A Special Gift
Posted on Sunday, February 14th, 2021
It was the end of an era this week. Aunt Pat was the last of her generation in the Fitzgerald Clan and a treasured soul. She was the quiet one at the party that was a thinker and a doer. She lived her life on her own terms in an era when women were told what they could and could not do. She saw things wrong with this world and made things right. Her impact will ripple for generations. She never had children but treated us as her own. She always remembered. She never forgot a birthday. She never forgot you at Christmas. When the kids were young and times were tight every Easter she would send clothes for the kids. It was a special gift. She didn’t have to but she did it because she loved you. The fact that she never forgot made you feel special. It made you feel like even in your toughest times or darkest days you were reminded that she was there – she cared and you were stronger knowing that. She drifted off in her sleep at the age of 89. A wonderful way to go for the quiet girl at the party – a much deserved respite for a life well lived. God speed Pat. We will never forget.
No coward soul is mine,
No trembler in the world’s storm-troubled sphere;
I see heaven’s glories shine,
And faith shines equal, arming me from fear.
-Emily Bronte
It strikes me that we are in a new era for investing and have been since 1990. As an investor you always recoil from saying it as you fear becoming this generation’s Irving Fisher. Fisher was a renowned economist who weeks before the 1929 crash insisted that stocks had reached a “permanently higher plateau”. I have been seeing the same chart since I started in this business 30 years ago. It is a chart showing the range of PE Ratios on the S&P 500. I am ready to admit it. We are in a different era. It only took me 30 years. The era since Ronald Reagan and the idea that “deficits don’t matter” has put equity market valuations into a higher plateau. In the pre 1990 period we would have seen 12 as the median PE Ratio and 17 as the top end. Since 1990, 17 has been the bottom of the range. The higher end of the range is now 30-35. Currently, we are at a PE of 31 on the S&P 500. The last time that we saw valuations this stretched was in early 2000. Let’s compare the two periods. In 2000, interest rates were at 6% on the US Treasury while we are currently at 1.2%. The PE Ratios of the top 50 stocks in 2000 peaked at 31. In 2021 they are at 23.6. In 2000 the US government was running a budget surplus. Today, we are running the largest deficit in history in consecutive years. Policy, today, is more accommodative than it has been in any period in US history. As much as analysts are saying that valuations are historically elevated they are for several very good reasons and as long as those reasons remain – valuations will remain elevated. We can’t pick and choose which investing regimes we get to invest in.
It is a new era of higher valuations. It is not to say that the market cannot and will not go down. It is just that with interest rates so low and policy so accommodative we will see investors chasing things higher for longer. When we see the tremors we will alert you. The only tremor right now is fervent speculation and that can go on longer than you think. There are some tremors near Tesla but we will save that for next week.
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.