We are not economists. We don't tend to be. We are educators trying to teach people what to care about and what they shouldn't care about when building a portfolio.
Low on the list is the taper tape; hence, why I am ripping the tape off my face with nary a whit of pain, let alone a tantrum, which is something I threw at my old hedge fund when I was really wrong and that was because I was not yet properly medicated.
Why am I not more worried? I think it's because of my version of the Byrds' "Turn! Turn! Turn!" which in turn was from Ecclesiastes. To everything, turn, turn, turn; there is a season, turn, turn; a time to buy the industrials, a time to sell the banks; a time to bid for health cares, a time to dump the techs; turn, turn, turn. A trade for every market under heaven.
Yes, people keep trading in and out, afraid to miss the next move. So a season that might have been acceptable two weeks ago, like buying the extremely high multiple to sales stocks, had been replaced with a season to buy the utilities, the consumer packaged goods and the homebuilders.
There is a tendency to ascribe magical powers to these rotations. The Nasdaq is going down, because the Fed is going to signal something this week, so, sell the semis. The utilities are up, because interest rates are down, because delta is going up, because vaccination rates are down, so go buy PepsiCo (PEP) or Procter & Gamble (PG) or Duke Energy (DUK) .
None of this is stupid.
But the endless focus on the Fed is simply, again, lazy thinking. It's so easy to listen to Fed governors or presidents and then divine what they might say vs. the chief and then try to predict when Jay Powell will move and how much he will move. It's the perfect parlor game.
There's only one problem.
It makes you no money.
It's like the game of "Clue." Mr Powell in the library with duct taper tape?
Here's what I care about:
- The state of the consumer. We have the retailers reporting this week. I think the consumers are like hot coals with the congress throwing gasoline -- not lighter fluid -- on the Kingsford. So, when we get Walmart (WMT) , Lowes (LOW) , Home Depot (HD) and Target (TGT) , we have to hope that they aren't killjoys and say who knows what delta will bring. That's what cause AirBnB's (ABNB) stock to be poleaxed. A simple: "Things look good," would have been a lot better. So, memo to retailers: Say the consumer remains flush, we aren't concerned about the Fed, we look forward to more people returning to work, but they will be spending a lot of time at home and there's still plenty to do now that we know the home really is the office.
- I care about how much Afghanistan actually matters. Did we abandon an ally who wanted our help? Or did we abandon a sinking ship? Will we abandon the only strategic place on Earth for tech, Taiwan, where a huge percentage of our semis are made? Will Taiwan Semi (TSM) start favoring Chinese car manufacturers who face the same nagging chip shortage that we do, rather than favoring the U.S. simply because they see the writing on the wall? Or is there no writing on the wall and President Biden better be sure there isn't. The fact that tech didn't plummet given the stakes-Apple's was incredibly strong-shows you that the money is for the most part, staying put except for the semis, many of which are made in Taiwan.
- The stock market is saying that delta can run its course, like in the United Kingdom or even India, where you either get it or get vaccinated and that's all she wrote. I think that's wishful thinking -- way too many antivaxxers fighting for the freedom to get sick -- but market players are shrugging off any new restrictions on indoor activities, as if they will be short lived. Thank heavens for Regeneron (REGN) and the monoclonal antibody drip that gets you out of the hospital fast and the Binax from Abbott (ABT) that keeps you home when you test positive. n
- Rates going down are good for the goose, the homebuyer and bad for the gander, the mortgage lender. So a time to buy Lennar a time to sell JPMorgan? Maybe so, as a house is still cheap relative to rent and rates are so amazingly low that you should buy something, anything.. I actually think a piece of property might be better than any stock right now. Mad land!
- Low price-to-earnings multiples are in and higher price to earnings multiples are out. This is a very hard turn turn turn because it is out of synch with everything except with the idea that the market is tired of absorbing all of these money-losers and wants the safety of a dividend -- no matter how meager-and a buyback. We have seen this behavior before when there is too much supply but it tends, in the end, to defeat even these stocks. We have taken down so many new offerings that it is hard to remember them from one day to another but that's even more of a reason to buy tried and true tech growth.
- Regular big-cap stocks that have good dividends are loved for their yields. Johnson & Johnson (JNJ) , PepsiCo, Bristol-Myers Squibb (BMY) , that kind of thing. Remember when I used to say "what's that got to do with the price-to-earnings multiple of Bristol-Myers? All you have to do is substitute Afghanistan saying, "what's that got to do with the price to earnings multiple of Bristol.
- Jimmy Chill's Dill pickles aren't as good as his sauce, of which there is non-better. OK, maybe that's not as important as the taper tape, but it may be more important than a tantrum any day, especially because I simply can't get the recipe right. Maybe we short Pinterest (PINS) ?
All I am really trying to do here is explain that there are many seasons and many components within those seasons, but the most important thing to remember is that it is a rotation, or a turn, and the market stays in no matter what, because it's money dedicated to stocks and if you think the whole market is going down -- remember we haven't had a 5% decline in 200 days -- don't buy all at once, but by all means, when a stock drops from a sector rotation, consider buying it. It will have its turn soon enough.