Private Wealth

Weekly Research Briefing: Memorial May

May 23, 2023

Summer begins this weekend as we observe Memorial Day to honor our fallen soldiers. For many, it will be a time to visit family and friends, attend a graduation and start up the grill for the first time in 2023. But there will not be any hot dogs or soda pop for the elected officials in Washington this weekend as they push the debt limit talks down to the final clock tick. There are two big days of check writing and electronic payments on June 1st and 2nd. After that, it is uncertain if the U.S. government will have any money in the bank to make any future payments which would pay for Social Security, Medicare, Medicaid and wages to all Military and Federal employees. We can't imagine any member of Congress allowing these non-payments to occur which is why the debt ceiling crisis should all be settled up and decided over the long weekend.

While the markets remain mesmerized by the debt ceiling drama, they also made 2023 highs last week. The credit markets also priced an extreme amount of new paper which tends to happen in good markets, not bad. The Fed speakers continue to tap the "inflation is not over" button causing the markets to consider a June rate hike, but who are they kidding? The consumer economy remains extremely healthy even as credit trends normalize from the super healthy COVID era stimulus window. We know that the cost to borrow has moved higher while the ability and appetite to borrow has declined. This is going to turn the screws on the U.S. economy in the second half of the year. But will it sink the ship? Nope. The U.S. banking and financial system is too healthy. Banks are well reserved, private buckets of capital are ready to buy assets, corporate balance sheets are in fine shape and investors are sitting on a lot of cash. Excluding some major geo-political event, do you think the S&P 500 will first hit its 2022 high of 4,800 or its October low of 3,600? I think that you know what my answer is.

The markets had a good string of economic data last week. The Philly Fed reversed higher from April's woes. Housing data did well as the NAHB builder survey popped 5 points while April's housing starts lifted 2%. Applied Materials crushed their earnings and announced big new plans for a multi-billion dollar research center in the Bay Area. Treasury yields rose due to all the economic strength, while stocks also rose even with some cautionary comments out of the largest retailers. This week the markets will wind down into the long holiday weekend with a small dose of economic data, a large amount of Fed speak (I see 6 headliners) and of course NVIDIA's earnings. Have a great week and holiday and we will be back in a couple of weeks.

April’s core retail sales blew past expectations last week...

Even as the largest reporting retailers said that they were seeing slowing trends from month to month.

The Daily Shot

The consumer remains king to the U.S. economy...

“Not to take issue with a popular coffee ad, but America runs on consumer spending,” JP Morgan economist Michael Feroli wrote Friday. “And consumer spending continues to run in the right direction, as this week’s strong April retail sales report confirmed.”

“The consensus expects a recession starting next quarter, but the upside risk to this negative forecast is that consumers still have plenty of savings left,” Torsten Slok, chief economist at Apollo Global Management, wrote on Tuesday.


Homebuilder sentiment improved again last week, topping expectations...

The scarcity of housing inventory is spurring new construction activity as no one with a 2-3% mortgage rate wants to sell.

The Daily Shot

What a great time to be an American worker...

All-time new low unemployment rates in Alabama, Arizona, Arkansas, Kentucky, Maine, Maryland, Mississippi, Ohio, West Virginia and Wisconsin.


May's Philadelphia Fed Index surprised us last week (-10.4 vs. -20 est. & -31.3 prior)...


Last week's spurt of positive economic data is pushing GDP estimates higher...

Atlanta Fed

And as economic growth pushes out the incoming U.S. recession, the market hedges its rate cut forecasts...

@LizAnnSonders: Investors still pricing in rate cuts by end of this year, but have eased up on magnitude when comparing to expectations on day of April jobs report (May 5)

John Deere & Company gave us a good look at farmer financials last week...

@TheTranscript_: $DE CFO: "Credit quality remains well above historical averages with minimal allowances, past dues & write-offs as a percentage of the portfolio. Provisions for credit losses, ex-Russia, is forecast to be at 17 bps for fiscal '23 & remains below long-term averages"

If you need proof that the U.S. banking system is very strong...

J.P. Morgan alone has more reserves + equity than all bank loan losses during the GFC.

@TheTranscript_: $JPM CFO: "Three months ago, I would've gone through this page fairly quickly, but what's happened since then serves as a reminder of the importance of our fortress principles...On the right, we remind you once again of the staggering amount of capital that we have"

And for the banks with deposit liquidity concerns, there is capital available to buy their loan books...

Californian bank PacWest has reached a deal to sell more than $2bn in loans to real estate investment group Kennedy-Wilson at a discount, just weeks after it said it was looking at narrowing focus to its core community banking business.

Kennedy-Wilson said in a filing on Monday that it was paying $2.4bn for 74 floating rate loans with an aggregate principal balance of $2.6bn.

PacWest said in a separate filing that the deal was “consistent with the previously announced strategy of PacWest Bancorp to pursue strategic assets sales”. The deal could be expanded to include another six loans with a balance of $363mn.

Financial Times

Healthy markets are evident by this flood of credit issuance...


Ouch, my high-dividend paying stocks. Can I cry 'UNCLE' yet?

The Daily Shot

High dividend paying stocks have not done well since the 2023 banking crisis hit in March...

Goldman Sachs

Do Growth/Value factor owners even know what they own these days?


The market ex-FAANG stocks is trading less than 15x 2024 earning estimates...

@fundstrat: For those who see the equity market as expensive, it is distorted by #defensive sectors

  • ex-FAANG, P/E is 14.8X
  • this is distorted by Staples (20X) and by Utes (17X)

Look at P/E of rest of market = Reasonable

The Nasdaq 100 has been the place to be and is now up over 26% YTD...

But the 60/40 balanced portfolio is now annualizing at +28% for 2023...

BofA Global

Risk-off has been the wrong play YTD...

Investors are wishing that they would have had a few less red bars and a few more blue ones.

BofA Global

The 100th trading day of 2023 hits this week...

In the past, a market up 8%+ on its 100th day has boded well for future returns. A double-digit gain between now and year end will put some big time strategists into the hot seat.


And if investors begin to feel behind the market and uninvested, they have much cash that they can hit the BUY buttons with...

Goldman Sachs

Speaking of up and to the right markets, the Nikkei is going parabolic...

Investors can thank the end of deflation and better corporate returns. Oh yeah, and Uncle Warren.

While U.S. investors buy Japan, a Japanese bank buys U.S. investment banking...

[GHL] To be acquired by Mizuho for $15.00/shr in all-cash $550M deal

  • Mizuho Financial Group, Inc. (TSE: 8411 and NYSE: MFG) and Greenhill & Co., Inc. (NYSE: GHL) today announced a definitive agreement for Mizuho to acquire Greenhill in an all-cash transaction at $15 per share, reflecting an enterprise value of approximately $550 million, including assumed debt. Through this transaction, Mizuho will accelerate its investment banking growth strategy, building on Greenhill’s 27-year history of advising important clients on significant mergers & acquisitions, restructurings and capital raising transactions.


Back here in the U.S., Chevron finds a use for its gusher of cash flow...

Chevron deepened its commitment to oil-and-gas drilling in the U.S., spending more than $6 billion to acquire a rival with sizable operations in Texas and Colorado.

In buying PDC Energy in a $6.3 billion all-stock deal, the U.S. oil major is aiming to build a bigger foothold in two prolific oil patches, particularly the Denver-Julesburg Basin that straddles Colorado and Wyoming, a region where Chevron already has a large stake.

The transaction also boosts Chevron’s position in its major U.S. onshore play, the Permian Basin of West Texas and New Mexico, the most prolific American oil patch but one where Chevron and many other companies have seen well-productivity issues over the past year...

“It delivers stronger financials, and it’s a hand-in-glove fit with our portfolio,” Chevron Chief Executive Mike Wirth said, adding that the oil major is buying a company that was trading at relatively low multiples compared with the large amounts of cash it has been generating.


Do not confuse higher fees with lower performance...

Investors often ignore great investments because of a bias against fees. I see it every week. When looking at private equity versus stocks, we’ve found that private equity’s outperformance is significant and sustained over decades and this is inclusive of all fees.

What you should know

  • It is true that headline fees are generally higher in private markets than in other asset classes, though this is only part of the story.
  • Management fees for private equity funds average 1.5% - 2% of the committed capital per annum. Managers also earn a performance fee, typically 20% of the realized profits, provided their returns exceed a minimum threshold.
  • On a net basis (after all management fees, expenses and performance fees are accounted for) private equity funds have beat public equities over most of the past 20 years — even during the recent bull market for public stocks.

Past performance is not an indicator of future results.
See definitions below.1

Hamilton Lane

The family offices that I know are disciplined and very risk aware...

Higher fees have done little to suppress their almost 40% exposure into private market assets.

GS Family Office Investment Insights

Good news for water drinkers in L.A. and Phoenix and electricity users in Las Vegas...

Bottom line: The Federal government will pay $1 billion to early retire desert farmers in an effort to keep Lake Powell and Meade from running dry.

The states along the Colorado River — a vital source of water and electricity for the American West — reached an agreement with the Biden administration on Monday to conserve an unprecedented amount of their water supply in exchange for about $1 billion in federal funding, according to people familiar with the situation.

After nearly a year of negotiations and multiple missed deadlines, the deal amounts to temporary solution intended to protect the country’s largest reservoirs — Lake Powell and Lake Mead — from dropping to critical levels over the next three years. These reservoirs have fallen dramatically as the warming climate and the past two decades of drought have pared down the river’s natural flow by some 20 percent.

To stabilize the river, the three states that comprise the Lower Basin — California, Arizona, and Nevada — have agreed to voluntarily conserve 3 million acre-feet of water over the next three years, which amounts to 13 percent of these states’ total allocation from the river. The Biden administration has committed to compensating the states for three quarters of the water savings — or 2.3 million acre-feet — which would amount to at least $1 to $1.2 billion in federal funds, the people familiar with the talks said. The money from the Inflation Reduction Act would pay farmers and others who voluntarily forego their supplies.

Washington Post

GLP-1 drugs seem to be reducing much more than just weight...

Plenty of research needs to be done on other addictions but maybe helps to explain why Eli Lilly became the largest drug company in the world last week by market cap. Even Wal-Mart mentioned the drug class on its earnings call last week.

All her life, Victoria Rutledge thought of herself as someone with an addictive personality. Her first addiction was alcohol. After she got sober in her early 30s, she replaced drinking with food and shopping, which she thought about constantly. She would spend $500 on organic groceries, only to have them go bad in her fridge. “I couldn’t stop from going to that extreme,” she told me. When she ran errands at Target, she would impulsively throw extra things—candles, makeup, skin-care products—into her cart.

Earlier this year, she began taking semaglutide, also known as Wegovy, after being prescribed the drug for weight loss. (Colloquially, it is often referred to as Ozempic, though that is technically just the brand name for semaglutide that is marketed for diabetes treatment.) Her food thoughts quieted down. She lost weight. But most surprisingly, she walked out of Target one day and realized her cart contained only the four things she came to buy. “I’ve never done that before,” she said. The desire to shop had slipped away. The desire to drink, extinguished once, did not rush in as a replacement either. For the first time—perhaps the first time in her whole life—all of her cravings and impulses were gone. It was like a switch had flipped in her brain.

As semaglutide has skyrocketed in popularity, patients have been sharing curious effects that go beyond just appetite suppression. They have reported losing interest in a whole range of addictive and compulsive behaviors: drinking, smoking, shopping, biting nails, picking at skin. Not everyone on the drug experiences these positive effects, to be clear, but enough that addiction researchers are paying attention. And the spate of anecdotes might really be onto something. For years now, scientists have been testing whether drugs similar to semaglutide can curb the use of alcohol, cocaine, nicotine, and opioids in lab animals—to promising results.

The Atlantic

Finally, how much fun was it watching Mr. Block's joy ride?

Golf has spent the better part of a year locked in an exasperating, out-of-touch bicker over what it needs: a fancy new tour, competing events, better promotion, swankier perks, richer guarantees, bigger paychecks...

Turns out what golf needs is Michael Block.

I’m a Blockhead for life, and I know I’m not alone. You can have all of the PGA and LIV superstars with their flawless swings and private jet lifestyles. I’ll take the low-key 46-year-old father of two teenagers who—at least as of last week—was giving 45-minute lessons at the Arroyo Trabuco public course in Mission Viejo, Calif., for $150.

“As normal as it gets,” he called himself.

That’s Block, who captivated the PGA Championship this past weekend in Rochester, N.Y., entering Sunday in the top 10 with the entire sports world talking. He finished the tournament a career-best 15th, good enough for a $288,333 payout, plus a sponsor’s invite to this week’s Charles Schwab Challenge at Colonial, and an automatic entry into next year’s PGA Championship.

To top off the fairy tale, Block sank an astonishing hole-in-one—ker-plunk, beer pong style—on the par-3 15th Sunday while playing with a delighted Rory McIlroy, who knew it was an ace before Block did.


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The author has current equity ownership in: Chevron Corp.


Private Equity: A broad term used to describe any fund that offers equity capital to private companies.


MSCI World Index: The MSCI World Index tracks large and mid-cap equity performance in developed market countries.

S&P 500 Index – The S&P 500 Index tracks 500 largest companies based on market capitalization of companies listed on NYSE or NASDAQ.

MSCI USA Small Cap Value Index – The MSCI USA Small Cap Index is designed to measure the performance of the small cap segment of the U.S. equity market.

The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. The hyperlinks included in this message provide direct access to other Internet resources, including Web sites. While we believe this information to be from reliable sources, Hamilton Lane is not responsible for the accuracy or content of information contained in these sites. Although we make every effort to ensure these links are accurate, up to date and relevant, we cannot take responsibility for pages maintained by external providers. The views expressed by these external providers on their own Web pages or on external sites they link to are not necessarily those of Hamilton Lane.

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