High Note Market Update: Friday, 5.27.22

3 minute read | May 31st, 2022

Happy Fri-YAY, peeps!  As we gear up for the Memorial Day weekend, we wanted to touch base to say “hi” and to go over some of the recent happenings in the wild world of global investments.  But before we tackle that bear, we wish you an enjoyable long weekend that’s filled with fun, laughs and relaxation. 

“Talking the bear” is a prescient analogy for 2022.  As you remember, a “bear market” is simply defined as a drop of 20% from the peak of an index.   The NASDAQ, ever the overachiever, completed this task early in the year while the S&P 500 has flirted with it but hasn’t officially gotten over the line.  Those definitions matter little to humans (they do a little to algorithmic trading computers) because it’s not like -19% is good.  What does matter is to carefully observe the bear from a safe distance without getting an arm ripped off (because yeah, obviously we need to snap some pics for the ‘Gram). 

As a quick aside, after the stock market went down for eight straight weeks, it has rallied back 8% to close this week positive.  That doesn’t necessarily mean our bear is strolling into hibernation but it’s good to see a bounce. 

Bear-watching isn’t an activity for the faint of heart and neither is investing.   If you want to get close enough to pet those cute little ears, you are taking a real risk.  You might be able to get away with it a couple of times and then you get mauled.  With investing the same applies to chasing returns or pushing too hard.  When it works, you get those sweet, sweet pets on the head but when it doesn’t, look out. 

Keeping a safe distance while snagging some hi-res photos is the name of the game. To find this balance we need to do a couple of things.  First, we remain calm – sudden movements are not recommended (one of the Hits below takes on this idea in examining private equity funds).  Second, we closely observe and when the bear moves a little, we move a little by adjusting allocation and positions.  And finally, we hold on to our can of bear spray like our life depends on it, and in this situation, that deterrent has been cash. 

Outside of a few energy stocks, the best investment year-to-date has been cash/money markets.  Stocks are down.  Bonds are down.  Real estate is down.  Crypto and all those NFTs you didn’t buy are down.  And yes, we know there can be a long-term problem with inflation eroding cash but that’s beside the point at the moment.  We have been and continue to be weighted higher in cash than at any point in our twenty-plus years of doing this.  We are finally starting to see big jumps in money market returns which also helps.  The opportunities in stocks will eventually start to look more attractive as our bear does a couple of circles before finding a soft spot to curl up. 

High Note Quick Hits


Part of the recent positive movement in stocks can be attributed to a softening or lack of inflation in reports this week.  The big one was the final report from April on non-durable goods (such a dumb name – it’s food and food “stuff”).  Instead of inflating, the number actually deflated after going up seventeen straight months (chart below).   Add to that official reports of used car prices declining and there was some positive moment.  However, we take the April report with a grain of salt. 

There are still significant headwinds to food prices for the next year.  Most of the wheat crops in Ukraine haven’t been planted while last year’s crop is still in the field.  Fertilizer prices have skyrocketed, and the food produced with said fertilizer is yet to hit the market.  Pile on top of that increased fuel costs and you have significant pressure on prices.  From our perch, we see it as one of the most likely contributors to a potential recession.  Peace in Ukraine would do wonders to reverse this trend. 


We mentioned above the idea of remaining calm when facing down a bear.  The blog I’m linking to below is an interesting take on this idea.  It’s written by an investing legend named, Cliff Asness.  Cliff is a very interesting character in the investing world.  He’s super smart, very sarcastic and not afraid to mix it up on Twitter.  This isn’t the usual piece you might read on how ignoring downturns in the market is important for long-term returns.   Instead, he’s making the case that private equity funds are popular not because they offer the potential for greater returns but rather, that they have built-in “idiot insurance”.  What he’s getting at is that investments into private equity are an illiquid black box – you can’t take your money out for a set period.  In that period, the market may go up and down but there’s nothing you can do so you let it sit and it works out in the end.  Very sharp and controversial read.  Enjoy. 

“The Illiquidity Discount” – Cliff Asness