June 1, 2024 | PCE, Quality Investments, Short-Term Investing and Reducing Auto Insurance Premiums

PCE

The core personal consumption expenditures index (PCE), which is the Fed’s preferred measure for inflation did not show much progress in the month of April. Year over year core PCE was up 2.8% which matched the previous month’s reading. If you want to get really mathy with the numbers and move over one more decimal place there was actual a positive move in the number considering it came in at 2.75% vs slightly over 2.8% in the month of March. This would result in the smallest gain since March 2021. Headline PCE which includes food and energy was up 2.7% compared to last year, which also matched last month’s reading and the estimate. While I can’t say the numbers were overly impressive and point to enough evidence for a cut, I also don’t see any reason for the Federal Reserve to discuss rate hikes. My estimate at this point in time is for the Fed to cut once, maybe twice this year. 

Quality Investments 

At our firm, Wilsey Asset Management, we are currently getting out of our second largest holding, which we began investing in back around 2010. I want to explain the long-term history of this not to brag about how some of our clients got a very large return over that timeframe, but to help you understand, what happened over the years to get that type of return. The numbers I’m using while very close are not the real numbers and are for educational purposes only. In 2010 we began investing in this company at around $20 per share. Eight years later it traded as high as $120 per share, along with our clients we were very happy with the gains. Then in 2020 when Covid hit, we saw this equity drop more than 50% to around $50 per share. Fast forward to today and we are currently selling this position around $160 per share. The real lesson here is to explain why we continued to hold even when we were down over 50% in 2020. We always talk about the fundamentals and how in the short term they mean very little, but in the long term they can make a big difference. Each quarter we review the financials and listen to or read the conference calls to see what is going on with that company over the last quarter and find out what management sees going forward. Every Monday we go over all the ratios, growth rates, forward earnings and roughly a total of 25 other numbers to keep asking, is this a business we want to continue to hold? This discipline and strategy is what keeps us on course with good quality companies over the long term. I have said for many years we are not traders; we are long-term investors. I want to emphasize that does not mean we or you should ever hold any equity or any investment blindly long-term without following what that business is doing on a regular basis. 

Short-Term Investing 

If you’re like our firm, Wilsey Asset Management, you may be sitting on a lot of cash as we have made a couple sales this year and aren’t finding anything worthwhile to buy. The advantage this time is short term rates are high so we can invest that money in short-term instruments and receive a roughly 5% rate. Many other people are catching on. Back in 2022 retail investors only owned about $1 billion of treasury bills, at the last count that is now over $16 billion. Investors need to be cautious because there is what is known as reinvestment risk. Today you may be receiving 5%, but then 6 to 12 months from now that could be 3 to 4%. Keep in mind these should not be long-term investments, but rather a holding place until you can find a good long-term investment. Besides the short-term maturity of T-bills and their safety, they are also come with the benefit of being free from state income taxes. There are also short-term ETF’s and money markets that can invest in short term US government securities, but be aware they may not be investing 100% in tbills. Sometimes they invest in short term loans backed by US government securities or repurchase agreements, which are not free from state income taxes. So, enjoy the high yield on short investments, just realize we are currently dealing with an inverted yield curve and short-term rates should come down in the near future. 

Reducing Auto Insurance Premiums

It’s no secret that auto insurance rates have noticeably gone up the past few years. To counteract these rate hikes, here are a few tips that may help keep premiums low. It is common for auto insurance to include collision and comprehensive coverage. Collision coverage pays when there is damage to your vehicle due to a collision that you cause. Comprehensive coverage pays when there is damage to your vehicle caused by something other than an accident such as theft, vandalism, or acts of nature. Both collision and comprehensive coverage come with deductibles that must be paid before the coverage kicks in, and increasing these deductibles is one way to reduce the amount of premium you pay. In some cases, if you have a vehicle with a low market value and that you don’t drive often, it may not be necessary to carry these coverages at all which would further reduce premiums. Additionally, auto insurance premiums are based on your assumed annual miles driven, which in many cases is more than you actually drive. If you provide your insurance carrier with a more accurate lower number, they will reduce your premium. In many cases it is not necessary to change insurance carriers, but rather just adjust the coverage on your existing policy.

 

Stocks Discussed: Treehouse Foods (THS), Target (TGT) and Live Nation (LYV)