Markets have had a nice rally since the mid-June lows, as signs that inflation has peaked have investors a bit more optimistic that the Federal Reserve won’t have to raise rates as far.  I’m definitely in the camp that the inflation growth rate has peaked and the signs of it are quite pervasive.  With that said, we likely haven’t seen the worst for the economy yet, which is what the equity markets were pricing in with this bear market.

It’s tough to imagine unemployment staying as low as it is, and we are definitely seeing a bifurcated market with lower income consumers really struggling with everyday costs such as housing, fuel, food etc. It shouldn’t come as a surprise that markets rallied when pessimism was most extreme.  When all anyone can see is the bad, sentiment tends to be priced in and a reversal such as the rally we have seen becomes more likely.  This is why we always try to focus on fundamentals and prioritize buying securities at large discounts to intrinsic value, instead of getting lost in the weeds trying to time the macroeconomic environment, which is frankly impossible to do.

We have taken advantage of this rally to lock-in profits on some options positions where we have made the vast majority of the potential profit, at a faster rate than initially anticipated.  This will allow us to redeploy funds into new opportunities that have more upside potential.  Our portfolios’ have held up very well this year and I think it is likely to continue as we get closer to options expiration in late January of 23, and as we see continued strong business performance for our major positions.  Stocks such as AGO, Citigroup, ALLY, BNP Paribas, Alphabet, and Meta are still extremely cheap, with massive upside potential.  All of these companies are profitable, are in strong financial positions, and have good management teams that are poised to exploit the disconnects between price and value.  The markets themselves are not overly cheap, so I’m very happy to focus on individual stock selection, and fully utilize our options strategies to structure more favorable risk/rewards.  This period reminds me a lot of the early 2000’s, which was a fantastic era for the type of investing that we do.

Lastly, I had the good fortune to appear on the Planet MicroCap  podcast with Bobby Kraft where we discussed the markets, specific investments, and strategies.  I think you’ll find it interesting if you have the time. Here is the link to the video if you are interested: Podcast