What I read today, January 27, 2020
It’s tough to write any comment on markets because even when you’re right, if you don’t get the timing it doesn’t really matter at all. Not to mention there’s billions of dollars and thousands gainfully employed in spitting out daily opinions which to me often read more as noise than signal.
I’ve been pretty sanguine about stocks at these levels. I know there’s a lot of smart people are saying that we’re in excess. Paul Singer. Jeremy Grantham.
The flip side is that it’s clear that central banks have our backs and have the capacity to run much higher debt/gdp ratios than historically, as well as an acceptance to run “hotter” on inflation than before. Also the broader market may not be so excessively valued. At least compared to historical bubbles like the nifty 50s or Japan in the 80s.
But it’s clear there are pockets of excess that are not healthy for the market. We can list a couple:
1) Tesla and the “blue” trade wave in hydrogen fuel cells and Electric Vehicles. Plug Power has now become the largest component of the Russell 2000 despite it having been an unprofitable promotion for ages.
2) Beaten down shorts like GME, BB, BBBY etc getting squeezed by retail investors whipped into a frenzy on reddit forums like Wall Street Bets. Literally forcing margin calls on some of the worlds biggest HFs. Cinema chain AMC which has been operating at 20% run rate revenue for the last year and has doubled its debt burden, now trades higher than pre-COVID!
3) Craze for cryptocurrencies. There’s questions over how much value is being driven by leverage in a murky part of the crypto ecosystem.
4) The lack of focus on profits.
There’s major FOMO going on. There has never been a combination of virality + memes + social media that existed like these markets. When Tiktok influencers are day trading their genius strategies of buying, waiting till it goes up and selling..
and 13 year olds are marketing their 4x returns to HF managers you know we’re in a weird place and its not a healthy market. We talked before about how the market has become a meme. The ironic thing is that Western markets are becoming more like Chinese markets - a rise in retail investor speculation in a central planning dominated economy.
The reality is that everyone feels like a genius in a bull market.
That being said I read a good piece from shortselling HF manager John Hempton where he talks about prior speculative bubbles like the 1960s, where people wrote books about the gogo years. The operative word there being years. We have no idea how long these things last. All I know is it feels more like the beginning of the end, than the end of the beginning. John Templeton a famous fund manager said “Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria,”
Watch yourself out there..
Other
How to keep track of what the redditors are talking about.
Watch the Davos talks live, and see world leaders forget to unmute their mics.