In January I watched video presented by the World
Economic Council. This specific event was an opportunity for a select group
of entrepreneurs and politically connected people to address the future of
capitalism. I bring this up because Marc Benioff, the founder of the mega
successful company Salesforce (CRM) suggested that “capitalism is dead”. Well,
when I read stuff like that, I immediately hit the information highway to
figure out what a savvy capitalist like Mr. Benioff really meant. What I found
was an idea that capitalism is alive and well, but it’s goal of serving the shareholder
over the worker and the community is a change that needs to come if real
global problems, such as the current virus, are to be solved. And I’m bringing
this up because in this time of historic global challenges, due to external
events driven by the virus, companies are moving in the direction of a new
capitalism, suspending stock buybacks, dividends and even CEO salaries. What
does that mean for investment?
The Markets
Companies that are participating in the more stable
volumes characterized by the muted changes in the broad indexes for the past
few days are familiar and include Amazon (AMZN), Facebook (FB) and select
healthcare companies such as Thermo Fisher (TMO) singled out for advancing
progress regarding the establishment of a scientific solution to the virus.
Worth noting is the three companies mentioned have dividend obligations of
0%,0% and .31% respectively. The tech companies mentioned have suggested both
an increase in hiring, money injected into the system to aid workers, their
community and suspension of most executive pay. In short, this has been going
on for a long time and the migration to a system that can protect us as well as
enrich us is why, in my opinion, investments will continue to reward those
companies that provide answers to global questions. A big order, but with
valuations dropping steadily, companies are more and more on equal footing
(i.e. all cheap) and what opportunities are invested in will speak volumes to
the future.
The Economies
There are indications that China has begun to bring its
economy back to life. Bring it back to life is an important distinction as the
WSJ pointed out that unlike the US, China owns most of its economy and absorbs
the losses, whether or not, in stride. Companies such as Alibaba (BABA) have
benefited from the news, but there is still much to determine regarding the
credibility of government statements. However, while not necessarily an
economic statistic, both Starbucks (SBUX) and Apple (APPL) have resumed
business, Starbucks recently announcing the reopening of their store in the
Wuhan Province, both are constructive moves by reliable companies.
Domestically, most of the economic data has been mixed since whatever came out
was reflective of last month, such as Existing Home Sales which increased 6.5%.
But more reflective of current issues saw a greater than 30% spike in
unemployment claims that does not bode well for the upcoming employment data
due Friday April 3rd. In the meantime, while tracking economic
changes it’s important to look at statistics from the perspective of a healthy
economy that has been shut down, rather then in decline for other more common
economic influences. I’m counting on that data to give a better picture of how
long the “temporary” economic pause might be.
External Events
It’s interesting how politicians appear to be getting
along these days, and in keeping with the notion of the “equality of
helplessness”, so is the general public. The media and the administration
are still fighting, but, in my opinion, the absurdity of the exchanges isn’t
benefiting either side. As the markets bounced around voluminous comments both
positive and negative, the markets have made new lows even as this week they
were also appearing to find footing. But a fight appears to be brewing, from
the standpoint of technical analysis, most momentum indicators are oversold and
I’m looking for the kind of fight that bulls and bears tend to have at highs
and lows. The longer that continues, the more likely the broad indexes are
closer to the bottom of the current range than the top. But future data will
define that range and when its out, the fights will heat up, and given what
we’ve withstood thus far, the bulls could have an advantage.
