2024 was another great year for the Magnificent Seven stocks.  Apple, Microsoft, Alphabet, Amazon, Nvidida, Tesla and Meta Platforms had an outsized performance impact on the major US indices.  It was a repeat of the 2023 performance when the seven stocks accounted for 60% of the S&P performance.  The remaining 593 stocks in the S&P 500 reflected the bifurcated economy the US is now living in. 

US market results were driven by companies buying back their own shares of stock, passive investing in retirement plans, large inflows of capital investment from outside the US and investors dealing with FOMO, the fear of missing out.  70-75% of global capitalization was in the US stock market. 

While the mag seven soared to new heights most of the market was flat to down.  50% of the income generated by S&P companies comes from foreign trade and the global economy is in a mess.  Europe is in recession and China is heading into something worse.  The real estate problems that dragged down the US during the Great Financial Crisis pale in comparison to the collapse that continues in China.  Homeowners in China have lost tens of trillions of dollars in value. Consumers have stopped consuming and banks have stopped lending.  The CCP stopped reporting on unemployment over a year ago. Deflation has gripped the country and there is no indication the CCP has a solution.  The situation in China is very similar to the real estate collapse 35-years ago in Japan, still being felt today.

The dollar continues to gain strength against almost all other world currencies.  That’s not a good thing.  Dollar strength reflects the real weakness in the global economy. 

The Oak Springs portfolio is a 60% stock and 40% bond portfolio.  The bond portion is made up of long duration US government bonds.  The value of the bonds goes down when the yield goes up.  The yield began to go up in December in response to comments from the chairman of the FED that the brake was being put on further rate cuts.  That followed a .50% cut just before the election and a .25% cut in November and another .25% in December.  Chairman Powell went on to proclaim that the economy was doing great, employment was strong, but inflation might still be a problem.  He also suggested that tariffs being threatened by President Trump would be inflationary.  The confusing guidance from Chairman Powell not only drove up yields on bonds but also stalled the stock market going into the close of the year.

Inflation and not unemployment is now the driver for the FED.  The government measurement of inflation puts the rate around 2.9% compared to inflation one year.  Real inflation is anyone’s guess but probably higher than 2.9%.  The weak currencies of US trading partners mean the US is importing deflation.  The FED concern that Trump’s threatened tariffs would cause inflation has not proven true in the past. 

Unemployment is stable according to the last numbers from the Biden administration.  It remains to be seen if the Trump record keepers will see it the same way.  What we do know is that continuing unemployment claims are increasing to the highest number since November of 2021.  In 2023 there were 10 job openings for every available worker.  That number is now 1 to 1.  According to the Wall Street Journal 20% of the advertised job openings are fake.  Concerns surrounding employment were reflected in a drop in consumer confidence in December.  Consumers put down their credit cards and began paying down debt, reflecting uncertainty.  Meanwhile, 90-day delinquency on credit card payments reached new highs.  Car loan and mortgage payment delinquency also grew.

New government workers fueled the employment numbers during the last year of the Biden administration. There was a reported contraction in the job market for workers in factories, goods production and construction.   

Community banks continue working to move troubled commercial real estate loans off their books.  Their success or lack-of remains to be seen.  Later in 2025 we will see the beginning of the great refinancing of short-term commercial debt financed at low rates during the Covid crisis.  Meanwhile, there is a contraction in the global M2 money supply, including in the US.  That creates a liquidity issue for the debt re-financing.  Declining liquidity typically means a declining economy.  Liquidity issues have already led to the implementation of QE in Canada.  The FED will also be forced to respond at some point.

Outgoing treasury secretary Janet Yellen attempted to juice the economy by using short term treasury bills to finance government debt.  It remains to be seen how the Trump administration will handle the sale of longer-term bonds but it will probably cause a near term bump in interest rates for a short period of time. 

There is a great deal of euphoria among some that the return of the Trump administration will lead to another stock market rally like 2016.  But the market in 2016 was much different than the current market bubble.  The economy for the past 5 years has been juiced by an 8-trillion dollar handout of borrowed federal funds.  The appetite for that type of federal spending doesn’t exist in the Republican party.  The Trump administration is taking over an economy in trouble. 

During the 4^th quarter we liquidated our position in India (FLIN) and took gains in gold (SGOL) and utilities (XLU).  We have built up our cash position to take advantage of upcoming opportunities.