From budding trends to mature industries, Novem Group works hard to stay abreast of developing news.

Here’s what caught our eyes this week:

The Bear Case

The regular Central Bank tools won’t work on the next financial crisis.

“As inflation rises over the next few years, central banks will face a dilemma. If they start phasing out unconventional policies and raising policy rates to fight inflation, they will risk triggering a massive debt crisis and severe recession; but if they maintain a loose monetary policy, they will risk double-digit inflation – and deep stagflation when the next negative supply shocks emerge.”

BUT… while double-digit inflation isn’t ideal, it will help alleviate the debt.

Another thing I would point out is that the financial markets and the economy are not the same thing. Dr. Doom seems to be bearish on both

I am more confident that the US economy will grow over the next 12 months than I am confident that the S&P 500 will have a positive return over the next 12 months.

So, as an investor, what do you buy?

  • NOT assets that are at or near peak valuations.
  • NOT long-term bonds. Rates and inflation will erode.
  • NOT emerging market debt, especially EM debt denominated in foreign currencies. Rising rates in the developing world will squeeze Ems badly.
  • NOT businesses that rely on a low discount/interest rates.
    • Businesses with cash flows that are distant in the future will see the present value of those cash flows discounted away by rising rates.
    • Businesses with excessive debt could get squeezed by rising interest rates.
  • I continue to think it is a game of avoidance rather than finding the perfect investment. Win by not losing.
    • Among the remaining options are equities, value, commodities, and other businesses that can grow cash flow in a low-growth inflationary world.
    • Also, lock in a 30 year mortgage at a fixed rate.

Technology, Food, and Evolution of Humans

Included in honor of BYND’s artificial chicken tenders…

We all hate “factory farms” and “franken-foods” and ingredients we can’t pronounce but we’re going to add a billion people by the end of the decade!

Innovation in food is here to stay.

Schwab, Robo Advisors, and the SEC

On Friday – right before the holiday weekend when Schwab’s Investor Relations team thought no one was paying attention, they released an 8K

I hate it when IR teams do this… it’s not the crime it’s the coverup!

To IR teams everywhere: you’re better than this!

SCHW’s Robo-Advisor is being investigated by the SEC. SCHW has set aside $200 mil as a reserve for any fines/penalties.

In the wake of Robinhood, WallStreetBets and the retail-investing mania, the SEC is focusing on the retail brokerages more and more.

$200 mil is not material to SCHW (2.5% of estimated 2021 pre-tax income) but this seems like a large fine considering the circumstances.

When Robinhood blatantly lied to investors about selling order flow, the fine was $65 mil.

o Mostly, I think this is a black-eye for SCHW.

Maybe robo-advisors aren’t all they’re cracked up to be. Yes, a super low-cost, technology platform might be infinitely scalable, but I continue to believe that a fiduciary relationship is the bedrock for success which requires some level of emotional intelligence.

The Next Novem Group Athletic Challenge?

RUNNER VS BASE JUMPER – The Romsdalshorn Challenge

Since the famous Field Goal Challenge the Novem Investment Team has been on the hunt for its next endeavor. Perhaps this is it?

Some more fun reading on the superhuman Kilian Jornet if you care…

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