Stroke of Luck
Posted on Sunday, August 16th, 2020
We sent our youngest back to high school this week. He was anxious to get back and see his friends. He is probably the most social of all of us and he really did not want to do the online option that was offered. In his first class he noticed a boy in his class being teased for wearing a mask. He promptly took it off. Two classes later he noticed the same boy entering that class with no mask on. The boy realized that he was the ONLY one in the class NOT wearing a mask. It was then that he surreptitiously put his mask back on. I asked my son at the end of the week what he thought. He said, “ Dad, I just don’t think this is going to work”. The neighborhood scuttlebutt is that the school needs to be open to the kids for two weeks in order to receive Federal funds. We’ll see.
I’m hearing story after story about suburban real estate and bidding wars. People are fleeing major cities. According to Zillow, San Francisco real estate, long the hottest and most expensive real estate market in the US, is seeing massive inventory hitting the market. Zillow’s stats show inventory up 96% year over year while NY, LA and other major cities are flat y/o/y. 96%!! We can only say wow! Wake me in 20 years when it’s time to buy real estate in NY or San Francisco.
TESLA was up 13% this week. They added the value of GM when they split their stock 5-1. They should have split it 10-1. It’s the same stock. Same company. Same value. There is no difference. There is no reason for the stock to go up 13% on a stock split. NONE. Reilly’s Rule for today is do not buy splits.
The buying of splits and euphoric day trading reminds us of the late 90’s and the Internet bubble. Like the Internet bubble the euphoria surrounding vaccine stocks is palpable. There will be some frauds. There will be one or two winners. The mania can go further but at some point the music stops. This market can and probably will go higher as markets can remain irrational longer than you can remain solvent but the massive rally does not jive with the narrative on the ground. We realize price is the ultimate arbiter so we stay long equities but we feel like this rally is long in the tooth. We are taking off small amounts of risk here but the sell off – if it comes soon – will probably not go very far. We are more concerned if the selloff doesn’t come until late in 2020.
The S&P 500 was up a slight .6% last week so chalk one up for the bulls as they were able to keep the market near all time highs. We fielded a bunch of questions on the Dow Jones vs. the S&P 500 last week. The Dow Jones was up 1.8% last week as it has more old line economy stocks in it and they did very well last week. The Dow Jones is only 30 stocks. The S&P 500 is 500 stocks. The S&P 500 is a much better definition of the broader market – so we follow the S&P 500. Chart gurus target on the S&P 500 is still 3500. We closed at 3372. If we break thru 3500 the chart gurus would move their targets higher – perhaps 4000. We are seeing some signs of leadership change from tech to cyclical, small cap and value stocks. If we get a rotation it will be important to see if tech can hold its gains. If tech begins to slip, being that it is such a large percentage of the averages, will take the averages with them. We mentioned last week that gold has been a big winner so far in 2020 and we gladly sold a bit of our gold holdings. That was a stroke of luck as gold was lower by 4.5% last week. We felt that things had run too far too fast and we were due for a pullback. The long term environment for gold has still not changed but we expect it to at least consolidate at these levels and possibly give back a bit of its gains.
Stay safe.
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.