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Updated: Oct 31, 2023

I am thinking one word: “PEAKING! Rates, Fear, Supply Chains”. Being bearish Markets and the global economy is so boringly consensus right now and in the real world there isjust supreme misery.

There are clear winners and losers in this environment and into 2023, and it is here that Nutstuff can help with Portfolios (see below on screening).

We need to really differentiate between “Post Lock-down damage” (shipping/containers) and “Systemic Persistent supply driven inflation” (Energy etc).

Markets are however normally 6MTHS + ahead of doom peddling Cab drivers, Media commentators White van Man. 3mths ago I wanted to be really bearish. Now not.

To retrace half of its decline since January this year , the S&P 500 would have to get to 4186 which would be a “mere” 6% move to upside from here. Positioning is still very low.

What chance an S&P 500 back to 4200 by year-end and to 5000 by Easter 2023? A SPX to 3200 first call was just too simple. The world has adjusted to 4%. 3-4% is NORMAL rates/ a normal sensible cost of Capital.

For mortals trying to navigate financial markets this is So true: “The reason finance has so many con artists is that most people intuitively understand why they shouldn’t pay $300 for a cheeseburger, yet most don’t understand why 10x revenue for a massive cash incinerator “business” or $50 for a “cheaper than Bitcoin” sh*tcoin is a bad idea”.

Well its time these con artists were cleaned out. It is happening. Position for a World of 3’s; 3% rates, 3% CPI, 3% Fiscal deficit, 3% inflation. Labour will do better than capital. On Consumption and where to invest, ask yourselves who will have Covid / lock down savings left and who wont.

Remember a 7% a year return for stocks: 100 yrs, but 5 decades in 12 delivered the returns. We are in a decade where $105 trillion is the World economy on its way to $160 trillon (Was $60 trillion 10yrs ago). 3 key growth drivers, and 1, China will overtake US in 2029. “

What to do... SCREEN, OWN & AVOID

Screen vigorously: If the equity story for 2023 is about a lack of earnings growth and earnings declines, we need to:

Buy & Own: 1. Safe Yield and Bond proxies. 2. Stocks in industries that typically outperform when inflation is high and falling, with earnings yields and FCF yields above aggregate S&P 500 and their sector. 3. Companies that have grown sales & margins YTD, and are expected to grow sales & margins in 2023.

Avoid & Short: Companies with high cash burn rates, EV/sales above 5x, and 20%+ sales growth; cash burn rates as of 2Q 2022. I.e. those that will need & struggle to raise cash near where they are currently priced.

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