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Firefly Capital Update - 2023 Q4

2023 Q4 results

October 1st

December 31st

$ change

% change

Firefly Capital

$503,937.53

$562,456.93 *

$58,519.40

11.6%

S&P500

$4,288.39

$4,769.83

$481.44

11.2%

Difference

0.4%

Year-over-year results

January 1st, 2023

December 31st, 2023

$ change

% change

Firefly Capital (Normalized)

$126.77

$163.60

$36.83

29.05%

S&P500

$3,824.14

$4,769.83

$945.69

24.73%

Difference

4.35%

There are no rows in this table

⁠

* We are currently at $116,436.30 in cash.

Another year, another dollar: reflections and projections

As we close the chapter on another year and step into the next, I find myself reflecting with the quiet satisfaction of a job well done. The year's end, much like the final pages of a good book, brings with it a sense of accomplishment and anticipation for what's next. I’ll be spending the weekend with good friends, good food, and good dancing.

Market performance: beating the benchmark

The market this year performed like a well-oiled machine, and I'm pleased to report we kept pace, even managing to outdo the S&P 500 by a hair. It's like winning a chess game by a clever move; satisfying, but always room for improvement. Our year-end figures show a near-30% return, just edging out the S&P 500's impressive rally at ~25%.

Trading strategy: consistency over heroics

In the trading arena, we've been more like a reliable Swiss watch than a flashy sports car – consistent, precise, and risk-aware. Our 42 trades, all without losses, added about $13,000 to our coffers. However, even in our caution, I see room to push the envelope a bit – carefully, of course.

We completed our first merger-arbitrage position, which was a strong success and sitting in a happy afterglow. I’m still looking, as I mentioned last quarter, at diversifying some of our holdings that feel too concentrated. We still have some positions where we’re waiting for the market to “realize the value” that could spring us significantly higher.

Portfolio strategy: the annual reckoning

The coming quarter is my time for reevaluation. It's akin to pruning a garden – a few snips here, a little tidying there, ensuring each investment still earns its keep in our portfolio.

Economic musings: the recession that wasn’t

⁠

I have been talking about the likelihood of a recession for years... and it still hasn’t arrived. There are a great many investors who still say its hovering over the horizon and that it might happen. The Federal Reserve, on the other hand, stated they will start doing

rate cuts in 2024⁠

, implying their belief that inflation is headed in the right direction.

⁠

Employment landscape: layoffs and worker dissatisfaction

Yet, all that glitters isn’t gold.

Tech layoffs are over 240,000 - more than 50% higher than 2024⁠

And a poignant paragraph from one of my newsletters:

“The devil you know… Don’t get it twisted: workers aren’t sticking around for the stale coffee. Job satisfaction has slumped 10% this year — the lowest since early 2020 — as inflation waters down paychecks and RTO plans have workers remembering why they don’t sit in traffic by choice. Meanwhile, 40% of Americans have run out of their pandemic savings, student-loan repayments have resumed, and folks have racked up a record $1T+ in credit-card debt. It’s hard to give up a stable paycheck.”

With such high worker dissastisfaction we would expect strikes, as I’ve called out in previous updates. Thanks to our friends at chartr, this visually shows that 2023 was the year of strikes.

⁠

Banking: the not-so-ephemeral issues

In addition to worker satisfaction we must remember the banks. Many people believe that after the failed banks earlier this year we’re in the clear, but when you look Bank of America and the fact they are also laying off employees... you might start to doubt. When you dig into the whole situation, you realize that the way the Fed & US Treasury “saved” the banks earlier this year was by lending incredible amounts of money to those banks. Those loans had a 1 year term — which ends this coming February.

You can see a graph of the Fed’s lending here:

https://fred.stlouisfed.org/series/H41RESPPALDKNWW⁠

So far, the banks haven’t paid any significant amount of the loans back. This could lead to a second banking crisis. Some believe that the actual reason that the Federal Reserve is planning on doing rate cuts (the ones they just announced for February) is not because inflation is under control, but is a last ditch effort to save the banks from having to be bailed out again.

All of this is to say that I think it would premature to call a recession is off. At the same time, I’m not expecting a recession and certainly not relying on one.

Until next time

I very much appreciate your trust and willingness to go on this journey with me. If you have any questions or comments, additional information, or anything else you would like to communicate, please reach out!

Cheers, Kerry

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