Tis the season for streamlining as we head into the Fall season. This past week has felt so cool it’s like we’re there already. Football teams are installing their offenses and making things efficient. Companies are “right-sizing” left and right and raising their net margins. RFK, Jr. has announced a streamlined set of dietary guidelines that are 4 to 6 pages long instead of the 453-page monstrosity that’s been in place for years at the FDA1. (It’s no wonder we’re overweight! Who’s going to read that?)
I am streamlining and right-sizing myself as well. In fact, I have a new weight loss program I’m selling, and I’m so confident in it I can state that it’s Totally Guaranteed to Work! (Compliance will love that statement).
I’m calling it “New Wardrobe Weight-Loss”! Here’s my story: I have been trying to lose weight for 2 years now and nothing worked, as naturally, the idea of eating less is less than appealing. So, finally I broke down and bought several new dress shirts at long last admitting that I probably wasn’t going to lose weight. Three weeks later, I’m down 10 pounds, just like that! And all I had to do was plunk down a nice chunk of change to buy some beautiful, silky new dress shirts that 3 weeks ago fit me just right! I was told I didn’t look half-bad in those dress shirts, and unfortunately, looking half-bad is the ceiling for me. It’s too bad the nice shirts are baggy clown gear so soon. But now you, too, can buy new dress clothes and watch the pounds fall off – with New Wardrobe Weight-Loss!* (New Wardrobe not included).
Streamlining overall, however, is a good thing. We’ve seen it this year in the effort to cut government expenses through DOGE (at least it’s a good thing from the standpoint of a fiscal hawk like me). We’ve seen it in the big mega-cap tech companies getting more efficient. We’re making the same efforts in our portfolios here for you at WTA. Yesterday our Investment Committee spent a significant amount of time looking at the historical and risk-adjusted returns of various ETFs that are both inside and outside of our Extended Equity ETF portfolio, one of our strategies that resides in the Growth Bucket for many of you. We’re trying to squeeze every bit of growth we can get for your dollars while not taking silly risks. So, we’ve looked at the bigger macro sleeves in that portfolio as well as the sector sleeves in it and broke it all down to the ETFs that have performed the best over time. I’m sure you’ve heard of diversification. Well, there’s also a word called in investing called “diworsification”. It was first used by the legendary Peter Lynch of late 80s – early 90s Fidelity Magellan Fund fame. He used the term in his book “One Up on Wall Street” to describe over-investing into things that didn’t improve return but were more likely to create worse returns as they weren’t among your best ideas to begin with. It was kind of funny coming from a guy that once had over 1,400 companies in his fund and never met a stock he didn’t like.
There are two competing concepts here. One is the need to diversify business risk away by having at least certain number of positions, so diversification naturally leads to more safety. The other concept is that concentration equals growth. Growth comes by limiting the deployments of your arsenal to your very best ideas and not straining in any direction to incorporate ETFs in far-flung parts of the world for instance, or in certain-size companies just to continue to spread out risk. Growth comes from concentration and from upping the ante on your best ideas. That’s exactly what we’ve done today with streamlining our Extended Equity ETF Portfolio for your 5+ Year Time-Horizon Growth Bucket. We’ve clipped the ideas that were just above average and gone with our best ideas that we hope will be a lean, green, money-making machine2.
Our flavor of the quarter comes in the form of Defense. Israel is fighting with Syria, Houthi rebels in Yemen, with militants in Gaza, with Iran, and the list probably goes on. Russia is still warring in Ukraine and NATO fears it has eyes elsewhere as drone incursions have been reported in Estonia. Bangladesh was fighting with Vietnam. India is sparring with Pakistan. Reports are coming in of increasing military exercises launching from the Fujian region of Chian, which is across the Taiwan Strait from Taiwan, where both the 72nd and 73rd Group Armies stationed in the Eastern Theater Command in China have amphibious assault battalions3. Pro Tip: If you ever get bored of me talking about the stock market in our meetings, ask me about the amazing ships the Chinese are building as cooperative landing platforms for their tanks and other assault vehicles. You can see video images of this on X @Osint613 (Open Source Intel if you search Taiwan under those posts). Kyle Bass, who sits on the Council on Foreign Affairs, has stated before that the only months that the currents of the waters of the Taiwan Strait are such that China could realistically only attack Taiwan in April, May, and August4. These Chinese military exercises in the past have been just that – exercises. But one day they may not be. It’s hard to see all that creative and industrial effort going into producing those amphibious assault ships for no reason. The bottom line is that militaries around the world are using up their arsenals and our friends in the US military-industrial complex are standing by to take their orders. With that in mind, our Investment Committee has made the decision to add a Defense ETF to our Extended Equity ETF portfolio, because if we’re going to bet on something in the next couple of years, it’s going to be a bet on global conflict continuing.
In non-war war news, tariff tizzies continue in our trade war with the world, culminating in a showdown with India, which we’ve stated we’ve been keenly interested in since April. India’s insistence on continuing to import Russian oil and thereby financing Russia’s war efforts has triggered a response from President Trump, who has announced fresh tariffs on India. They now are looking at a total of 50% tariffs from the US. This is triangulation. We can’t shut down Russia’s oil sales without inflicting pain elsewhere. While India helps the US in many ways including intellectual capital and a cheap labor force that rivals China, we can’t halt the Russians paying conscripts from North Korea or building new missiles if we can’t cut off their funds. If ever there was a place that tariffs need to succeed, it’s with India and breaking them of their dirty Russian oil habit.
After Jobs numbers were radically revised, yet again for the umpteenth time by the Bureau of Labor Statistics, President Trump fired BLS Commissioner Erika McEntarfer. The interesting thing is that the falling numbers may actually get him the result he’s wanted all along from Fed. Odds on interest cuts went drastically up after the news, signaling a huge, long-awaited shift in Fed policy. According to CMS data5, the odds one week ago for one cut for the September 17th Fed meeting were 46.7%. As of yesterday morning, they were up to 91.2%, likely due to the huge downward job report revisions. The odds of a total of 2 rate cuts by the end of the year to 3.75% – 4.0% are 41.7% now and a total of 3 rate cuts – all the way down to 3.5% to 3.75% are up to 47.5%. Those are big moves in the probabilities. There will likely be some positive effect on fixed income prices, though our Investment Committee believes much of that move, if not all of it, has already been priced into the bond market in (maybe) the most anticipated Fed cut in history. But a series of rate cuts can galvanize the stock market as well, so it’s nice to see some bullish signs there.
We look forward to going over many exciting things with you at our Halftime Report at TopGolf on August 21st, where we’ll be not only discussing the stock market and our portfolios, but the One Big Beautiful Bill as well and the impact it will have on you and your family. Keep an eye out in your inbox and your mailbox for the invitations and book your seats as space is limited. We’re hoping that your ears and hearts and minds will be open on the 21st, and you’ll be ready to receive our broadcasting as we know we can add value to your lives. If you listen to us, we’ll change your financial world …
Sincerely,
Scott Wright
The WTA Investment Committee
*New Wardrobe Weight-Loss is a figment of the author’s imagination and is in no way, shape or form guaranteed to do anything but be a great excuse to buy some new clothes. Running 30 minutes a day and tracking your calories and macros on an app can possibly increase your odds of success with New Wardrobe Weight-Loss. Weight-loss programs involve risk and you should consult your doctor before beginning any program. Past performance is no guarantee of future results.
Sincerely,
The WTA Compliance Team
Sources:
1@MAHA_Action
2Dr. Dre, “California”, 1995
3https://en.wikipedia.org/wiki/Eastern_Theater_Command
4@Jkylebass
5https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
