We hope that you had a great holiday season with family and friends.
As we look to a prosperous 2018, our firm continues to monitor for any indication of which sectors and asset classes offer us great value.
By the end of the year, precious metal, gold, and silver prices, were pushing multi‐month lows. Investor sentiment is certainly geared for growth and inflation, both of which is bad for precious metals. The monetary policy forecast is for 3 rate hikes in 2018. Rate hikes will raise short term borrowing rates, however, it doesn’t guarantee movement in long term interest rates. This is where concerns are developing. The 2‐10‐year Treasury rate spread (the difference between the 2‐year Treasury yield and the 10‐year Treasury yield) is at decade lows sitting around 50‐55 basis points. What is concerning to economists is that the yield curve is preparing to invert (formally known as an “inverted yield curve”) at some point in 2018 (probably towards the end). An inverted yield curves is seen as a precursor for an economic recession:
![](https://gcwm.wpengine.com/wp-content/uploads/2019/04/report-graph-dec-2017-1024x342.png)
As seen from the chart above, provided by the St. Louis Federal Research Bank, an inverted curve is approaching. This chart shows the 2‐10‐year yield spread starting from January of 2003. In early 2006, the yield curve inverted, and by the end of 2007, the economy started to recess (as shown in gray). The “Great Recession” produced a significant correction in the real estate and stock markets. The direction of the yield spread is undeniable, an inverted yield curve will occur eventually. The only question is how long can the economy stave off a recession once an inversion happens. In the previous recession, it took approximately 16‐18 months for the inverted yield curve to produce an economic downturn (it should be emphasized that the stock market started its correction earlier in July 2007, as the market is always forward looking).
With tax reform passed, this is a narrative that we want to watch as 2018 begins. The markets are looking for the next reason to buy into the market. A comprehensive infrastructure bill would be the next catalyst that the market would welcome. But, first, President Trump has said that welfare reform is the next priority with infrastructure following. Unfortunately for the markets, moderate Republicans and Democrats will not support welfare reform, so the chances that it passes quickly are low.
Please review the following updates from some of our existing positions held in most of our accounts that we manage:
Daseke, Inc. Warrants (DSKEW) – On December 3rd, Daseke Inc., announced that three additional carriers joined Daseke, strengthening its position as a transformative force in the industrial goods trucking industry. The three top‐tier flatbed and specialized carriers added to Daseke’s family of companies were Tennessee Steel Haulers & Co., The Roadmaster Group, and Moore Freight Service. “Today is a significant milestone for Daseke, as our company’s total revenue, EBITDA and fleet size are all now approximately 40 percent larger. We’ve added three exceptional organizations to our family of operating companies focused on unique sectors with promising growth characteristics,” said Don Daseke, president and CEO of Daseke. Our warrants appreciated about 10% on the news of the acquisition. We took the opportunity to sell half of our position for an approximate 100‐120% again.
PICO Holdings Inc (PICO) – PICO Holdings’ Vidler Water Company to sell up to 15,000 Long Term Storage Credits (LTSC) to the Roosevelt Water Conservation District (RWCD) for a base price of $350 per LTSC. Under the agreement, the LTSCs may be purchased by RWCD at any time over the term of the agreement which expires on December 31, 2019. Any purchases prior to December 31, 2017 will be at the base price of $350 per LTSC and any purchases of LTSCs under this agreement beginning January 1, 2018 will be at a price that is increased from the base price at 10% per annum. This sale helps improve the valuation of the company as it continues to liquidate. As a reminder, we invested (for certain accounts) at $17.75 per share. In late November, we received a $5.00 special dividend which reduced the basis of our investment. With the new storage credits sale, we are increasing the liquidation/sale price for PICO Holdings to $17.50.
As always, please feel free to reach out to us with any questions that you may have. We are grateful for the trust that you place in us.