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CONVOY November 30, 2020

The economy, markets, and money

Convoy Investments LLC | www.convoyinvestments.com | (302) 319–3659


Our economy is still in a $1 trillion hole

$20.0
US real GDP ($tril) 2015-2019 trend line
$19.5

$19.0

$18.5

$18.0
$1 tril gap
$17.5

$17.0
15 16 17 18 19 20
As of September 2020.

Source: St Louis FRED.

2
Unemployment rate still 3.5% higher than 2019

16%
Civilian Unemployment Rate
14%
12%
10%
8%
6%
4%
2%
0%
15 16 17 18 19 20
As of September 2020.

Source: St Louis FRED.

3
Capacity utilization still 8% below 2019

85%
Capacity Utilization: Total Industry

80%

75%

70%

65%

60%
15 16 17 18 19 20
As of September 2020.

Source: St Louis FRED.

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Yet why are most markets up?

2020 YTD return


S&P 500 16.7%
Dev Stocks 5.5%
EM Stocks 10.8%
Inflation-linked bonds 9.8%
10 year bonds 10.7%
Gold 14.4%
Bitcoins 175%
Tech sector 38.1%
As of Nov 30

5
Markets in 2020 dominated by money supply

Price = quantity of money / supply of assets

Print enough money and you can increase asset prices


under any circumstance

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Monetary policy in 2020
First time in 90 years the government is using a three
pronged approach to increasing money supply

Treasury: Fed (traditional Fed Fed (quantitative


Funds): easing):
Direct injection
of cash via Set rate to 0%, promise to Buy bonds via QE to
stimulus checks keep it there to reduce lower long term
and PPP loans. short/medium borrowing borrowing costs
costs
~$3 trillion ~$3 trillion increase
direct fiscal 3 month rate: lowered by in Fed balance sheet
stimulus 1.5% to 0%
10 year rate: lowered
by 1% to 0.9%
Source: St Louis FRED and Treasury.gov. Fiscal stimulus estimated with $2.2 tril CARES act + $0.7 tril PPP.

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$3 tril stimulus leads to $4 tril increase in federal debt

$28.0
US total federal debt ($tril)

$27.0

$26.0 Federal debt up $4


tril in 2020, $3 tril
$25.0 from fiscal stimulus

$24.0

$23.0
Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20
As of 11/30/2020.

Source: Treasury.gov

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Fed almost doubles its enormous balance sheet in 2020

$7.5
Total Fed Assets on Balance Sheet ($tril)
$7.0
$6.5 Nevermind!
$6.0 Buy $3 tril
$5.5 more bonds
$5.0
$4.5
$4.0
Unwind
portfolio
$3.5
15 16 17 18 19 20
As of November 2020.

Source: St Louis FRED.

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Historically low short, long rates, negative real rates

2.5%
3 month interst rate 10 year interst rate 10 year real rate
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20
As of 11/27/2020.

Source: St Louis FRED.

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Explosion of money supply in the economy

$6.0
US M1 Money Stock ($tril)

$5.5
Up 40% in 8
$5.0 months!
$4.5

$4.0

$3.5

$3.0
Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20
As of October 2020.

Source: St Louis FRED.

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Money supply didn’t translate to economic inflation

40%
Personal Saving Rate
35%
30%
Inflation <1% in
25%
2020 because of
20% high savings rate
15%
10%
5%
0%
Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20
As of September 2020.

Source: St Louis FRED.

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Money printing, high savings, low rates = asset bubbles?

Bitcoin price
$19,000
$17,000
$15,000
Quadruples!
$13,000
$11,000
$9,000
$7,000
$5,000
Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20
As of 11/30/2020.

Source: Coinbase

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Sustained low rates create bubbles, rising rates kill them

$25,000 3.5%
Bitcoin price 2 year interest rate (right)
3.0%
$20,000
2.5%
$15,000 2.0%

$10,000 1.5%

1.0%
$5,000
0.5%

$0 0.0%
Jan 17 Jul 17 Jan 18 Jul 18 Jan 19 Jul 19 Jan 20 Jul 20
As of 11/30/2020.

Source: St Louis FRED, Coinbase. Chart inspired by Alpine Macro Research.

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Disclosures
Ple a se re ad the following disclosures as t h e y p r o v ide i m p or t ant i n form a t ion a n d c ont e xt . A d d i t ional i n for m a tion i s a v a i la ble
u p on r e q u e st e x c ep t w h ere t h e p r o priet a r y n a t u re o f t h e i n form a t ion p r e clud es i t s d i sse m i na tion.

T his ov erview is confidential and for infor m a tiona l p u r pose s o nly a n d s h o uld n o t b e r e lied u p on a s a p r e d ict ion o f f u t ur e
ma rk e t pe rforma nce o r Co n voy man a g e m e nt p e r f o rm a nce . I t i s n o t a n o f f e r t o s e l l o r t h e s o l i c it a t i on o f a n o f f e r t o b u y t h e
s e c u ritie s o r o t h e r i ns t r um e nt s m e n t ioned . P o r t f olio a l loca t ions s h o wn o n t h is s i t e a r e f o r i llustra tive pu rpose s o nly a n d
m a y n o t r e f l e c t t h e a c t u a l o r c u rren t i m p le m e n t a t i on o f o u r s t r a t e g y . T he p e r f orm a nce p r o v ide d i s g r o s s o f m a n a g e m e nt f e e s
a n d i n c l ude s t h e r e i n v e s t m e n t o f a l l i n t e r e s t, gains, and losse s. No re pre sentation is b e i ng m a d e t h a t a n y a c c ount w ill o r i s
likely to achiev e re turns simila r t o t h o s e s h o wn. P a s t p e r f orm a nce i s n o t ne cessarily indicativ e of future re sults.
P e r f o rm a nce a s o f t h e c u rrent m o n th i s e st i m a t e d a n d s u b j e c t t o c h a n g e . R e t u rn a n d r i s k e x p e ct a tions s h o wn h e r e a r e b a s e d
o n C o n v oy a n a l y s is a n d r e a s o na b le p e o ple m a y d i s a g r e e w i th t h e a ssu m p t i ons u se d a n d e x p ect a t ions d e v e loped t h e r e f r o m
a n d t h e r e i s n o g u a r a n t e e t h e e x p e ct a t ions s h o wn c a n b e a c hieve d. T h e e x pectations are conside red hy pothetical and are
su b j e ct i nh e rent l i m it a t ions.

C l i e nt r e t u rns r e p o rt e d h e r e a r e g r o s s o f f e e s t o t a l r e t u rns . T h e r e t u rns r e p o rt e d a r e b a se d o n m a r k e t p r i ce s a n d i n t e nde d


fo r i nforma t iona l pu rpose s o nly . F inal re de mption v a lue ma y be i m p a c t e d b y t r a n s a c t i on c o s t s a n d l iquidity co nsidera t ions.
T his do cument i s n o t i n tende d to be l e ga lly bi n ding. F or th e fu ll l e ga l contra ct, e a ch i n vestor sh o uld ca re fully re v iew th e
P r i v a t e P l a c e m e n t M e m o r a n d u m , t h e L i m i t e d P a r t n e r s h ip A gr e e m ent, and the S ubscription A gre ement. T h e v i ews e x presse d
h e r e a r e s o l e t h a t o f C o n v oy I n v e s t m e nt s L L C a n d a r e su b je c t t o c h a ng e w i thout n o tice. R e a so n a ble p e ople m a y d i sa g r e e .
Y o u s h o u ld a s s u m e t h a t C o n v o y I n v e s t m e n t s L L C h a s a f i n a n c ia l inte rest in the v i ews discusse d. T h e re se arch pre se nted is
f o r i nfor m a t iona l a n d e d u c a t iona l p u r pose s o nly a n d i s n o t a n o f f e r t o s e l l o r t h e s o l i c it a ti on o f a n o f f e r t o b u y t h e
i n v e s t m e n t s m e n t i o ned . I t d o e s n o t c o n s t i tut e a p e r s o n a l r e c o m m e n d a t i on o r t a k e i n to a c c o u nt t h e p a r t i c ula r i n v e s t m e n t
o b j e ct iv e s , f i n a ncia l s i t u a t ions, o r n e e d s o f i n d iv id ua l i n v e s t or s . I n v e s t o rs s h o uld c onside r w h e t her a n y a d v i c e o r
r e c om m enda t ion i n t h is r e se a r ch i s su i t a b l e f o r t h e ir p a r t i cula r c i rcum st a nces a n d , w h ere a p p r o pria t e, se e k p r o f essiona l
a dv i c e, i ncluding ta x a dv i c e. In v e stme nt de c i sions sh ould n o t b e b a s e d s o l e ly o n s i m u l a t e d , h y pothetical o r i llustra tive
i n forma t ion. Pa st pe rformance i s n o t a gu ide to fu tu re pe rfo rmance , f u t u re r e t u rns a r e n o t g u a r a nt e e d , a n d a l o s s o f o r iginal
ca pi tal ma y o c cur. Ce rta in tra n sa ctions, i n cluding th ose i n volving f u t u re s , o p t i o ns , a n d o t h e r d e r i v a tiv e s , g i v e r i s e t o
s u b s t a n t i al r i s k a n d a r e n o t s u i t a b le f o r a l l i n v e s t or s . F luctua tions i n e x change ra te s c ould h av e a dv e r se e f f e c t s o n t h e v a l ue
o r p r ice o f , o r i n com e d e r i v e d f r o m , c e r t a in i n v e s t m e nt s . N o p a r t o f th i s ma te ri a l ma y be c o pie d, ph otocopied o r du plica t ed
i n a n y f o r m b y a n y m e a n s o r r e d i s t r ib ut ed wi t h out t h e p r i o r w r i t t e n c o nse nt o f C o n v oy I n v e s t m e nt s L L C .

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