February 10, 2021

Hope Springs Eternal, Try It

“We live in a country addicted to pessimism, Fed by those who manipulate with gratuitous whim 

And it all comes down to one explanation, The media’s calculated focus on exaggeration”

When was the last time we heard a new story coming out of the media? This is why I prefer to focus on the capital markets and their resources. Every day is different, and although they pass with some narrative explaining the reason for us, the broader markets rarely go higher for a single reason, they can more easily decline on one. This is commonly caused by most people procrastinating when they want to buy and are impulsive when they want to sell. This isn’t to suggest I fear a correction anytime time soon, except a technical one, but that the more our media exaggerates irrelevant news, the more relevant news will startle investors. And that’s always a part of my research and analysis as portfolios move steadily higher.

The technical correction I mention is due, but not because the markets at large are simply overbought. On the contrary, it’s easy to observe that companies with stellar balance sheets and sound guidance, such as Amazon (AMZN) and Apple (APPL) are stumbling behind the recent charge to new highs for the indexes. It’s the Special Purpose Acquisition Companies or SPACs that purchase private companies for the purpose of giving them access to investors that are seeing droves of investment. And those piling into energy companies such as Exxon Mobile (XOM), which came into today over 22% in 2021, all on the back of rising oil prices, mostly due to OPEC cuts. Sure, I can blame the Pindudes, but they’re not alone these days, as many more have tried their hand at looking for stock tips on more familiar platforms than Reddit such as YouTube, or just listening to their friends’ brag about hot stock plays. To update a phrase from the past, when your Uber (UBER) driver starts giving you stock tips, it’s time to step back.

So, is it time to be concerned? Yes, but, in my opinion, not very concerned. As the pandemic befell the country the challenge to industries such as energy, made worse by the grounding of Airlines, set off a warning, that now is the time to consider alternative investments such as General Motors (GM) a soon to be leading competitor in the growing field of electric vehicles. Brick and stone retail also met challenges as they found it nearly impossible to stay in line with the ever-changing rules of social distancing. The result was the smooth transition, for most, to internet retail. And this wasn’t just coming from the United States, it’s been a global phenomenon that, as I’ve written about before, isn’t going away. In fact, one could interpret the changes that have taken place in the economy are simply the same changes that would have taken place anyway, just in five or ten years, instead of one.

That doesn’t stop the exaggerated narrative that suggests oil prices could go to $100, or that inflation is going to run out of control, or the capital markets are near a bubble, and bubbles always get popped. And the sources are never short of finding an “expert” that agrees with them. In short, I think oil will remain at current levels and begin to trend lower as the weather gets warmer. Inflation is a genuine concern, but as normalization becomes more evident, as the vaccine is more widely applied, the trend of challenges, have been met with speedy signs of some semblance of recovery. A good example is the current level of unemployment which will, in my opinion, almost certainly trend lower as the economy expands. The initial impact could very well be inflationary, but as with most conditions stemming from the pandemic, it too could very well be short lived. As far as a market bubble is concerned, for now the indexes are modestly overbought from a technical standpoint. Earnings have been good, but as the expansion continues, the good news should be less impulsively bullish and hopefully more reasonably assessed. And especially these days, hope goes a long way, and we’re prepared.


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