The Pain of Discipline

is less than

the Pain of Regret

Seasoned investors that thrive long term understand that the Pain of Discipline is less than the Pain of Regret. In this context, the pain of discipline is following your risk management process while everyone else is succumbing to their Fear of Missing Out (FOMO). Fortunately, when you measure and map the entire world across stocks, bonds, commodities, and currencies while having the means to take both long and short exposures across all the aforementioned you are not forced to participate in reckless behavior for return opportunities.

Of course, our memory doesn’t reset every calendar year so we remember what the pain of regret was in 2022 for those with poor risk management processes which resulted in double digit declines in their capital or worse complete wipe outs. Naturally, our risk management process thrived while others suffered in 2022 and we have no intention of giving into the FOMO.

This time around we opted to start with the big picture and what we are doing about it. For those who want to see how we reached our conclusions you will have plenty of charts, tables, etc below to enjoy.

The Big Picture

We’re now slouching into month 20 of global/local macro deceleration, and the slope of the macro lines that matter remains negative. The Manufacturing economy is contractionary, Services is in discrete deceleration, credit availability is in conspicuous contraction, commodities & industrial metals are making lower lows, Europe is back to recessionary prints and the failed China re-opening catalyst has already pivoted to outright cuts & incremental stimulus. We’ll discuss why credit risk will continue to simmer and detail the consumer, labor & profit cycle implications associated with the cycle progressively transitioning from tethering to income/savings towards a more conventional tether to policy/credit at the same time that residual excess savings face exhaustion, income/discretionary consumption shocks (student loan repayments) lurk in queue and further fed tightening reflexively amplifies the macro deceleration.

The transition from rate tightening to credit tightening has now fully commenced. Credit tightening impacts real economic activity reflexively and the impact will progressively intensify from here. The tethering to pandemic related stimulus has supported the plodding evolution of the cycle. But as savings are exhausted, labor begins to weaken and income shocks emerge, sensitivity to rate/credit conditions will increase. This makes this second dynamic increasingly sensitive to the evolution of the first.

Short Opportunities in China and Europe

We are favoring short exposures to equities in China and Europe. Quick reminder, short exposures means profiting from a fall in price.

This time is different – the Chinese economic engine won’t be bailing out global growth as it did in the Post-GFC period.  The promise of a great Chinese reopening has underdelivered, and the developed market consumption shift from goods to services has additionally weighed on Chinese manufacturing activity. Nowhere is this story told better than in the steady YTD downtrend across industrial metals, with recent easing in Chinese monetary policy further confirming this dynamic.  Meanwhile, the European continent, having been spared from an energy crisis this past winter, is increasingly under the weight of elevated inflation, torpid manufacturing activity, tightening credit conditions, and renewed central bank hawkishness. More broadly, the confluence of weakening global demand concentrated, for now, within the goods economy and the new cost-of-capital reality terrorizing Capex plans worldwide; the industrial recession remains a persisting reality.

Long Opportunities in Japan, India, and South Korea

We are favoring long exposures to equities in Japan, India, and South Korea. Quick reminder, long exposures means profiting from a rise in price.

With accelerating growth expected over the next two quarters for each of these three geographies and with the market incrementally confirming this trajectory, we are favoring equity exposures in Japan, India, and South Korea. Japan is enjoying comparatively moderate and decelerating inflation while monetary policy remains accommodative and domestic spending is expected to increase in the post-pandemic yolo fashion of other developed economies that had relaxed Covid era restrictions much earlier. India also enjoys a comparatively superior fundamental setup with buoyant domestic demand fueled by government spending, moderating commodity prices, and strong credit growth.

Here are a view bullet points on the macroeconomic fundamentals that support a long position in Japan, India, and South Korea.

• Japan’s 2-10 yield spread is currently +43bps, making it among the most auspicious across all countries. In fact, among all Developed Economies, Japan’s current yield spread is the most positively sloped. India and South Korea’s 2-10 yield spreads are currently +8bps and -2bps, respectively.

• Domestic demand power reacceleration is occurring in the manufacturing sector.

• Business conditions are improving.

• Later covid reopening means a delayed and extended services economy rebound.

• Reaccelerating of consumer confidence is reflecting strength in domestic demand.

• Japanese Retail Sales are in a strong uptrend.

• Korea Retail Sales are in search of a bottom.

• Varying degrees of accelerating credit growth are occurring in Japan, India, and South Korea.

• India has returned to it’s pre-pandemic inflation regime.

• South Korea is in a steady disinflation mode.

• Japanese Tankan conditions are positive/improving.

• Positive/Improving Tankan business conditions have been positively correlated with/led Nikkei performance historically.

• Japanese consumer confidence and retail sales up.

• Confidence and sales are rebounding across Japan.

• Japanese bank lending is up.

• The last decade or so have seen increases in Japanese Bank Lending leading to Japanese equities rising.

Portfolio Positioning

Stocks

Whatever you do, don’t be one of those tunnel-visioned, FOMO-addled “investors” focusing myopically on the latest CNBC stock idea/narrative/BS. Believe it or not, there’s an entire investing world out there beyond Apple and the latest hot stock of the day.

Moreover, don’t make the mistake of confusing our current bearishness to suggest we’re not bullish in numerous other asset classes, countries, sectors, etc. As articulated in our big picture summary above and our macroeconomic assessments below, we are bullish on Japan, India, and South Korea as well as the US industry sectors of defense, healthcare, and precious metal royalty companies.

Additionally, we have added meaningful exposure to market neutral strategies to help manage what we foresee as material volatility and downside risk on the horizon. As a reminder, an equity market neutral strategy is an investment strategy that aims to generate consistent returns irrespective of the direction of overall market movements. It is called "market neutral" because the goal is to remove any exposure to market risk. The goal is to profit from the relative performance of the stocks rather than the absolute performance. If the long positions perform better than the short positions (regardless of whether both are up or down), the strategy makes money.

Bonds

We currently are maintaining our exposure to short term US treasuries specifically in T-bills which provide an excellent base layer rate of return of approximately 5%. This combined with the layering of selling call/put spreads for option premium income further boosts this into the mid to high single digits. As a reminder, selling call/put spreads is akin to selling fire insurance (collecting a premium of say $100) and then buying firestorm reinsurance (spending a premium of say $10) thus resulting in a net premium collection of $90 in a risk hedged manner.

We think this bond exposure provides robust returns while avoiding credit risk, interest rate duration risk, currency risk, etc which we think is especially important given where we are currently in the macro cycle.

Our relentless focus on minimizing severe drawdown risk worked wonders last year (our memory doesn’t reset each year nor does your capital) and we continue to maintain that approach now.

Alternatives

Managed Futures

We continue to hold managed futures as part of our alternatives allocations. These strategies are trend followers in that they go long what is going up and short what is going down. Moreover, this is expressed across all asset classes of stocks, bonds, commodities and currencies. As a reminder, it was these strategies that materially protected our capital in 2022 when virtually every long only stock and bond investor got crushed.

As of this writing, we have long exposures in US Stocks, Gold, Live Cattle, Soybean Oil, and Long Duration US Treasuries and short exposures in International Emerging Market stocks (mostly China), International Developed Market stocks (mostly Europe), Oil, Cotton, Silver, Sugar, Corn, Short Duration US Treasuries, and Japanese Yen.

Gold Bullion

We continue to hold gold bullion as part of our alternatives allocations. While most commodity prices have been collapsing under demand destruction (oil, anyone?), gold has been doing what it should do which is a) not lose value and b) push slowly, steadily higher. While the full economic fallout of policy mismanagement has yet to play out, the downstream reaction function is increasingly coming into focus. Not only is Gold a port in the storm, but investors know the policy reaction function down the road will be to print. Knowing this, Gold reacts accordingly.

Long Duration US Treasuries

We added 30 Year US Treasuries with an actively managed long interest rate options overlay to the alternatives allocation as such exposure typically does well in macroeconomic winter i.e. slowing GDP growth and slowing inflation growth which is the current case for most of the world. Moreover, it often benefits from flight to quality events often sparked by some sort of negative surprise. We still remember the US regional banking crisis that happened a few months ago which also included the failure of Credit Suisse which is a GSIB (Global Systemically Important Bank).

Final Thoughts

While a recessionary bear market is still our near-term (12-month) base case, the Fed’s response will also be critical in terms of the timing and magnitude of when it starts cutting rates.

Even in our recessionary base case, the stock market could rally further in the very short-term on (misplaced) optimism that the worst is over and recession has been avoided. But at some point, earnings will start getting revised lower and a recession priced into the market. The timing and magnitude are never certain, but the weight of the evidence supports sooner than later and the S&P 500 index at least revisiting its October 2022 low of 3600. That would be roughly a 20% decline from current levels.

However, as we extend our time horizon to the medium-term (five to ten years), we see reason for earned optimism. While the U.S. stock market in aggregate is vulnerable to earnings disappointment, there are companies and sectors within the U.S. market that are reasonably-priced, e.g., areas not swept up in the current AI frenzy (like defense and healthcare). The bond landscape is also attractive (especially US Treasuries) thanks to higher yields.

We also see strong total return potential from certain international and emerging markets, which have been out of favor and underperforming for more than a decade (Japan anyone??). These markets are not “priced for perfection” as the U.S. market seems to be. Instead they are susceptible to “upside risk” i.e. better than expected earnings growth and valuation expansion.

Strong short-term market trends can trigger investors’ emotions and make them want to act – either chasing (buying into) a rising market or fleeing from (selling) a falling one. That is not the path to successful long-term investment outcomes. Moreover, we take long AND short exposures across all asset classes (stocks, bonds, commodities, and currencies) to manage downside risk (material losses) in the short term so that your capital can compound more attractively over the long term.

Successful investing requires a balance between offense and defense. Earning superior long-term returns does require one to take calculated risks when opportunities present themselves, but to also exercise caution during periods of market exuberance. By maintaining a disciplined and balanced investment approach, we are well-positioned to weather the inevitable market storms and capitalize on the opportunities that are also sure to arise.

Thank you for your continued trust and confidence.

Current Market Conditions (Beware)

Global equities continued to rally in the second quarter of the year, led again by surging U.S. mega-cap tech/growth stocks, particularly anything artificial intelligence (AI) related.

The S&P 500 index gained 6.6% in June and 8.7% in the second quarter, driving its year-to-date return to 16.9%. Developed international stocks (MSCI EAFE Index) rallied 4.6% in June, gaining 3% for the quarter and 11.7% YTD. Emerging markets stocks (MSCI EM Index) rose 3.8% in June, resulting a 0.9% gain for the second quarter and an 4.9% return YTD.

Tech stocks continued their incredible comeback after a terrible 2022. The Nasdaq Composite rose over 13% for the quarter and is up over 32% YTD. The Russell 1000 Growth Index is up 29% on the year, versus a measly 5.1% gain for the Russell 1000 Value Index.

The market-cap-weighted S&P 500 Index’s rally this year has been the “narrowest” on record, with less than 28% of the index’s constituents beating the overall index return (through June 14). As shown in the Ned Davis Research chart below, in an average year around 49% of the index’s 500 companies beat the overall index. (The only other year comparable to this year was 1998, as the Tech/Internet stock bubble was inflating. That didn’t end well, but it took another 15 months before it started to burst.)

More granularly, with the sudden frenzy in all things AI, the average YTD return for Amazon, Google, Meta, Microsoft, NVIDIA, and Tesla is 96%, contributing almost the entire S&P 500 return for the year. The combined market cap of the seven largest companies in the S&P 500 (all the above plus Apple, the so called “Magnificent Seven”) now comprises over 27% of the total index, the largest share in history for the top seven.

In fact, this is even more pronounced in the technology heavy Nasdaq.

We must not forget that in past bear markets, we can have nearly a dozen rallies of greater than 10% over many years. Case in point is the 2000-2002 cycle.

With regards to AI specifically, we’d make the point that while it is likely AI will have a huge impact on society and the global economy, that doesn’t necessarily mean the current AI stock frenzy is justified by these companies’ underlying earnings fundamentals. It may be in some cases. But we can also remember the tech/internet stock bubble in 1998-2000. The internet obviously has had huge economic impact over the past 25 years, but very few tech stocks were priced appropriately in early 2000.

As an example, a poster child for the current AI exuberance is Nvidia, a graphics chip maker used in AI applications. The stock is up over 200% this year (as of 6/30/23), pushing its market cap over $1 trillion and into the top-10 largest constituents of the S&P 500. Nvidia has strong fundamental earnings growth potential, but its stock is currently trading at a P/E ratio of more than 220x! (The overall S&P 500 index has a P/E around 20x, currently.)

We’re not stock-pickers, but this reminds us of Cisco stock’s valuation during the tech bubble. You don’t hear much about Cisco today although it is a $200 billion company. But back then it was a large-cap tech/telecom superstar. It was the third-largest company in the S&P 500 (after Microsoft and GE) and sported a P/E above 200x in early 2000. Cisco’s stock price peaked at $56 (adjusted for subsequent stock splits) in March 2000. Today it is around $52, with a P/E around 18x. That’s a 23-year return of less than 0%….we doubt anyone who bought Cisco at $56 held on during its gut-wrenching 90% decline to October 2002.

The lesson: Buyer beware of mega-cap stocks with triple-digit P/Es!

It remains to be seen whether this extremely narrow market rally resolves via the rest of the market catching up or the so-called Magnificent Seven “catching down,” but improved market breadth would be a positive indicator for the market’s continued bull run.

Moving to the bond markets, core bond returns (Bloomberg U.S. Aggregate Bond Index) were slightly negative for the quarter as interest rates slightly rose/prices fell. The benchmark 10-year Treasury yield ended the second quarter at 3.8%, up from 3.5% at the end of March. Riskier high-yield bonds (ICE BofA U.S. High Yield Index) gained 1.6% for the quarter and are up 5.4% YTD. Municipal bonds (Bloomberg Municipal 1-15 year index) were generally flat on the quarter and up 1.9% YTD. Actively managed flexible/nontraditional bond funds gained around 2% and are up over 5% for the year.

Finally, multialternative strategies (Morningstar Multistrategy Category) and managed futures (SG Trend Index) generally underperformed stocks but outperformed core bonds for the quarter. Trend-following managed futures (SG Trend Index) had a strong rebound after a tough first quarter, gaining around 8%.

In summary, we would simply expand on the wise saying of “hope is not a strategy” with the following:

Dwell in Hope's Sweet Symphony
Guard Your Assets with Skillful Strategy

Current Macro Conditions

As a reminder, a key element of our analysis rests on the notion that the rate of change is more important than the level.

For example, driving at 100 miles per hour is your speed. If you maintain that speed your rate of change is 0. If you go from 100 miles per hour to 0 miles per hour that is a negative rate of change or deceleration. If you go from 100 miles per hour to 200 miles per hour that is a positive rate of change or acceleration.

Now, if you go from 100 miles per hour to 0 miles per hour in 60 seconds that is a leisurely pace to a full stop. If you go from 100 miles per hour to 0 miles per hour in 0.1 seconds…well you are pink mist i.e. the rate of change is a life or death matter.

You might think that example is humorous but not applicable to markets or economies. If so, I invite you to go speak with the stockholders of Silicon Valley Bank, First Republic Bank, and Credit Suisse.

With that established, let us proceed.

Goods and Services Activity

The trend has been clean and overwhelmingly one of persistent deceleration. Indicators of Industrial Demand and Activity have been leaking endlessly lower for over a year now.

Whether it is quick service restaurants (QSRs) or retail spending or retail weekly visits the objective evidence is clear i.e. activity is decelerating.

Moreover, it isn’t just retail spending. It is also a business and industrial activity slowdown as well. The Goods Economy is still recessionary.

Unsurprisingly to those who measure and map macroeconomic activity, we see deceleration in industrial commodities i.e. the raw materials used to make stuff as well as the orders for the finished goods.

Perhaps, the savvy devil’s advocate among you says “it is simply a deceleration in goods because we all know that the USA is especially reliant on the services side of the economy and therefore no worries.”

Thankfully, we can measure and map that too. Services Activity as shown by Fed Regional Service Surveys have now been squarely in contraction for 13 consecutive months.

Service Sector Credit Managers Index continues to contract. The Credit Application Rejections, Accounts Placed for Collection and Bankruptcy Filings series have all deteriorated materially in recent months.

As seen below, Services (still) is just following goods on a lag.

Ok maybe it is just the USA that has goods and services issues. How likely is it that the US decouples from global industrial deceleration (EU/China), especially when almost every high-frequency domestic growth indicator is converging to zero? Hint, not likely.

As a cyclical indicator, particularly for the goods economy, the Bernanke Indicator is straightforward and wholly intuitive. When people send or sell things they put it in a box, more boxes = more activity and vice versa. And the latest contractionary descent looks like every other recessionary period over the past 30 years.

Labor and the Consumer

Overtime hours and temp staffing are leading indicators and both have pushed into levels consistent with recessionary conditions historically. The only other time we’ve seen this pace and magnitude of decline in hours worked was during the heart of the Global Financial Crisis (2007-2008).

As any business owner knows, you first reduce overtime hours then cut temp staffing and then you begin to reduce hours worked by everyone else and then you finally start layoffs.

The YoY Change in Continuing Claims has never been this high without a subsequent recession and WARN Notices are pointing to an acceleration in Initial Claims. As a reminder, a WARN notice is a legally required notification that must be issued by employers in the United States who plan to implement a large-scale layoff or plant closure.

Perhaps the US consumer’s strength and their balance sheets thru excess savings will be enough?

Again, let us measure and map.

Real Earnings Growth has now been negative for a record 26 consecutive months i.e. after inflation your earnings are growing slower than your expenses which feels like consistent pay cuts.

Demographically, it is younger generations that do the bulk of the spending. However, 70% of Gen Z and Millennials are now living paycheck-to-paycheck with >50% still somewhat or very financially dependent on parents.

The latest 1Q data shows Credit Card Balances grew at the fastest pace in at least 20 years while the Cost of that Revolving Credit continues to notch higher to multi-decade highs.

The latest NY Fed data showed consumers failed to pay down (post-holiday) credit card debt in 1Q for the first time in at least a decade.

Credit Card delinquency rates continue to climb.

The consumer is experiencing foreclosures and bankruptcies at Global Financial Crisis levels.

With student loan repayments turning back on in the coming months after being suspended for nearly three years that is a lot of spending potential that now needs to go to debt service. The amount of spending in the recent past driven by the LACK of student loan payments cannot be understated.

But perhaps all the stimulus checks that people received and saved (ha) will be used to support spending in the future?

Yes relative to pre covid there is more inflation adjusted savings on consumer balance sheets but as with many things in life it is not normally distributed.

Collectively, the bottom 60% of the income hierarchy went negative in 1Q23. It is the already wealthy cohorts i.e. top 40% of the income hierarchy that have the inflation adjusted excess savings.

Well clearly, the wealthy 40% will continue to spend at past rates or more and thus will keep spending overall up right?

Let us see what the data says.

Nope they are spending less.

From an income hierarchy perspective, this means the population is experiencing a K shaped recovery.

We’ve now reached the transition/discontinuity point where the short-term treatment (pandemic related policy support) ultimately exacerbates the underlying (inequality) disease.

• The Rich disproportionately benefit from higher rates as they get paid on their excess liquidity.

• The Rich disproportionately benefit from reflation in asset prices as they own a disproportionate share of financial assets.

• Big Banks consolidate share amidst banking stress and liquidity flight.

• Big Business outperforms small business.

• Bottom Slant of the K gets plugged with higher (cost of living) inflation while broadly missing out on the income upside associated with higher rates.

• Bottom Slant of the K loses discretionary consumption capacity as share of wallet goes to service higher debt costs.

• Bottom Slant of the K becomes increasingly vulnerable to income shocks (ie end of student loan moratoria) as any residual cash cushion is exhausted and the above play out in reflexive and compounding fashion.

Businesses

Ok maybe the US consumer isn’t in a great place right now but maybe US businesses will pick up the slack?

You know the drill. Let us measure and map.

Bankruptcies are accelerating.

CRE/Commercial mortgage risk remains a tinder box as the amount of refinancings coming due is substantial during a period of higher risk free rates and option adjusted spreads which together form the total interest rate cost of refinancing. Ultimately, economic deceleration i.e winter conditions provide a catalytic spark. Moreover, bank lending deceleration is occurring every single week.

Tighter Consumer Credit (black line) leads retail sales growth (gray line) and the trend there continues to signal further downside in goods spending.

Additionally, input costs are rising faster than output prices for businesses which effectively means margin compression. Furthermore, inventory relative to sales is climbing to recessionary levels as businesses are selling less and less which adds to inventory builds.

The gray line will continue to chase the black line lower as corporate margins (proxied by PPI Trade Services) continue to slide. With respect to inventories, its probably a catch 22. Sell excess inventory at a discount or build inventories (positive for GDP) from already historically elevated levels into slowing demand and further crush future profitability.

Moreover, signs of accounting fraud are rising. The M-Score suggests rising or falling signs of fraud in the aggregate, using 8 Balance Sheet ratios that can be tempting targets for accounting manipulation.

To recap, let us summarize the convergence of material macro factors in play:

• Job Losses are Up.

• Student Loan Payment Resumptions.

• Excess Savings are Exhausted for 60% of the population.

• Income and Consumption Shock Risk for 60% of the population.

• The US Treasury continues to refill the nation’s checking account which drains bank deposits.

• GDP growth rates are aiming toward 0%.

• Banks are lending less and raising credit standards.

• Geopolitical and social frictions are increasing.

• Company profit margins are undergoing downward pressure.

While that naturally leads one to be bearish and deservedly so for those who actually look at the macroeconomic data it also means there are plenty of opportunities around the world and across asset classes for return harvesting if one can go long and short across all asset classes of stocks, bonds, commodities, and currencies.

Current Macro Opportunities

Short China

At present China is an excellent short opportunity. As a reminder, shorting means you make money when prices fall.

Chinese goods consumption is again slowing.

Chinese manufacturing returns to contractionary.

Industrial Production growth is slowing.

Industrial profits – falling at rates seen during Global Financial Crisis and Covid. So much for the great Chinese reopening narrative.

Don’t trust the Chinese data (HA)? Neither do we. That is ok because the underwhelming industrial commodity performance reflects the global manufacturing recession.

Exports and Imports are both in contractionary territory.

Deglobalization and protectionism increasingly look like the next hinge in macro history and that is not disinflationary OR good for China.

Exports to both the US and the EU are trending down.

Chinese business confidence moves to historically depressed levels.

Chinese consumer confidence is still very weak. Domestic Consumption fueled rebound remains unlikely so long as confidence remains abysmal.

China property developers have stopped developing. Chinese developers have debt repayments of 958 billion yuan ($141B) of onshore and offshore bonds coming due by the end of 2023.

Demographically and historically, young people that are broke and unemployed are fertilizer for instability. Funny what history books can teach you.

Moreover, the Chinese demographic picture long term is materially weaker relative to the US.

Short Europe

At present Europe is an excellent short opportunity.

Goods demand remains in recession.

Eurozone retail sales have been negative in 10 of the last 11 months.

Eurozone Manufacturing is uniformly rolling over.

While manufacturing and construction are both contractionary and trending lower, Services, while still expansionary, is also trending lower.

Eurozone Industrial Production is Declining, Deflated or Rolling Over.

Eurozone Services PMIs are rolling over.

Eurozone Business confidence has sharply reversed over the last 3 months.

Consumer Confidence in Germany and France is near the lowest levels seen in the last 20 years.

Eurozone M2 is converging on zero growth. As a reminder, accelerating money supply growth is generally associated with rising asset prices and conversely decelerating money supply growth is generally associated with falling asset prices.

Euro-Area Credit Impulse is trending lower. Credit Impulse is the relationship between the change in net credit flows relative to prior period GDP. Credit Impulses are highly correlated to annual Real GDP growth.

Eurozone Bank Lending To Households and Corporates are in freefall.

The U.K.’s Short-Term Fixed Mortgage Bomb and Mortgage debt servicing has reached this level only 5 other times since 1983.

Long Japan, India, and South Korea

Unlike most of the world, Japan, India, and South Korea presently have the macroeconomic weather conditions (Spring and Summer) that bode well for stock exposure on the long side.

First and foremost, Mr. Market certainly agrees so far.

Domestic Demand is Powering Reacceleration in the Manufacturing Sector and Industrial Production

Business Conditions are improving.

Later Covid Reopening = Delayed and Extended Services Economy Rebound.

Reaccelerating Consumer Confidence is Reflecting Strength in Domestic Demand.

Japanese Retail Sales are in a Strong Uptrend.

Varying Degrees of Accelerating Credit Growth are present.

Confidence and Sales are rebounding across Japan.

The last decade or so have seen increases in Japanese Bank Lending lead Japanese Equities.

The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations.