Fed Stands Pat Through 2023 As Equities Fade

Most decisions are not binary, and there are usually better answers waiting to be found if you do the analysis and involve the right people. - Jamie Dimon
 

Have you ever been put in a situation where you were forced to make a decision right then and there? When you are a young adult, you might be out and about on the town with your friends. One group wants to go to location A and another group isn’t interested, preferring spot B instead. The existing place is not going to work for either bunch, so a decision must be made. It is called a binary choice. Either A or B. Life often gives you these scenarios where it appears there is only a binary choice involved. If you are involved in finance, binary choices appear in many areas. Statistical analysis is rooted in binary theory, especially in the gaming domain. Option pricing is fundamentally tied with binary outcomes. Investing in asset classes can be viewed in simple binary choices- stocks or bonds, cash or Cd's, municipal bonds or corporate bonds, commodities or treasuries, ETF’s or mutual funds? Analyzing industries to narrow the best companies down to two choices, A or B, might be considered another example, too. Let’s take a closer look at why binary choices are quite applicable in the current market environment.

With the investment world focused on the coronavirus pandemic, companies which benefit from the stay at home mindset have been rewarded with sky high multiples. Entities which suffer from the abnormal situation have been sold down. Potentially, you can view this as a binary choice between paying up for something that benefits today, or paying very little for something which is penalized by the pandemic. Obviously, what you are paying for and their future prospects matter a great deal. If you look at anything energy related, especially carbon based energy, investors see no future as electrification is all the rage. Tesla at seven million times earnings is more appealing than Exxon at near a decade low. Extending this idea, if you look at retail, Amazon versus Macy’s can be seen as a binary choice.

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Disclaimer: Thanks for reading the blog this week and if you have any questions or comments, please email me at information@y-hc.com. Y H & C Investments, Yale Bock, and the family of Yale Bock ...

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