape.

1. Wage growth: Despite all the worry and bleak predictions and what has become accepted as bad times, the reverse is true. Wages experienced 5% growth.

2. GDP: 3.3% Real growth with an annualised run rate of 4.9%.

3. Inflation: This stands at just over 3% nominal. So we're talking 2% real wage growth and 6% nominal economic growth.  Several commentators last year worried about a 1970s style stagflation. Remember that? The simple fact is that today's situation looks more like the 1990s economy than the 1970s.

4. Unemployment: This remains stubbornly low, after Covid and government free money distributions.  In the 1990s, it averaged 6% and was never as low as 4%. The super-driver of Demographics is playing its part in this.

5. Government debt: Ahh, some wag the finger that it's all debt fuelled, but let's see.

Government debt is indeed a lot higher now than it was back then, and of course $34 trillion is a lot of money but expressed as a percentage of the economic output (% of GDP),  is this so different or abnormal? It was far higher in the 1990s and today sits around the longer-term average.

6. Household debt: Whilst looking at debt, let's look at US families and their ability to service their debts and higher rates closer to longer term averages than the last 10 years. It is far, far better than in the 1990s.

7. The federal deficit: Surely this is bad? Let's see.

Yes, it did dip sharply for a short period during the first global pandemic since the 1920s, but it's nearing 1990 levels again. Not as gloomy as many may lead you to believe.

8. What is worse is sentiment: It was last this bad way back in the early 1970s during the great financial crisis, although it has recently bounced back. Unedited, unreviewed, non-expert information, thanks to the social media boom, has likely influenced this - something we didn't have in the 1990s.

Will the good times end?

Perhaps it's best said by that infamous barman from the 1980s movie 'Cocktail'...

"Everything ends badly otherwise it wouldn't end."

The unknown but most essential question is of course when?

For those in cash, and there has been a lot sitting on the sidelines for years now, bad times would have to be catastrophic, with an ending of biblical proportions. Not only that, but those in cash would also have to make immediate constant gains and have that continue for years afterwards, just to keep alongside in dollar value terms those who remained invested in productive business assets all these years.

The odds of a biblical-sized catastrophe and timing it close enough to exit, then re-enter at the gloomiest most negative point, compared to hanging in and not getting spooked, are very low indeed.

#Investmentstrategy

Funds operated by this manager:

Insync Global Capital Aware Fund, Insync Global Quality Equity Fund

Disclaimer
Equity Trustees Limited ("EQT") (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Insync Global Quality Fund and the Insync Global Capital Aware Fund. EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) ("Insync"), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.