DCA Market Outlook
Russia Plunges the World into Darkness?
Has the Russian invasion of Ukraine set the stage for World War III or has it created a unifying predicate for wholesale cooperation among the nations of the Earth? Will the “Global Reset” actually occur as a positive, opportunity creating, economically stimulating source for good for all rather than a suffocating, redistribution of wealth and resource to the world’s elite?
The hours, days, months, and years to follow the Russian invasion of Ukraine just might provide stunningly positive precepts to advance Earth’s inhabitants if the wave of apparent cooperation and unity in repelling Russian aggression is successful, if it gives the Chinese pause on Taiwan and IF such resolve leads to global agreement on the ecological, economic, health and space initiatives that will determine humanity’s future.
For now, this is a Pollyanaish view of the world as it is configured. We hope to revisit these scenarios as time evolves.
So how is the firm positioned with its investments? DCA, in anticipation of and now in reaction to geopolitical event(s) as well as an apparently unfriendly FED, has reduced its public equity portfolio dramatically, added to its short duration income holdings, treated cash as an asset category and put in place modest derivative hedges (that it may increase if monetary conditions continue to deteriorate).
We mentioned a DOW of 27,000 as an outlier potential bottom in our letter a few months ago if a number of negative events occurred in somewhat of a confluence. Unfortunately, those mentioned at the time such as Central Bank (i.e., the US Fed and ECB in particular) actions that reflected a change of interest rate policy, higher vs. lower, a change from bond buying to potentially bond selling (QE to QT), and inflation (now being exacerbated by higher oil prices), have taken shape. Add to those comments unanticipated supply chain issues caused by Covid and political subversiveness and you have the seeds of a BEAR market. DOW 27,000 is possible and potentially lower if the Central Banks of the world do not reverse their current posture.
(ADD TO THIS THE SANCTIONS, THE BANNING OF THE PURCHASE OF RUSSIA’S ENERGY BY THE UK AND THE US AND THE RESTRICTIONS BEING PLACED ON THE RUSSIAN CENTRAL BANK AS WE WRITE THIS MISSIVE.)
The VC/PE investment space remains robust and filled with seemingly ever-increasing opportunities. The dramatic change in the current geopolitical arena does have the potential to impact this sector, and in fact we are starting to see the ripple effect occur. We continue to monitor deal flow, valuations, and overall investor participation. While dollars raised and deals continue to move forward, aided by the amount of liquidity across the private equity base, anecdotally, we are seeing deal timelines elongate, valuations taper, and money sideline a bit.
DCA Asset Management Inc.
*One of DCA’s guiding principles is that we will communicate with our investors and prospective investors as candidly as possible because we believe investors and prospective investors benefit from understanding our investment philosophy and approach. Our views and opinions regarding the prospects of investments and/or the economy are forward looking statements as defined under the U.S. federal securities laws, which may or may not be accurate and may be materially different over future periods. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “may,” “should,” “plan,” or the negative of such terms and similar expressions identify forward looking statements. Forward looking statements are subject to certain risks and uncertainties that could cause actual results to materially differ from an investor’s historical experience and current expectations or projections indicated in any forward looking statements. These risks include, but are not limited to, equity securities risk, corporate bonds risk, credit risk, interest rate risk, leverage and borrowing risk, additional risks of certain investments, management risk, and other risks. We disclaim any obligation to update or alter any forward looking statements, whether as a result of new information, future events, or otherwise. You should not place undue reliance on forward looking statements, which speak only as of the date they are made.