Archive for the ‘Dow’ Category

I’m not suggesting we go into lock down, but there certainly were a few unintended yet welcomed consequences from the early days of Covid.

We learned that we could work remotely, at least those in corporate America.

We learned that we could hold meetings — work or personal — quite reasonably on Zoom.

We learned that even a month of reduced driving made a big impact on our environment. CO2 levels started coming down. You could see fish in the Venetian waters again. And all kinds of other miraculous things, too.

Most importantly, we learned that even a month of reduced driving made a big impact on oil supplies and gas prices…

… and since the price of a unit of energy affects the price of everything else in our world, we were reminded that the price of everything in the world comes down as oil prices come down.

So if I were the President of the United States, here’s what I’d do:

(1) I’d gather the top 50 employers in the country to an emergency meeting at the White House… hey, I can do that, I’m POTUS! :) I’d remind everyone that we’re in a time of extraordinary crisis… whether it’s Ukraine, Russia, China, inflation, deficits, interest rates, supply shortages, pandemics, whatever. I’d ask the CEO’s of all of these companies if they would consider voluntarily having their workforces work at home, just like they did during the early days of Covid. I’d suggest 90 days, to correspond during the spring, where temperatures would not be too cold nor too hot, so easy on home heating and/or cooling needs.

(2) I’d address the nation… and remind all Americans that we’re in facing multiple, life-changing crises… and just like great Americans have done through difficult times, we all can make a contribution. Nothing is locked down. But walk to a local restaurant or shop. Ride your bike to school. Take public transportation. If you have multiple cars and have to drive, take the one that gets the best gas mileage. Plan trips better, do all your errands in one trip rather than three. Get together with your friends and neighbors and carpool when possible. Want to show solidarity with the Ukrainians? Want to stop run-away inflation and pay less money for everything? Want to put a lid on pollution? Want to sock it to Russia (and the Middle East while we’re at it) where it hurts, in their oil pocketbook? For the next 90 days, let’s make a wartime-effort to reduce or eliminate driving if we can.

(3) I’d met with the leaders of other countries, talk about what we’re doing in the United States, and ask each and every country if they would join the battle.

Here’s what I love about this plan: It literally has a huge impact ON DAY ONE.

And it shows that we control our situation… our situation does NOT control us.

Dow is a hair away from 24,000 as I write this.  Nasdaq a shade over 8,500.  We’re back to being closer to the top than the recent bottom.

Today’s action felt like it’s really, truly going to be a V-shaped recovery… that we should be back at our old highs in no time at all.

But… b-e-w-a-r-e.

Because it was just a few weeks ago that it felt like the crashing would really, truly never end.

And that’s what happens during a crisis… the mania swings in both directions.

Don’t get me wrong:  We have a lot going for us in this crash.  Oil is really low… and that’s my #1 requirement for an advancing economy.  Companies headed into this crisis with a lot more going for them, too (i.e., real growth, real revenues, and real profits).  And lots of technology companies are going to absolutely thrive in this crisis, for example, Amazon, Netflix, DoorDash… anything to do with the cloud… and so on.

And, critically, the government has backstopped everything with TRILLIONS in bailout money.  (“Oh, yeah, that.”)

But let’s call a few spades spades here:  THE ENTIRE WORLD JUST STOPPED!  That’s going to affect many, many more companies than will benefit.  Stocks ran up waaay too much before the crash, too, so even without a crash, they needed a 10-20% correction just to whack them back in line.  And — most significantly — no one really knows when we go back to normal.

This last point is the key.

This V-shaped rally — where stocks go straight down, then go straight back up, forming a “V” pattern — is almost entirely predicated on us getting back to normal soon.

As in, investors already know this quarter is going to be a disaster, but they think they might have the next one in the bag.

But what about the next quarter?

If I’m the CEO or CFO responsible for offering public company forward guidance… in this environment… there’s no way I’m touching that with a 10-foot pole.  That’s a guaranteed lawsuit just waiting to happen.

So, unless I’m one of the handful of companies that are crushing it during this crisis, there’s no way I’m going to be even the slightest bit optimistic about the future.  Because everything is uncertain.  How long this will last.  What the 2nd wave looks like.  Or the 3rd.  Or if people really are developing immunity.  And so on.

So I either give the biggest low-ball guidance in history — or what is happening more and more — I simply refuse to offer any forward guidance.

That’s when the next shoe drops.

When analysts and investors see this negativity… then try to understand this negativity… then realize they’re now really, truly flying blind… that’s when the rug gets pulled out from under them…

… and the market, too.

Because that’s not going to feel like “soon.”  That will, for a period, feel just like FUD (Fear, Uncertainty, and Doubt).

It’s inevitable.

Because mania is inevitable.

There’s a lot of noise in the market.

But there’s usually a lot of noise.

By definition — at any point in time — 50% of people think there’s enough bad in the market to sell their shares to the other 50% who thinks there’s good.

Can’t have a market otherwise.  That’s why I always scoff when someone refers to “easy” trading periods.  It’s never easy.

What helps guide you through the noise is whether your fundamental investment thesis is still intact.

Is mine?  I think the two biggest drivers of corporate profits — which drive the market — are the price of oil and interest rates.  Let’s see where they stand:

* While oil took a little run to the upside, I wouldn’t call it misbehaving.  In fact, it’s shed much of its 2018 gain

* Interest rates are spooking everyone… but 10-year is sneaking back down… and Trump’s on fire about the Fed messing things up — so much so that a few Fed governors have had to reiterate that they won’t, uhm, mess things up (i.e., “will still be accommodative for quite a while”)

* Sentiment is negative.  While that’s not comfortable, as a contrarian I prefer this

So, for me, at least right now, the noise is… just noise… and what we’re seeing is some healthy “letting some air out of the balloon”… which we like… so it doesn’t pop.

 

P.S.  A great example of “noise” was Caterpillar earnings.  They beat top & bottom line.  But everyone was fretting about China and tariffs… and the stock got pounded… even though if you read their commentary, you find CAT itself wasn’t so worried about the effect of China or tariffs on its business.  Here’s some commentary from their 10/23/18 earnings call:

* CATERPILLAR SAYS FEEL GOOD ABOUT EQUIPMENT DEMAND IN CHINA NEXT YEAR

* CATERPILLAR SAYS EXPECT BUSINESS TO CONTINUE TO IMPROVE IN 2019 VERSUS 2018

* CATERPILLAR SAYS CONTINUE TO EXPECT INDUSTRY SALES IN CHINA FOR 10-TON-AND-ABOVE EXCAVATORS TO BE UP ABOUT 40 PERCENT FOR THE FULL YEAR

* CATERPILLAR SAYS EXPECT IMPACT OF 25 PERCENT IMPORT TARIFF ON ADDITIONAL $200 BILLION CHINESE GOODS TO BE ‘QUITE MINOR’

These are all good things, right?!

On the 31st anniversary of “Black Monday” — where the Dow dropped 23% in one day — I have to share a great “sign of the times” quote.  I can’t find the source right now, but it went something like:

     ‘When the Dow drops 23% in one day, we call it “Black Monday.”  When Bitcoin drops 23% in one day, we call it Monday.’

;)