Monthly Newsletter - October 2023

I’ll admit, I was looking forward to talking at length about the idiocy of the previously fast-approaching government shutdown, but sadly for me and fortunately for you, that monologue will have to wait for another day as it seems the crisis has been averted.

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Instead, we will have to make do with the other headlines of the hour, which have not been kind to the equity markets since we last spoke.? One that particularly caught our attention was the headline from Bloomberg proclaiming “The Mighty American Consumer Is About to Hit a Wall, Investors Say.”? This caught our attention because it was in direct conflict with the Wall Street Journal, which said “Americans Are Still Spending Like There’s No Tomorrow.”? While I suppose one could argue that the second headline could lead to the eventuality of the first, these conflicting stories really illustrate the backwardation of the markets and the economy.?

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Some highlights from these articles include the household spending rate, which is the main driver of this country’s economic growth, being up 5.8% for August of 2023, which is much higher than the sub-4% inflation we saw during the same period.? This negates the argument that Americans are spending more because eggs, milk, and shoes for little Timmy all cost more.? Wrong. ?Based on the data in these articles, Americans are predominately spending money on two things: airline tickets and Taylor Swift concerts.?

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Delta Air Lines reported record revenue in the second quarter of this year, and Ticketmaster sold over 295 million event tickets in the first six months of the year.? That is an 18% increase over last year.? 18% MORE TICKETS, not 18% higher prices.? Imagine the liquidity that would flood the markets if Ms. Swift decided to give the touring a break.? Fingers crossed.

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We also have seen hedge funds across the board deleveraging after the strong returns we saw in June and July of this year.? Per Bloomberg, “Hedge Funds Cut Stock Leverage at Fastest Pace Since 2020 Crash.”? Interestingly, funds have not only been cutting their gross exposure, but have been adding to their short positions, something we welcome since positions sold short have to eventually be purchased to cover, and the higher the short interest the quicker the recovery in share prices tends to be.? At the S&P 500’s peak in July, the index was trading at 20 times future profits; not levels which should send anyone to the sidelines.

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Lastly, I would like to highlight that, according to Bloomberg, “Americans Saved $1.1 Trillion Less Than Previously Thought From 2017-2022.”? According to revised government data, which was only recently released, US Households saved over $1 TRILLION DOLLARS LESS than was previously recorded.? This is so astonishing to us simply because it indirectly highlights what we preach at Senet Capital - the fallacy of individual stock picking. ?

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Having previously worked for a firm whose Investment Committee frequently made investment decisions based on “how much the American consumer has saved,” this highlights the delusion of taking “real-time” government data and using it to justify single stock selection.? Turns out, that data was WRONG.? Good news is, they were only off by over $1 Trillion Dollars…

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For this, and a number of other reasons, we at Senet Capital invest directly in the S&P 500 index, and we suggest you do the same.? Our portfolio is currently 300% long, with calls being sold against our positions on a monthly and quarterly basis.? We have taken the market sell-off as an opportunity to roll our put option contracts from an October expiration to a November expiration, with a strike 10% lower than current market levels, and have recently repurchased calls we had previously sold so that the Fund can lock in profits for those contracts, and then resell additional calls against the now unencumbered shares for additional income.?

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If our investment style is of interest to you and you are not already a partner of ours, please do not hesitate to reach out with any questions.

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Happy hunting,

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David Jeffress and Jonathan Berkowitz

Senet Capital Management, LLC

[email protected]