Copy of the 2nd Quarter Review Letter



45 Lewis Street, Lackawanna RR Station

Binghamton, NY  13901

Phone: 607-231-6330                                              email:


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.

“If Inflation Continues to Soar, You’re Going to Have to Work Like a Dog Just to Live Like One”


Kerr Financial Group

Kildare Asset Mgt.

Jeffrey J. Kerr, CFA


July 19, 2021 – DJIA = 34,687 – S&P 500 = 4,327– Nasdaq = 14,427

“If Inflation Continues to Soar, You’re Going to Have to Work Like a Dog Just to Live Like One”[i]


Inflation has been an important story of 2021.  However, in a year full of historic news, higher prices seem more of an annoyance than a top of the fold story.  To be sure, agitation sets in whenever someone stops at the pump, shops for groceries, or picks up the happy hour tab (thankfully there are happy hours again).

Yet, inflation gets swept under the rug in a world where the media pushes covid and climate change.  In addition to journalistic suppression, the Federal Reserve, after years of calling for inflation, now refers to it as transitory.  Even the most gullible should immediately question a bureaucracy who hasn’t gotten much right in the 100 years of its existence.

Inflation has been a part of mankind’s economic landscape from the beginning.  In the past 50 years it has moved from the evil villain of the 1970’s to an ally to an over leveraged system. Since the 2008 – 09 crisis, our financial mandarins have spent a lot of energy trying to convince us that a little inflation is the solution to our economic woes.  Be careful what you wish, you just might get it.

June’s consumer price index (CPI) report showed a 0.9% increase compared to May and a 5.4% year-over-year increase.  May’s data showed similar increases in both the monthly and annual comparisons.  Governmental talking heads insist that this is transitory, but it is starting to look more like a trend.

Looking closer at the CPI figures, used cars were up 45.2% year over year.  Gasoline was up 45.1% and airfares up 24.6% over the same period.  Here are some year-to-date commodity prices: natural gas is up 44.7%, crude oil up 48%, and coffee is up over 60%.  Even coal, a commodity that most would expect to have gone the way of the dinosaur, is up 64% during 2021.

Despite what the Fed and bureaucrats tell us, inflation is not an economic benefit.  One exception is that borrowers and those in debt have the advantage of paying their lenders in cheaper dollars.  Other than debtors, inflation is a tax on the financial system and the impact is not evenly distributed across society.

Naturally the “Haves” can handle inflation much better than the “Have Nots”.  Higher food and gas prices are an aggravation to the wealthy and the elites.  It doesn’t have a material impact on their lives.  In contrast, for the middle- and lower-income portions of the system, inflation becomes a big complication.

If inflation turns into a trend rather than being transitory, it accelerates the move toward feudalism that began last year.  It is becoming more and more difficult to climb the social ladder.  The government is paying citizens to not work, closing small businesses to the benefit of big business, and canceling those who disagree.  Longer term inflation will further widen the gap between the elites and 1%’ers and the rest of our country.

Here is the year-to-date performance for the major averages as of April 16.



Inflation naturally has a big impact on the capital markets.  Typically, bonds underperform and some stock market sectors struggle.  This is especially the case where industries are unable to pass along price increases.  If inflation drags down economic growth and stagflation becomes dominant, everything suffers.  We are approaching some critical points that may have enormous impacts on the direction of the markets.  It could be a very tumultuous period.  Call or email me for further details.

[i]  George Gobel

Copy of the 1st Quarter Review Letter



45 Lewis Street, Lackawanna RR Station

 Binghamton, NY 13901

Phone: 607-231-6330                                                     email:

The following is a copy of the 2021 1st quarter letter sent to clients. It reviews the markets and the client account’s activity and performance for the 1st quarter of 2021.


April 30, 2021


When investors consider the bond market, it is often within a strategy of safety. This is because fixed income securities historically have had less volatility and come with periodic interest payments. These qualities typically attract conservative, income seeking investors which has contributed to a view that bonds are safe and rarely lose money. As 2021’s 1st quarter has shown, this is not the case.

On the surface, fixed income securities are pretty simple. They are a loan that the bond buyer gives to the issuing company, organization, municipality, or government in exchange for interest payments and, hopefully, a return of the money at the bond’s maturity. Like many things, there are numerous variables below the surface.

Bonds have two main risks – credit and interest rate. Credit risks are centered on the financial strength of the issuing entity. In other words, it is the risk that bond holders get their capital back at maturity. This risk is minimal on U.S. Treasury notes and bonds as the belief is that the Federal government can raise taxes or print the money to repay the bonds. Logically, credit risk is much higher for a small speculative company in a competitive industry.

Interest rate risk applies to all fixed income instruments and it is the risk that interest rates move higher while holding the bond. An explanation of a bond would be helpful. Bonds usually are issued in $1,000 increments and have a fixed interest rate. For example, ABC Company, who is a stable industry leader, sells bonds with a 20-year maturity and a 4% interest rate. This means that the buyer receives $40 per year per bond (4% X $1,000). Most U.S. bonds make their interest payments every 6months. For the ABC example, this would be $20 payments twice a year.

Trouble arises if interest rates increase because it makes existing bonds less attractive. Our ABC bond’s interest rate is fixed at 4%. If interest rates rise (for whatever reason), investors would prefer the newer and higher yield vs. our 4% rate. Within this environment, let’s assume the new market level for an issuer such as ABC might move to 4.5%. Who wants 4% when they can get 4.5%? The bond market makes the adjustment by reducing the price of the 4% debt to a point where the $40 dollars of interest equals 4.5%.

The market adjusts the ABC bond’s price to account for this shortfall. Here is the math; $40/X = $45/$1,000. “X” equals $888.88 and this becomes the new, reduced price of the ABC bond which was originally priced at $1,000. The $40 in annual interest payments divided by new price of $888.88 equals 4.5%. The holders of the ABC bond have experienced a drop in the price of their bond.

Holders of the ABC 20-year 4% issue have a couple of decisions. They can sell it and incur a loss. The investor can hold it and hope interest rates fall (the bond price would move back toward $1,000). They can even hold the bond to maturity at which time the investor will receive the $1,000 of principle.

Of course, the result would be different if interest rates declined. In this case, the price of our pretend ABC bond would increase, and the position would be positive. If the market interest rate for this type of bond fell to 3.5%, the price of the bond would increase to $1,142.85 ($40/$1,143.85 = 3.5%). Obviously, the direction of interest rates has a big influence on the price and performance of fixed income investments.

Rising interest rates were a big part of the financial market landscape in the 1st quarter. The 10-year U.S. Treasury note began the year with a yield of 0.9% and ended the quarter at 1.7%. Consequently, a lot of fixed income securities took haircuts with the longer maturities getting hit the hardest.

One of the most widely held ETFs is the iShares Treasury Bond Fund (symbol =TLT). The TLT tries to track an index of U.S. Treasury bonds with maturities 20 years and more so it is a good barometer for the long maturing bonds. Many consider this a good conservative holding that pays an interest rate. Because interest rates rose, TLT lost 14.1% in the first quarter which was one of the worst starts to a year ever. The ETF’s dividend return is around 1.6% which means that it lost 8 ¾ years of annual interest payments in 3 months. This is a huge loss for something that is expected to provide stability.

The carnage was across the fixed income market. Looking at some other sectors, the iShares Investment Grade Bond ETF (symbol = LQD) is made up of high-quality corporate bonds. It fell 5.8% in the first quarter. Finally, the Barclay’s U.S Aggregate Index (a wide-reaching index that includes treasuries, municipals, corporate, and government agency bonds. It is like the Dow Jones Industrial Average for the bond market) was down 3.4%.

The bond market’s carnage is one of the best kept secrets of 2021’s 1st quarter. Of course, the first three months of the year provided much headline competition. We had the GameStop/Reddit/Robinhood theater, the invasion of the SPACs, a hedge fund failure (Archegos), a surge in crypto currencies, and record levels in the stock market.

It’s little wonder that the bond market’s bloodbath got pushed to the back pages. However, this pain might get more attention as investors are disappointed by quarterly mutual fund statements. Mutual funds that have fixed income exposure, as well as “blended”, “balanced” and “target date” funds were challenged by interest rates and underperformed.

In contrast, the stock market had a good 1st quarter. The major indexes steadily moved from lower left to upper right logging a series of record highs. A curious development was that technology and growth sectors underperformed. Financials(higher interest rates help), energy, industrials, and areas that will benefit from an economic reopening led equities. Small caps were stronger than the large caps.

Here are the performance numbers for the major averages.

Here’s the performance for the 1st quarter 2021 for our clients averaged and weighted against the total:


Within the portfolio holdings, American Outdoor Brands (symbol = AOUT) reported strong numbers and the stock moved higher. AOUT makes products and accessories for hunting, fishing, camping, and other outdoor activities. The company was spun out of Smith & Wesson in 2020.

AOUT navigated 2020’s economic problems well and took advantage of growing interest in outdoor recreation. The company is projected to generate around $270 million of sales in their first fiscal year as a stand-alone company. This will be an increase of over 50% from the prior year. Their net income for the 9 months ending January 31, 2021 was $1.20 per share which was an improvement from a loss in the prior year.

The American Outdoor Brands’ stock price moved from $17 per share at the beginning of the year to over $25 at the end of March. Importantly, the company has successfully brought new products to the market. Management believes they can continue to drive growth through expanding their market share as well as exciting new products.

Looking forward at the financial markets, they will wrestle with many crosscurrents in the remaining part of 2021. The economy will re-open but it could be an uneven process. Inflation has returned and this has potential to be a big problem. Interest rates will likely continue to climb which is something that has not happened in almost40 years. Recent government proposals are historic in size and reach. If enacted, it will dramatically change the U.S. economic system.

As always, these situations present both risks and opportunities. It could easily result in new and different economic leaders as initiatives change the way industries and businesses operate. I will work hard to keep up with these developments and identify the prospects that will lead to continued success.

Please feel free to call with any questions. Thank you for your business and continued confidence placed in me.




Jeffrey J. Kerr, CFA

“Art for Art’s Sake” – April Newsletter

Kerr Financial Group

Kildare Asset Mgt.

Jeffrey J. Kerr, CFA


April 19, 2021 – DJIA = 34,200 – S&P 500 = 4,185– Nasdaq = 14,052

“Art for Art’s Sake”


With all of the ways that we communicate combined with the speed that it is delivered, it should be easy to keep up with everything.  We have cell phones, email, text messages, social media, phone apps, and hundreds of radio and cable channels.  Unfortunately, having countless ways to stay connected doesn’t equate with being informed.  It often feels like we are using smoke signals while the rest of the world is telepathically in sync.

This brain bruising overload happens in all parts of our lives – news, fashion, music, sports, and, of course, the financial markets.  Within recent years investors have had to deal with a flood of new things like SPACs, crypto currencies, blockchain, and NFTs.  These are new and complex products and it makes some traders yearn for the simpler days that included such things as physical trading floors and handwritten orders.

For those who might be off the grid, SPACs are Special Purpose Acquisition Companies.  They raise money to buy another company which is typically private which becomes an alternative method for an IPO (initial public offering).  SPACs have grown in popularity and have raised a lot of money.  With all this money comes risk as there is a finite number of strong buy out candidates waiting to run into the arms of a SPAC.  This means that there are plenty of bad deals are being done.

Crypto currencies are digital currencies that are not controlled by any central authority.  There are many versions of cryptos but Bitcoin and Ethereum are the most popular and have generated the most excitement.  Blockchain is part of the crypto currency universe.  It is an open ledger which is monitored and reviewed by a network of computers.  Wall Street is developing strategies involving crypto currencies and related assets.

NFTs are non-fungible tokens which are a unit of data stored on a digital ledger (blockchain).  NFTs are growing in the digital collectable markets and they offer a level of authenticity.  NFTs do not include the copyright so duplicates can be available to anyone.  NFTs can be bought and sold with all transactions being recorded on the blockchain.

NFTs have gained notoriety when Christie’s auction house recently sold a digital collage of 5,000 images for $69.3 million dollars.  The image is at the top of this newsletter and the piece is entitled “Everydays: The First 5000 Days”.

These controversial financial products are difficult to understand and, perhaps, harder to analyze.  SPACs indirectly fit into conventional analysis.  They have a cash value prior to acquiring a company and, after the ‘de-spac’, shareholders have ownership of a company.  At this point, the security is a claim on the assets, revenues, earnings, and cash flows which can be valued.

There are deep debates about how to view and evaluate cryptos and NFTs.  Believers argue these are alternatives to the U.S. dollar and will ultimately become the economy’s currency.  Digital bulls point out that the dollar has been under attack from the Federal Reserve and the Federal Government and has lost over 90% of its value in the last 100 years.  They say the time has come for a replacement.

Crypto skeptics contend that Bitcoin, Ethereum, et. Al. will not be able to gather enough confidence to become a method of exchange.  Without acceptance, it is difficult to become a store of value which is a characteristic of currencies.  Many detractors believe cryptos will turn into a commodity.

Blockchain has potential to transform our lives.  It has the capability to offer lower cost, transparent, and accurate record keeping.  This digital data base could change the way we perform financial and legal transactions in the future.  As crypto currencies are linked with blockchains, they are expected to have a role in the financial landscape.

With these possibilities in mind, bystanders could be bewildered by the price of Bitcoin and the rest of the crypto currencies.  For those not following, Bitcoin’s price has moved from $10,000 last summer to over $60,000 last week.  Ethereum has climbed from below $200 to over $2,500 during the same period.

In addition to all the fundamental twists and turns during the past 10 months, a fair amount of emotion has helped drive crypto prices.  Crypto believers have deep faith in the future applicability and value of Bitcoin.  It seems like the only thing that will dent their enthusiasm is a drop in prices.  Perception and feelings have always been a part of the capital markets so this wouldn’t be the first time that human emotion overtook a market sector.

The Dutch Tulip Mania in late 1636 and early 1637 saw a spike in the price of tulip bulbs which was followed by a sharp plunge.  The chart below reflects the price action.[i]  Tulips had no economic value beyond the aesthetic qualities and the prices were set by what the buyers and sellers agreed upon.  It’s a classic example of an emotional financial bubble.

This is not a prediction that the prices of crypto currencies mimic tulips bulbs in the 17th century.  Bitcoin and the others probably have legitimate roles but there are many unanswered questions about their valuation.  The volatility of the crypto prices indicates a lot of emotional buyers and sellers which may continue until their economic use and value become better defined.

While Bitcoin and Ethereum are current examples of sentiment driven markets, a case can be made that the entire financial system is one big pretense.    The U.S. stock market is at all-time high levels and the S&P 500 has made 8 new record closes in April.  At the same time, the U.S. has over $27 trillion of debt and over $120 trillion of debt and unfunded budget liabilities.  And there is no plan to address this.  Any credit analyst or auditor who looked at the U.S. financial statement would easily conclude we are bankrupt.

Below is a chart of the amount of U.S. Federal debt as a percentage of GDP.[ii]  It shows that we are approaching the record levels from the end of World War II and the forecast is not good.  Over the next 30 years, the CBO expects our level of debt as a percentage of GDP to double.  This is a sad gift we are leaving to our children and grandchildren.  Perhaps this is contributing to the rush to crypto currencies and other financial alternatives.



Despite the U.S. fiscal condition being an embarrassing disaster, the capital markets continue to function.  Explaining this is on the same level as understanding the fundamentals of the Bitcoin.  Perhaps there is a link between the two.  Traders have a large amount of emotion in the form of confidence that the Federal Reserve keeps the liquidity at a level that keeps the system operating.

This charade can keep going indefinitely.  Afterall, this financial insolvency didn’t happen overnight, and stocks and bonds have overlooked this situation for years.  One of the chief reasons is that the U.S. dollar is the world’s reserve currency.  This means that everyone needs dollars to execute international transactions.  This further means that dollars held by international organizations and governments often get recycled back to the U.S. in the form of U.S. Treasury securities purchases.  This helps the entire U.S. fixed income market which helps other asset classes including stocks.  As long as the U.S. dollar is used for international trade, it helps boost confidence which allows the financial theater to persist.

Of course, there are countless catalysts that could upset this complacent landscape.  If a highly leveraged hedge fund or financial institution becomes impaired, it could be disruptive.  If foreigners’ reliance on the dollar declines, it will have a negative ripple effect.  If the markets and foreign investors stop buying the debt that federal government is relying on to fund the deficits, it would be a tumultuous twist.  This would likely cause a sizable increase in interest rates which would be a problem to an overleveraged system.   Finally, other troubles could be a sustainable rise in inflation or if geo-political issues erupt.

While these matters remain part of the financial equation, Mr. Market continues to view the glass as half full.  The start of 1st quarter earnings reports has been encouraging.  Also, the economic data is expected to further strengthen as more areas reopen.  This has the potential to be a huge systemic tailwind.  In anticipation, the Dow Jones Industrial Average and S&P 500 closed last week at record levels.  Here is the year-to-date performance for the major averages as of April 16.

Stocks have had a good year which is historically a positive.  In years when the 1st quarter is up, the remainder of the year typically builds on those gains.  Of course, one can make the argument that this is anything but normal and the markets are facing a different set of risks.  It would be irresponsible to blindly rely on historic trends in 2021.  If the recent past has taught us anything, there is no such thing as normal.

However, there are a few things that we can be assured of as the year continues.  We will continue to be pounded by the information tidal wave.  The bombardment of news and data is something we will have to learn to manage.  Otherwise, you might miss out on a critical, market moving statement by Fed Chairman Powell on interest rates.  Or more importantly, you wouldn’t risk overlooking the latest Bitcoin prediction from Kim Kardashian or a NFT by Meghan Markle.


[ii] CBO and Hedgeye Risk Management