Rougher Waters Ahead (But We Have a Plan)

To our clients and friends –

We want to drop you a quick New Year’s note as we quickly approach the end of a very rocky January.   As you have likely noticed, the markets are off to one of the worst Januarys on record.   This sell-off does not come as a surprise to us as we expected a correction after a robust 2021, but the relentless daily selling without a slight rebound has been extraordinary.

In August of last year, we anticipated a seasonal rough patch in the market due to fears of rising inflation, the possibility of $100 oil, and other seasonal trends.   Fast forwarding to the start of 2022, these concerns  have been or are close to being realized.   What were once tailwinds — Federal Reserve bond buying, trillions of dollars in government subsidies enticing people NOT to work, other massive government programs providing support to businesses and markets — have reversed to become very strong head winds with concomitant higher inflation, interest rates and underemployment.  

Unfortunately, we do not believe the current market correction is over.  It may pause for a bit, but we anticipate more selling through the 2nd quarter of 2022.   As a reminder, the stock and bond markets are a forward-looking, giant discounting mechanism taking into account expected economic, political and other macro trends and changes to arrive at a value for securities, and they are increasingly pricing in a likely recession.   We do not believe a recession will occur in 2022, but 2023 or 2024 is not out of the question.  We still believe that we will see $100 oil in the very near future.   We also believe the much-hyped or consensus 4-6 Fed rate increases will not happen.  Instead, we expect the Federal Reserve will only be able to raise rates once, maybe twice, before Congress will pass another stimulus package in time for the November elections.   Should this occur, we would expect a market bounce.  

We have been actively positioning for a market drawdown and inflationary economy with a greater focus on income-generating assets, namely real estate, private credit, general partnership interests and, of course, dividend-producing stocks.  We also made a tactical tilt in 2021 to add greater exposure to commodity and other natural resource names which has worked out well. More recently, we have harbored cash, raised additional liquidity, and may raise a little more on a market rebound with the cash to be re-deployed into your specific allocation over time and when market conditions improve. And for clients who qualify for and like private investments, we are leaning more into these for portfolio diversification, income and growth. If you have any specific near-term cash requirements, please let us know.  

In sum, 2022 has the possibility of ending the year on a positive note, but the public market ride between now and then will be more rocky and occasionally painful compared to the last few years.   

In other notes of interest, we spent this past Thursday with our friends at CAZ Investments, a multi-family investment firm in Houston, participating in their annual Themes event.  We heard presentations ranging from exponentially growing opportunities in technology to highly lucrative ownership stakes in large asset management firms. We continue to see lots of exciting opportunities in the alternative investment world, with our big takeaway the opportunity to own GP ownership interests in which many of you have invested with us. The good news here is that CAZ will soon have a vehicle which will allow us to continue allocating to this highly profitable space for existing and new clients.

In February, we head to an investment summit with long-time investment partner Distilled Alternatives.   There we will meet with our managers Friends & Family Capital, Feenix Venture Partners, Akkadian Ventures, Switch.vc and Genoa.  All of these groups are doing as or better than expected. We are excited about the meetings and will pass along any updates. 

Finally, a quick update on CrossGrain Family Investments.  Thank you all for agreeing to move with us to the new firm (and all of you did!). We are close to completing the transition. We await final registration with the SEC expected in early February.  Once that occurs, we will send out updated advisory agreements for your signatures (with no changes to the terms of our engagement with you).  At the same time, TD Ameritrade will transition your investment accounts to our new advisory code which should be seamless to you and us. And we have some upgrades to the Advyzon platform (our investment accounting and client recordkeeping software) which will result in improved portfolio reports and portal information. You can continue to reach your portal using your old credentials at https://main.yhlsoft.com/auth/users/webportal/CrossGrainFI.

We thank you again for entrusting your financial and investment affairs to us. We greatly enjoy our personal and business relationship with each of you and love the fact that our boutique size, coupled with our experience in markets and our extensive network of families and investment professionals, allow us to interact with you frequently and to deploy your capital alongside ours in investments which provide the cash flow and returns needed to meet your family objectives for your wealth. Please call or email us anytime; we relish the time spent with you!

Warmest regards,

Jeff & Biff

CrossGrain Family Investments, LLC (CrossGrainFI) is a federally-Registered Investment Adviser. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Please contact us at (804) 793-0784 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, we recommend you compare any account reports from CrossGrainFI with the account statements from your Custodian. Please notify us if you do not receive statements from your Custodian on at least a quarterly basis. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request, and on the SEC website, https://adviserinfo.sec.gov. This disclosure brochure, or a summary of material changes made, is also provided to our clients on an annual basis.