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AM Brew, May 9, 2022
Its the end of the world. Sell everything at backdated prices, move to Mars with Elon.
Monday morning futures are volatile but its looking like a down 2% open. Biggest shock is Bitcoin down -5% and trading below $33,000. Sentiment on Friday turned even more negative after dour employment comments from Chinese Premier Li Keqiang. Bloomberg is hinting this morning that treasury yields may be foreboding further tech downside:
Lol but RIVN is down 11% pre-market to $24 as Ford is trying to sell their huge stake at a discount. Too bad we didn't short more at $140, only to watch it trade higher for a week. Australia's dollar fell below the critical $0.70 mark and India's rupee is trading at all time lows. Rumors are that India's central bank is intervening in the currency.
Non-markets wise, Vladimir is speaking at Russia's "Victory Day" celebration and the Philippines is braced for unrest of Marcos Jr wins. Risk assets are trading down across the board with bonds weak, stocks down 2%, bitcoin off huge and gold & oil are also weak this morning.
This period reminds me exactly of the 2020 bear market: tech unravelling from complete insanity, energy strong off very cheap lows, boring companies like Coke-a-Cola rising as capital flies to safety. Unfortunately, back then, we were long energy and short tech for the majority of assets - this time not so well positioned but sitting on a pile of cash has helped, as we got out of all crazy longs in October. Our advice: if you have positions that are dodgy, get out with your 20 cents on the dollar, but stick with the good stuff. Companies like GOOG & MMM are good long-term holds at these valuations.
Buffett made a comment about Bitcoin that "it can't do anything" - he advised people to invest in productive assets: good companies, apartments or farms - the idea is that a productive asset can growth with the economy and will do well over the long run. Bitcoin probably triples from here, but you can't own too much of it, and the majority of your investments should be in reasonably priced productive assets. Growth oriented investors should look at buying stock in Google at these prices:
Google's triple bottom indicates a stock coiling for a big move either way. Lean long on Google: its an unbelievable growth company with strong margins, balance sheet and cash flow. Look for a spinoff of all the losing businesses later in the year: Waymo self-driving & Quantum computing could be both exciting and instantly accretive to earnings.
Last time in 2018, Powell blinked when the S&P was down 20%, indicating a reverse in Fed-speak if the S&P500 approaches 3850. At this point, if you are not already short, it makes sense to look for potential buys. Set your levels: don't buy CVNA at $44 if you think it looks attractive at $23. One helpful thought process is to step back and think about your portfolio in productive terms. For example, I own MCD (McDonalds): are people eating more or less hamburgers and what is the implication of the rate increases on my hamburger stands? I own GOOG: how has GOOG done in different rate environments since its founding in the late 1990s? Is advertising overly sensitive to interest rates? I own MU: is DRAM capacity outstripping economic growth? Thinking about your stocks rationally in a time of panic will keep you calm as you focus on the long run and not the mark-to-market impact of a mini-bear. If people stop eating hamburgers, companies stop advertising and semi-conductor memory turns down, then I am screwed. This is the way to think about it, assuming normal valuations. If you were trained to think about investments out in Silicon Valley by looking at price/sales ratios, you need to hire a competent financial advisor and re-learn investing. There is comfort owning solid franchises at
Lets look at some charts:
The contrast between the Bitcoin and Coke (KO) chart is striking: risk assets are down huge since late March but conservative stocks have done ok. The S&P500 chart shows some pretty prescient DeMark timing on the number 9 signals - its outside the bounds of the chart, but the market starts to get interesting with the S&P below 4,000.
One final word: we are orienting ourselves to be in the mindset that the markets are setting up for a potential "career trade". Today doesn't feel like the day, but we want to be ready to pull the trigger on a low-risk high-return trade if and when the market makes a mistake. If it is a stock, a trade like this might be 12% of capital and rise 50% over the next 6 months. Two trades like that and this mini-bear market will become a distant memory.
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