Q 3 2020 Cover Letter

As a kid, a frequent saying of my parents were,

“Son even too much of a GOOD thing is still too much!”

While it may sound like we were talking out of the exact opposite side of our mouth, investors looking through the valley to the other side which we had argued for the last two quarters seem to be having too much of a good thing

As discussed in great in our Newsletter for the first time in almost five decades of professional investing, two quarters ago we had to argue positively when everyone was extremely negative and dark clouds appeared to be in the sky, forming our thoughts of looking through the self-imposed valley to the other side where brighter skies may lie.

Fast forward to the present, fear by many has been replaced with greed and a short-term memory of the perils once worried about.  As mentioned once again in our quarterly Newsletter there are similarities to 1999- due to heightened valuations and slight reckless behavior. While prices likely overshot to the downside earlier on in this year it is likely they have overshot to the upside now.

Where do we go from here?

We are not saying things must fall dramatically or an imminent decline is coming, only the opportunity short to mid time frame returns are diminished due to the higher valuations.

Inflation expectations, as measured by the Consumer Price Index (CPI) or the Dallas Federal Reserve’s own adjusted inflation measure, the Trimmed Mean Inflation measure are worthy of our attention as very few expect any inflation at this time.  An increase in either of these measures would be more startling to the Federal Reserve (FOMC) and Capital Market Investors and would certainly present a headwind.

Lastly, as we head into historically the best quarter of the year (led by historically the roughest month), we would argue this is not a normal year and our guards should be up, with slightly thicker investors skin as we head into the end of this year.

Stay safe be well will talk to you at the end of the year!

Sincerely,

John A. Kvale CFA, CFP

Enclosure (2020 Report)

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