February 10, 2024
Coyote Partners LTD, Bermuda
Recession Cancelled – Again!
We’ve been writing year end letters for a long time now and the one thing that never changes is our optimism for the coming year despite evidence that the year actually pays little attention to our views. Since Covid, all bets have been off regarding any sense of normalcy in the markets due to the massive cash injection into the economy, as evidenced by the vertical launch of M2 during 2020, and of course historic shifts in demand patterns and supply chains. With bonds acting like stocks and stocks acting like bonds, it makes sense that it’s confusing.
In 2023, there was the great battle between the recession crowd and the no-recession crowd. We took the view that the recession had already occurred after two consecutive GDP quarters in the first half of 2022, assuming it will again it called after the fact as has happened so many times before. Truthfully, our predictive power on the market as a whole is not our best skill, but we take note that recoveries are more prevalent than recessions and in fact have been getting fewer and farther between as information systems have better balanced supply and demand.
nesses that we believe are undervalued in the short-term compared to our estimate of the true underlying value of those businesses in the long-term. Price can get out of sync with value when short-term needs for liquidity become urgent, leading sellers to pay for a certainty in the short term that the buyer doesn’t need by accepting a discount price.
During a period of war, pandemic, rising consumer prices, political uncertainty and it makes sense that market prices will reflect uncertainty in the short term, and in this investors’ view, therefore offer good returns in the long run. Once the uncertainty passes, the discount for short-term liquidity will also tend to pass, a phenomenon we saw up close in December as the 10-year treasury yield fell in sync with inflation and the Fed signaled a more dovish tone.
Although we don’t think in one-year periods, this is a year-end letter after all. Our strategies did pretty well in 2023, up 19%, comfortably beating our Russell 2000 Value benchmark. As we enter 2024, note below comments of our top-five contributors and our bottom five contributors.