“I’d Love to Change the World”

Kerr Financial Group

Kildare Asset Mgt.

Jeffrey J. Kerr, CFA


October 25, 2021 – DJIA = 35,677 – S&P 500 = 4,544– Nasdaq = 15,090


“I’d Love to Change the World”[i]


The financial markets are accustomed to dealing with a lot of changes.  Change is in every nook and cranny of the markets as our dynamic economy constantly offers new opportunities.  In addition to these normal market transformations, there are recent changes that have been different and much more dramatic, and investors need to understand them.

Let’s take a closer look at three critical areas that are undergoing historic upheaval that can have big impacts on the markets.  First interest rates are going up.   A year ago, the 10-year Treasury bond’s yield was around ½%.  This rate is now 1.67% and this is up from 1.25% in September.

The reason that this is important is that interest rates have been going down for 40 years.  Obviously, 40 years is a long time.  As expected with such a lengthy history, the global economic system has become addicted to low interest rates.  Any change, let alone an increase, could be problematic.  If interest rates keep moving higher it will be an obstacle that few business executives and investors have faced and are not likely to handle well.

What could be the reasons for the spike in rates?  Record government deficits, that look to be growing even larger, will need to be financed in bond market.  Investors could easily demand a better return (higher yield) with this large increase in bond issuance.  Further, higher inflation (more on that below) will force rates higher.  This is an environment that few have experienced so how the financial system reacts is unknown and could cause further problems if bad decisions are made.

Another turbulent development is the shortage of goods.  Supply chain complications and labor issues have helped produce widespread delays and scarcity of things like appliances, electronics, cars, as well as commodities like copper, lumber, and iron ore.  This is a drastic change in an economy that has excelled at innovation and delivery of goods and services often at lower cost.

Worker shortage is a big part of this issue.  A record 4.3 million workers quit their job in August.  This represents 2.9% of our workforce.  It’s hard to believe that the labor shortage is cured if millions of people are leaving the workforce.

But in addition to the labor problems, the capacity to supply the materials needed for goods and products could be limited.  This is a result of lower capital investment for things like energy, commodities, and materials.  Annual spending by mining companies (copper, lead, zinc, etc.) is forecast to be 30% or more below the 2012 peak.

Energy exploration is seeing a more dramatic cutback.  Analysts expect a small increase in capital investment, but it will likely remain below 2019’s levels and 40% – 50% below 2014’s record amount.

Investors are watching these events as the global economy reopens.  The increased demand for commodities and energy is taking place at a time when the supply might be limited.  This is impacting the markets through increased demand in alternative things that are available.  The price of coal is up over 200% this year as power plants switch from using natural gas to coal to produce electricity.  Maybe electric vehicles aren’t as clean as they proclaim.

Here are two graphs that reflect the projected investments for the energy and mining industries as published in The Wall Street Journal (September 24, 2021).  Despite higher prices that would encourage increased production, ESG initiatives appear to be influencing this reduction.
















Naturally, higher energy and commodity prices are feeding into the inflation measurements.  Once again this is something we haven’t seen in decades.  Prices are spiking in everything from necessities such as gasoline, food, electricity, heat, and rent.  This is also seen in the industrial areas of the economy – higher transportation costs, higher raw materials, and higher labor costs.

The optimistic view is that these issues are temporary.  We are told by bureaucrats and politicians that once the economy opens these troubles will be fixed.  They tell us that we have to get past the pandemic, and everything will return to normal.

The changes in interest rates, goods and material shortages, and inflation represent a new economic landscape.  Furthermore, the forces behind these developments are closely linked.  The conventional wisdom is that this is all temporary and will go away.  This could turn into a dangerous mindset if the obstacles facing economy are not easily resolved and become long term problems.  It would be a new world with a different set of risks as well as opportunities.  Feel free to contact us to hear the specifics on how we are handling these changes.



1 Alvin Lee, 1971

Copy of the 2nd Quarter Review Letter



45 Lewis Street, Lackawanna RR Station

Binghamton, NY  13901

Phone: 607-231-6330                                              email: [email protected]


The following is a copy of the 2021 2nd quarter letter sent to clients. It reviews the markets and the client account’s activity and performance for the 2nd quarter of 2021.


August 10, 2021

Wall Street is always introducing new products to trade and new ways to trade them.  2021 has provided both with the rise of SPACs and the Robinhood app.  SPAC stands for Special Purpose Acquisition Company.  It is a company that sells shares of their stock to raise money that is then used to buy another company.  These target companies are usually a private organization.

SPACs became very popular in the first half of the year, and they generated a lot of speculation.  The SPACs often disclosed their target company which led to investors bidding up the SPACs based on excitement and projections on the target company’s potential.  The enthusiasm around these stocks isn’t as great as past bubbles but it was certainly a big part of the first half of 2021.

Another noteworthy financial market development is the battle between individual investors and the Wall Street establishment.  The skirmish began when some investors connected by an online chatroom named “Wall Street Bets” targeted stocks that were heavily shorted by Wall Street including many hedge funds.

The “Robinhoodies” (one of the nicknames of the group of individual investors because they often used the Robinhood app to do trades) targeted the stocks of GameStop, AMC Entertainment, and Blackberry.  Their buying pushed these stocks higher – GameStop’s stock spiked from under $20 per share to over $480 in two weeks.  This resulted in heavy losses for some firms that had shorted the stocks (short positions look for falling stock prices to be profitable).

Wall Street fought back by restricting buy orders on the stocks.  After a few days the friction decreased, and full trading access was restored.  However, the battle between the Army of the Apes (another nickname for the individual investors) and established Wall Street is far from over.  This could continue to influence trading in certain stocks and potentially impair other over leveraged Wall Street firms.

While I am normally skeptical on investing fads and gimmicks, not all of them are bad and some present opportunities.  MP Materials Corporation (symbol MP) is a good example.  MP came public after the operations were acquired by the SPAC Fortress Value Acquisition Corporation (symbol FVAC).

MP Materials is the owner and operator of Mountain Pass, the only rare earth mine and processing site in North America.  Rare earth elements are important parts in industries such as manufacturing, technology, and defense.  They are also required for many clean energy applications.

MP was included your account in the 4th quarter of 2020.  Purchases of FVAC were before the merger (de-SPAC) and the entry price was in the low to mid-teens.  After the deal was closed, the MP stock spiked to $40 in December and closed 2020 at $32.  MP’s stock price has been volatile in 2021.  It traded above $50 in the 1st quarter and then was cut in half in May.  The stock rebounded and closed the quarter in the high $30’s.

MP’s volatility is partially a function of size as it is a small company and operations are growing.  Further mining is a high-cost industry with steeper break-even metrics from other businesses.  Finally, rare earth elements have a geopolitical component as China is the largest exporter of rare earths.  This could be an advantage during tense international relationships.  Despite the over 100% profits, I think MP’s stock price could continue to move higher over time as the importance of their mined elements grow.

Looking at the market in total, stocks had a good first half of 2021.  The Russell 2000 Index which is a small cap index led the way.  The Nasdaq Composite did some catching up in the 2nd quarter after lagging the other indexes in the 1st quarter.  Here are the major indexes’ performance numbers for the 2nd quarter and the year-to-date.


As noted, the stock market leadership changed during the 2nd quarter.  In addition to the shift from small cap to large cap, and low quality (SPACs and highly leveraged companies) to better balance sheets and higher quality, investors seem to be shifting to sectors that can succeed in inflationary times.  This includes industries that can pass along their higher input costs and maintain their margins.

Technology and energy are two areas of the market that have historically done well in this environment.  Commodities and the industries that supply them are another sector.  Value and defensive stocks have lagged in inflationary times.

The fixed income market saw a steepening of the yield curve as inflation expectations have risen.  This typically helps financial companies who normally rely on the spread between longer dated interest rates and short-term rates (they invest long-term at higher rates and borrow short-term at lower rates, taking advantage of the spread).

The current investment landscape is facing many unknowns.  Uncertainty surrounding Covid and a delayed reopening could be a large economic hurdle.  Continued shutdowns will squash any recovery.  Societal division and widespread cultural acrimony are further massive challenges.

In the glass half full bin, the world is slowly reopening.  Furthermore, history is full of examples of pandemics and dramatic shocks that resulted in an explosion of demand as the recovery takes hold – the millennial reference is YOLO or You Only Live Once.  This path will result in a higher growth trajectory with expanding opportunities.

As we journey through the rest of 2021, I will look to balance these cross currents and take advantage of opportunities.  I will focus on the changing risks to the system as well as individual securities.

Thank you for your support and confidence in Kerr Financial Group.  Please contact me with any questions or comments.




Jeffrey J. Kerr, CFA


“For It’s One, Two, Three Strikes You’re Out at The Old Ball Game”

“For It’s One, Two, Three Strikes You’re Out at The Old Ball Game”

Kerr Financial Group

Kildare Asset Mgt.

Jeffrey J. Kerr, CFA


September 24, 2021 – DJIA = 34,764 – S&P 500 = 4,448– Nasdaq = 15,052

As October approaches many baseball fans are eagerly anticipating the World Series.  The Fall Classic has a rich history with many memorable moments.  “The Catch”, Don Larson’s perfect game, Bill Mazerorski’s walk off home run, the 1986 Mets, and Mr. October.

Of course, October brings a different type of anticipation as anxious investors tremble as they face the month with a tumultuous history.  Also, there is increased intensity this year as the markets are facing some difficult pitches.  On top of the normal fastballs, sliders and curveballs, investors are battling some nasty changeups and even some screwballs.

One of the trickier pitches is the signal from the 10-year treasury bond vs. the record levels of the stock market.  In a normal world, stocks climb in a strengthening economy.  Yet the 10-year t-note’s yield has fallen in recent months which is a sign of slowing conditions and decreasing demand for capital.  Let’s look at the lineup of the opposing forces.

First, let’s review some statistics.  The S&P 500 has had over 50 record closes in 2021 with the most recent on September 2nd.  At the same time, the yield on the treasury bond has fallen from 1.75% in late March to current level around 1.30%.

So, let’s look at the two lineups that support these conflicts.  First, the economy continues to improve which is supportive of equities.  GDP is expanding and corporate earnings are rebounding.  Further inflation can help stocks especially those industries that can pass along their higher costs in the form of price increases.

On the side of the treasury market being right, the August employment report was a big swing and miss by the economy.  The data showed solid job growth, but the number was far below forecasts.  Economists are now concerned that the job market may not recover as fast as previously expected.

Another headwind is a drop in consumer sentiment.  The University of Michigan survey showed a decrease in consumer’s outlook.  This is likely tied to the fact that 41% of households receive some form of government assistance.  A weak and fearful consumer is not normally associated with a strong economy.

These mixed messages could spark some interesting market dynamics in the 4th quarter.  Underperforming investors will be looking for any opportunity to regain lost ground.  This could force buying which would offer a backstop for stocks and bonds.  If buying begets buying, there could be a material move higher in the final three months of 2021.

All the major averages have declined in September.  If the 10-year Treasury is correct, this might continue.  However, this week we have bounced back from Monday’s Evergrande panic which might point to a short-term bottom for the equity market.  Here is the year-to-date performance for the major averages as of September 23.


The change of seasons is upon us which will be quickly followed by the holiday season.  Before we get there, October could give investors some curveballs along with some ghosts and goblins.  It will be an interesting end to an interesting year.