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DF November 2023 Newsletter

This past weekend, we went into daylight savings time, often credited to our beloved founding father Benjamin Franklin (be careful of falling down the Wikipedia rabbit hole of the number of founding fathers, 55, 39, or 7), although he didn't precisely propose the system we have today. His idea related to maximizing daylight and conserving candles, and it was presented in a somewhat satirical manner.

In 1784, he wrote a letter to the editor of the Journal of Paris under the pseudonym "F.B." In this letter, he humorously suggested that people could economize on candles by waking up earlier to use the natural daylight. He facetiously proposed that cannons should be fired and church bells should ring loudly to wake up the slumbering citizens of Paris so they would take advantage of the early morning sunlight. Here's an excerpt from his letter: "I say, then, that the real waking-time of our internal clock is that point of our sleep at which we can first remember a sense of light; which, as days grow longer as the summer advances, must come every day nearer the sleeping-time, and will at length be the same."

Franklin's idea wasn't implemented during his lifetime, and it wasn't until the 20th century that the concept of daylight saving time was seriously considered and adopted in various parts of the world, including the United States. The goal of modern daylight saving time is to make better use of natural daylight during the longer days of summer, thereby reducing energy consumption for lighting and heating, but that hasn't helped the price of candles.

Household debt appears to be an emerging concern, as nearly one-third of Americans currently hold car loans, and there are indications of increasing auto loan delinquencies, potentially signalling broader market challenges. Over time, household debt has risen in tandem with inflation and now appears to be concentrated in higher interest rate obligations. Where is our Benjamin Franklin, who can help us find ways to reduce our consumption?

Market Update: Navigating The Ghouls and Goblins

The recent 10% drop in the S&P 500, which is officially categorized as a correction, has indeed generated concerns among investors. This correction, occurring since its peak on July 31st, can be attributed to various factors that have left many people apprehensive. It's important to analyse these concerns in a formal and neutral manner.

Some of the reasons contributing to the apprehension surrounding this correction could include:

I. Energy Price Volatility

The ongoing conflict in Ukraine and its potential impact on energy prices is indeed a matter of global concern. The situation in Ukraine and now the Middle East has geopolitical implications that can affect energy markets, and the cooperation between Russia and Saudi Arabia in the energy sector can add to these complexities. Let's address this issue in a formal and neutral manner.

  • Conflict in Ukraine: The conflict in Ukraine, particularly in the eastern regions, has been ongoing for several years. It has the potential to disrupt energy supplies, as Ukraine serves as a transit route for Russian natural gas to Europe. Any escalation or instability in the region can lead to concerns about energy security.

  • Energy Alliances: The collaboration between Russia and Saudi Arabia in the energy sector can impact global energy markets. Both countries are major oil producers, and their decisions regarding oil production and pricing can influence oil prices worldwide. This alliance can lead to fluctuations in oil prices, affecting Western economies, including the United States.

  • Impact on Energy Prices: High energy prices can have various consequences for Western economies. They can contribute to increased costs for consumers, affect inflation rates, and impact industries that rely heavily on energy, such as transportation and manufacturing.

II. Central Banks' Monetary Policies

The recent shift in interest rate policies by central banks in the USA, UK, Europe, and the potential move by Japan to increase rates highlights the evolving global economic landscape and its impact on various stakeholders. This development indeed has implications for governments and corporations.

  • Inflation Control: Controlling inflation remains a key objective for central banks. Rising inflationary pressures have led to considerations of rate hikes in some regions, as higher rates can help cool inflation by reducing borrowing and spending.

  • Borrowing Costs: Higher interest rates can impact governments and corporations by increasing their borrowing costs. Governments may need to allocate more funds to debt servicing, potentially impacting fiscal policies. Corporations may need to adjust their financial strategies and investment plans in response to higher financing expenses.

Economic Strength and Challenges

Despite these challenges, it's important to note that the US economy has shown remarkable resilience due to savings rates, low unemployment, and wage increases. Gross domestic product (GDP) in the US grew by 4.9% over the past year, primarily driven by consumer spending. The question is whether this can continue as accumulated savings dwindle.

Debt and Refinancing However, there are challenges on the horizon. US corporations face a significant increase in debt due next year, which will require refinancing at potentially higher rates. Similarly, government debt concerns have led to political tensions.


It's important to consider various factors when making investment decisions, including the valuation of companies and their earnings potential. It's wise to be cautious in markets with low expectations for earnings growth. Additionally, avoiding leveraged companies and real estate can be a prudent strategy during uncertain times.

Investment Opportunities

Amidst the turbulence, there are opportunities to explore. Short-term fixed-income investments offer attractive returns above 5%, outperforming long-term averages. As the equity market recovers, these investments can potentially deliver above-market-rate returns.

The Path to Recovery

As we continue to navigate the ever-evolving landscape of financial markets, it's crucial to stay informed and adapt to the changing environment. In this month's newsletter, we discuss the factors influencing market recovery, our recent portfolio adjustments, and our outlook for the future.

Market Recovery and Corporate Strategy

In these times of significant market headwinds, there are opportunities for savvy investors to navigate and thrive.

Exploring Buffer Funds

One of the recent adjustments to our portfolio involves the addition of buffer funds. Buffer funds, also known as risk buffer or cushion funds, play a vital role in protecting portfolios during market volatility. These funds are designed to mitigate potential losses by selling derivatives that are more profitable in sideways markets, lose less in bear (downward) markets, but also make less in bull (upward) markets. By adding buffer funds, we aim to provide an extra layer of protection against market fluctuations, but we also hope that we are wrong, as we would always prefer a bull market!

Small-Cap Funds for Value

When the recession truly begins, we plan to increase our allocation to small-cap funds. Small-cap stocks often represent excellent value opportunities, especially considering their price-to-earnings ratios. They have been some of the hardest hit on the downside but would offer great upside from cheap valuations, increased mergers and acquisitions, and sadly, the bankruptcies of many of their over-leveraged peers. The last being the main reason that we don't want to be too early into this trade.

Short Duration Strategy

In anticipation of expectations for interest rates to stay higher for longer, we have adjusted our portfolio to focus on a short-duration strategy. Short-duration investments are less sensitive to interest rate changes, making them a prudent choice during periods of increasing or stagnant rates. As we monitor market conditions, we will seek opportunities to extend our portfolio's duration to lock in these favourable rates in case the central banks decrease rates in the future (we don't expect this until 2025 at the earliest).

Upcoming Events

We hope you’ll join us for our last few events this year as we discuss immigration to France and estate planning in the UK. Our new year will start with our first quarter update, which you can sign up for here.


Copyright © 2023 Dunhill Financial. All rights reserved.

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