GVI Investor Market Update October 25, 2022

Hello everyone. I want to give you a stock market update and also what I'm seeing across my desk.

As a hedge fund manager, I get a lot of insights, a lot of documents, images, things to read. My team will go through a lot. They'll sift through things, they'll tell me what they think's important and I'll really compress that down and put it into these little videos for you. So it saves you a lot of time, but it also gives you what I think's really important as well.

So what are the big ideas? What am I seeing?

Well, let's just start off with the S&P 500. This is an amalgamation of everything that I've read and then giving you my view. And if I'm being mildly pessimistic, I would say from where we are at the moment - and we're in the middle of this downward channel - I would say we've still got about an 8% drop to go. If I was being more pessimistic, I'd say about an 18% drop.

So we're here at the moment and we could still continue going upwards. Let me draw that for you. Yet we’d still be in a downward channel. You see, this is what often confuses people. They say, "Oh, the market's rising." Yes, but if you're in an overall downward channel, you can see why you could easily fall further back. So that's where I think we are at the moment.

Let's look at a bit more of the data, something a bit more optimistic for you. If you look at the year to date performance of the S&P 500, then what you find is when it's been down 30%, what you find is very often over the next 12 months, you are up and you are up quite significantly. There are some exceptions. 2001 was an exception. 1973, which I don't remember, I'm not old enough, was an exception. But there are many years when you are up. I just thought that was interesting. It doesn't guarantee anything, of course, but there are reasons to be pessimistic.

Let me put it another way. S&P 500 returns after falling 20% from record highs since 1950. What happens six months later? What happens? Let's just have a look at what happens one year later. Well, more often than not, you're up. On average, you're up about 15%. Again, ties in with that. Now, never forget if the index is up that much and you've got that much of a tailwind, then the stocks we're going to be picking, the stocks that I'm going to be selecting for you should do even better.

So it's going to be a really good time to be reading GVI Investor is essentially what I'm saying, because this is what we're anticipating, things going forward over the next one. Yes, you're picking it well. And we're not going to look to try and just match obviously the index. We'll be looking to beat it.

Now, one of the things that's been in the news a lot, obviously with the cost of living crisis, has been the U.S. dollar and how much it's been moving against pretty much most economies. You can see here, all of these economies, their currencies are down relative to the U.S. dollar and all of these, their currencies are down. There's very few which are up. Well, actually, Brazil and Mexico, the two.

Okay, well, so what? You've got a surging, very strong dollar. Sounds good, doesn't it? Strong dollar. It buys a lot of exports relatively cheaply. So you can import into the United States cheaply. Okay, so what does it mean? Well, a strong dollar is correlated with fewer revenue beats. Companies are less likely to beat their revenues.

This is research out of Goldman Sachs. Looks a bit dense, I know. But what they measured was the percentage of S&P 500 stocks beating their revenue or sales, their company sales estimates.

Now, if they don't beat those estimates, then their share prices tend to fall, and a strong dollar ends up meaning more companies don't beat those estimates.

Now, you might say, "Well, wait a minute. If people know that, then surely they'll revise it down until you get this virtual circle of information, until you just get perfect information." Well, that's the theory. Sadly, I suspect you will get, you will, I suspect sadly, get more revenue misses.

Now, that's why we're going to focus very quickly on kinds of companies where we double check either this is going to meet revenues and are there other things attracting us to it beyond just revenues? And this is one reason why, because if it misses those revenues, the share price is going to get hit.

I also wanted to show you this from the IMF. It's basically how different countries have taken different policy approaches to high energy and high food prices, so to the cost of living crisis. And it just shows you how difficult the task is. Because they could reduce consumption taxes, they might just give you cash. My government in the United Kingdom has just given us cash. It was cash into our bank accounts effectively, which is extraordinary. I don't think I've hardly ever seen anything like that.

And there's a whole bunch of other things they can do. For instance, personal income tax. There's a lot of things that they don't tend to do, oddly enough. The reason I mention this is because nobody actually knows what the right answer is, though it looks like a lot of the advanced economies do agree that these things are the most important. They might not necessarily be right.

And this is not just an American problem, it's not just a UK or European problem, this is a global problem at the moment, and we're still working out what's going to happen with policy, but we're not going to gamble on it. We are going to keep an eye on things like this and look at what's coming out of governments so that we're well informed. And when we pick our GVI stocks, we're not just going to look at the spreadsheets and the data, we'll also look at government policies and which companies are likely to benefit from that. Not just government policy, but obviously all their financials are in place and this factor as well.

So I wanted you to know that as well. And I found this fascinating. It's just to give you a perspective of what's going on in the world. Well, what's going on in the United States. So let's look at this trillions. Okay, one trillion, Amazon's market value. World GDP, 84.7 trillion. US debt, oops, 30 trillion. Okay, US GDP, 20 trillion. That number used to be the other way around. It used to be GDP was bigger than US debt. Now US debt is beating US GDP. Okay, China's GDP, it's over here. It's smaller than the US. But anyway, I just thought this was interesting. I'm not going to go through every single box. Just fascinating.

Put things into context. Often we just talk in generic terms, but it's also, there's a more important point I wanted to make to you all. When it comes to GVI Research news data, I am not just looking at, "Oh, I think it's roughly this, or it feels like this." We're not looking at emotions and what we think is the right answer. We're looking at hardcore numbers. We want the data. We're not just somebody to say, "Oh, US debt's more than GDP." Yeah, but by how much? What's the trend? What's the reaction? What's the percentage growth? What are the implications? Okay, so that's the other reason I wanted to show you this as a well.

Finally, and sort of related to that previous couple of slides, what does all of this mean in terms of things we're going to be looking out for on the newsletter side? Well, this is again from Goldman Sachs. US economic developments are in focus. Survey question: Which events are investors most focused on in October? And obviously economic data, and we'll continue looking at that ourselves for the newsletter. European economic data, well, that's easy enough for me to look at. Chinese economic data, there'll be few people like that. Central bank statements, we're certainly looking at those/ European geopolitics, don't worry, can help you with that. And then some of the others are far less like elections are less important.

So I just wanted to show you not just that, here's the stock pick and here is numbers, value, growth, income, cashflow, but also to say to you, well, we have to be aware from what we're doing about the political environment, the economic environment, economic data coming out of the US, Europe, central banks, China, and we put all of that in together and then look at individual stocks. Of course, nothing guarantees that you're going to absolutely get it right.

A couple more slides. These are the percentage of funds, and this is from Morningstar and the Financial Times, the percentage of funds, which were still around after a number of years. And as you can see, well, only half are around after 15 years, which tells me that I didn't really want to be investing in funds. I want to be picking the individual stocks. Now I'm preaching to the converted. I appreciate that. But I just wanted to show, this is one reason why. Why are those funds no longer in existence?

In fact, why every single year do so many of them close up shop and go out of business? Surely if they're professional, they should be around forever. Companies are around longer than that, aren't they? So I just wanted to show that again, reinforcing that point. It's far better you wise people who've chosen to do your own thing. But there's another reason why you need to be holding things in your own hands and not in the hands of fund managers. And it's this, and again, it's from Goldman Sachs. It's total annual income retirees receive, including social security relative to their pre-retirement income. Now, if you look at it, if you've got less than 70% of your pre-retirement income once you are in retirement, then the view is that you can't maintain your standard of living in retirement.

And what Goldman Sachs found is only 25% of retired respondents say they have more than 70% pre-retirement income in post work life. In other words, there's very few people who can maintain their standard of living in retirement. Again, it's why I think it's important that you are informed by the newsletter that I produce and the stock that we pick and so on. So you are in a better position to be what Goldman Sachs obviously wants you to be in is the richer people over here, and that's what we want.

One more image I want to show you. Slightly again, positive. Again, there's concern about mortgage rates both in the US and the UK. Some good news for you, some good news. When mortgage rates increase and house prices increase, that's this green zone, well, the good news is you can often have house price increases. You can have house prices changing going up and mortgages increasing at the same time. Whereas most people think, "Oh, if mortgage rates are increasing, house prices must necessarily be falling." It's not actually the case.

Of course, there are times and you can have mortgages falling and house prices falling at the same time, but those are relatively rare. But the good news is you can still have these mortgage rate increases and house prices appreciating your natural wealth. I just thought it was quite interesting, again, following the data rather than what we believe might be the case as well.

Anyway, hopefully you found all of that important, interesting. We certainly did. We think it's the most important stuff that's crossed our desks in the last fortnight. So thank you very much and I'll tell you more on the newsletter as well. Thank you.