Value Over Growth

I reduced our exposure in U.S. technology stocks in the first quarter. It was an unpopular move at the time. The narrative around Big Tech continues to grow more negative, as I’ve warned:

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Don't Panic, This Is NormaL

No way to sugar coat it. It’s been a brutal October, one of the worst on record. It took the stock market 9 months to climb 11% and less than 20 trading days to give it all back. Why? To truly understand the reason you would have to get inside the head of every investor who decided that now is the time to sell. Stocks always fall faster than they rise…fear is more powerful than greed. As I mentioned a couple weeks ago (A Long Way From Neutral), I believe the combination of rising interest rates (which make things we finance more expensive), the trade tensions (including tariffs, which are essentially taxes), along with comments from the Federal Reserve Bank, are the likely reasons for this pullback. 

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A Long Way From Neutral

For the first time since 2011, the 30-year mortgage rate has topped 5%. What’s the difference between a 4% and a 5% mortgage rate?  $213,862 (on a $1M loan over 30 years, see below). That’s how much more the exact same house will cost you today due to higher interest rates. You need to come up with an additional $600 per month, or $7,128 annually. In a high tax state such as California, one must make an additional $12,000 annually (approximately) to net $7,128. So it’s a thousand bucks a month that will no longer goto travel, dining out, sporting events, concerts, Amazon, etc. 

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