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  • Writer's pictureGerard Hallaren

September 2023 Perimeter Investor Note

Our average customer account lost about 2.75% of value in September and 0.94% for the third quarter, This was less than the declines in the broader stock market averages shown in the table below. As always, Perimeter's results are reported after fees.


Period Ending

9/29/2023

Month Ending

Three Months Ending

Average Perimeter Customer

-2.75

-1.17%

S&P 500

-4.87

-3.65

Equal Weighted S&P 500

-5.26

5.38%

S&P 500 Value Index

-4.77%

-4.56%

Source: Y-Charts and Charles Schwab

Normally we rely heavily on numbers provided by Charles Schwab. Schwab has been transitioning many systems and we have found inconsistencies in their data. Hence, index performance comes from Y-Charts.


Market Thoughts

The market has generally been worse than I have expected. Thankfully, we have been holding a fair amount of cash and a large position in short term treasury bonds.


Right now, I believe the market is “over-sold” which gives us an opportunity to acquire stocks with less risk. Please remember no one knows how long it will stay oversold or how much more oversold it can become.


Recently, we have reestablished a position in Proctor and Gamble (PG), the gold etf (GLD), and added to Nvidia. An expectation of “higher for longer” motivated the P&G and gold purchases. So far, Nvidia is well ahead of its competitors in artificial intelligence (AI). You should expect that we will continue to make small purchases in names we own and new companies.


We believe AI will trigger a multi-year retooling of the world’s IT infrastructure. In so doing, we expect AI will motivate sustained enterprise IT spending which we think will favorably surprise those adhering to the common wisdom. While many companies will benefit from AI, we believe that for the foreseeable future, the best opportunities will be in semiconductors, electronics and data base management companies.


Why is Wall Street in a Tizzy about Bonds


Interest rates have gone up quite dramatically, you can see this in the bond chart below. This is after many years of the Federal Reserve Bank keeping short term rates near zero. We think this increase in rates will prove helpful to the economy in the long run. There will be less temptation to “financially engineer” public corporation results. In the near term we expect rates to have greater influence the equity market than during the last decade plus.



This increase in rates is made more complex because short-term bonds currently yield more than riskier long-term ones. When this happens, it is called an inverted yield curve. Inverted yield curves happen for many different reasons. Investors pay attention to yield inversions because nearly every US economic recession has been preceded by an inverted yield curve. However, inverted yield curves do not always mean a near term recession.


In response to recessions, our Federal Reserve Bank will normally reduce short-term rates to stimulate the economy. This pushes short-term rates below long-term rates, and a normal upward sloping curve re-emerges.


Some time ago, we bought a material position in short term treasury bonds. We were attracted by less risk, predictable returns from an extremely low risk asset. We bought short term bonds because they yielded more than long term ones. Now, I suspect this inversion will unwind with longer rates going up while short-term rates hold steady. Thus far we have found little precedent for this situation. Hence, we will be watching the economy more closely than usual.


Please reach out if you would like to discuss these issues or any others you may have.

You can reach me at gfh@perimeterinvestments.com or 720-515-5900.



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