May 21, 2021

Aphoristic Observations

 The investing community while focused on the markets has not been without some influence brought in by a divided country. This is one reason I don’t follow any narrative as the final word on whether the markets are going up or down, if for no other reason than I’ve yet to meet anyone in my career who has the skill of predicting the future. Albeit probability can play a part in having such an opinion, but as I’ve written lately, an overbought market always corrects, we just don’t know why until it happens. I’m mentioning this because it’s much harder to make even predictable forecasts these days because the contributions are so vast. These are examples of what I refer to as aphoristic observations.


Are analysts right or wrong?

Recent releases of company earnings for the first quarter had companies such as Amazon (AMZN) that reported impressive results, well above analyst expectations but the stock traded down. This in part is because of the inference that the recent rise in interest rates, suggesting inflation, might have a negative impact on companies with low capacity to raise product prices. But it also resent the impact of a wave of SPAC’s that entered the NASDAQ in the last year that many Pindudes and speculators bought with their usual tendency, all conviction, no discipline.  Get them out of the way and the markets may take a breather and notice that AMZN, and many other established tech companies, are comparatively cheap. Lastly, although positive revisions in earnings estimates could be supportive, most of the good news appeared to be already priced into equity markets, hence the current correction that could limit, but not deny upside potential going forward.


Is inflation transitory or not?

Much of the narrative lately has been over the potential for disruptive inflation, and I agree. Where my opinion shifts are towards a more transitory appearance of inflation due to the transitory jump in growth. The reason is because growth has been a curious phenomenon after the last year of lockdowns, and to suggest it’s without causation to last year’s market decline ignores why inflation is rising as growth is as well. Inflation has no doubt gathered steam from the recent jump in commodity prices that feed the housing and construction markets. And that includes the infrastructure legislation, that in my opinion is still on track, and both should be watched closely. But the inflation we’ve seen in energy and consumer activity is a different story. Also gathering steam from the removal of mask mandates, approved by the CDC, many restaurants and smaller businesses are facing two problems. How to rebuild the depleted balance sheets and how to attract new employees. The former is to raise prices, which is not really inflation, and the latter which is likely to increase expenses which can drive prices as well but is not inflation. To balance, the two could likely return to pre-pandemic levels as competition is what will control prices in the future, and there’s no shortage of competition in the consumer discretionary sector. Energy is another story for another commentary.


I could go on, but I hope my point is clear, focus on investing opportunities. The infrastructure plan is still in the strategy for the portfolios, primarily because its impact on creating job opportunities. The strategy of portfolios also leans towards reopening ideas, but not post pandemic reopening’s, pre-pandemic reopening that complements apparel, cosmetics, travel, food and drink, the primary needs that, in my opinion are what have always kept most consumers happy.

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