The Economy’s Misery Index: A New Perspective
In the midst of a growing economic divide, the traditional Misery Index, which combines unemployment and inflation rates, no longer tells the whole story. We propose a Next Generation Misery Index that takes into account the median cost of a new home and federal debt burden per family relative to median family household income. This metric paints a more ominous picture, highlighting the struggles of the average American.
The Palm Valley Capital Fund’s Q3 performance was marked by a 2.43% gain, lagging behind the S&P SmallCap 600 Index’s 10.13% rise. Our cash-heavy portfolio, with 81.5% of assets in cash equivalents, limited our upside. We remain cautious, seeking a double-digit required return threshold for new equity ideas.
The Fed’s recent 50-basis-point rate cut, despite strong economic indicators, has sparked concerns about the motivations behind its dovish stance. We believe the central bank’s actions primarily benefit the wealthy, exacerbating income inequality. The economy’s addiction to easy money has created bad incentives, distorted asset prices, and transferred wealth from the middle class to the affluent.
In our portfolio, Lassonde Industries, Amdocs, and WH Group were top contributors, while TrueBlue and Resources Connection were top decliners. We exited positions in John Wiley & Sons, Nathan’s Famous, and Equity Commonwealth. Our new purchase, Helen of Troy, offers a diversified consumer products portfolio with strong cash generation.
As we navigate the complexities of the economy, we remain committed to our investment principles, prioritizing persistence and discipline. We will continue to seek opportunities that meet our high return threshold, even if it means being patient in a market driven by short-term thinking.
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