Live for Today
Posted on Sunday, May 10th, 2020
While it’s only been a week since the Governor of Georgia lifted our stay at home order things seem to be getting back to some sort of normality – at least in the Reilly house. To give you some background, one of our most frequently requested blog posts was “Wanna Save $100,000 on College?” (Click for link). We saw some of that come to fruition last week. Our daughter has managed to keep her scholarship for three years so she gets the savings. So far, that has amounted to one used Mazda Cx5. (When you live in the Reilly house the first thing that you think of when you mention global pandemic is used car prices. Right after – Do we have enough toilet paper?) So, off we went to buy her first car (complete with masks). Quite an impressive car. We were also impressed with CarMax and our salesman Tom who made the process as painless as possible.
Further along on the “Will Things Go Back to Normal?” front, we see that Carnival Cruise lines has started accepting reservations for August and those reservations are up 200% from last August!! We are reading research report after research report that tell us that people are just not going to go back to doing things as they have always done – that people will start saving instead of spending. We think the opposite. People are dying for normalcy and we think that the consumer is going to move more towards an attitude of “Live for Today”.
We have been of the inclination that the stock market has actually been in a bear market for over two years – since January 2018. Since January of 2018 the S&P 500 is up 13.6% while the small cap Russell 2000 is down 11.4% and the Dow Jones Transports are down a very bear market like 22%. Small cap stocks and transports have been lagging and that is indicative of a slowing economy. Meanwhile, the S&P has been led by an increasingly smaller number of stocks. Most of the S&P’s gains have come from three stocks. Microsoft (up 136%), Amazon (up 100%) and Apple (up 86%) have accounted for a huge portion of the S&P 500’s gain since January 2018 and the reason why the S&P 500 is positive in that period. A market led by increasingly fewer stocks is not a strong market.
We can only understand the market in retrospect. We study the market in real time because we let market price action dictate our thought process. We know that the market is bigger than any one player and that price is the ultimate barometer of success.
One thing I have learned over time is the best thing to do is let market price action guide your decision-making and then try to understand the fundamentals as they become more evident and comprehensible. Quite often, how the markets respond will be at odds with your priors. But remember, the P&L always wins in the long run. – Paul Tudor Jones letter to investors May 2020
Paul Tudor Jones is one of the most successful hedge fund investors in history. He went on to say in his letter that he thinks that bitcoin will have value in the days ahead. That will be something to watch. Fair Value on the S&P 500 is closer to 2350-2500 area. This is an unloved market rally as human investors have gotten left behind. While logic would say depression era levels of unemployment would equal lower stock prices the machines aren’t seeing it that way. The money printing by the Federal Reserve and other central banks is also pushing prices higher as investors see bailouts wherever they look. Getting into the money printing business is easy. Getting out will be all but impossible. Once the market is hooked on the free money you will never get them off of it. The computers are in charge for now. Keep an eye on precious metals and miners. Happy Mother’s Day!!!
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.