On The Hands Analysis
Let’s do some “on the hands” analysis.
On the one hand, the markets continue to look past the risks from the impact that the Delta variant and the lack of (good) vaccine access for much of the rest of the world. Also, China’s vaccine isn’t working all that great. On the other hand, earnings have been very strong this quarter and guidance hasn’t been all that bad either, so it makes some sense that the markets are looking past those risks.
On the one hand, everybody’s in the pool and most people seem fearless and/or outright greedy when you talk to them about the markets. On the other hand, most people have more savings and more cash and a better personal balance sheet than they’ve ever had.
On the one hand, valuations look quite stretched for most large cap stocks, especially those that trade at 50% higher P/E ratios than their historical average. On the other hand, margins have been expanding and earnings growth has the potential to make those forward P/E ratios shrink even if prices stay here (or if prices go up but go up less than earnings).
On the one hand, I’m sure there are still hundreds of recent SPACs and other stocks that are headed to zero over the next year or two. On the other hand, I’ve found two new names (ABNB and INFI) to add to the portfolio in the last couple weeks.
On the one hand, the risks of the Chinese government ratcheting up regulation is real. On the other hand, I don’t think they’re going to pull their stocks from the US exchanges and the risks were at least partly priced in when I snuck in and bought some Chinese stocks (JD, MCHI, TCEHY) a couple weeks ago. I left room to buy more if they come down again in another panicky sell-off. Otherwise, I’m sitting tight on these positions for now.
On the one hand, the three major indices are basically all at all-time highs and have been acting very steady. On the other hand, the small cap indices are 5% or so off the highs that they made back six months ago and haven’t made a serious run at those highs since.
By the way, I think there’s a lot of similarity in the bifurcated action of large cap vs small cap stocks and that of the crypto currency markets. Bitcoin is the DJIA. Ether is Nasdaq. Throw in XRP, Dogecoin and the other top five or ten largest cryptos and that’s your S&P 500. But whereas maybe 10% of the small cap stocks that trade publicly right now will be headed to zero in the next three or five years, probably 90% of the smaller cryptos out there are headed to zero.
On the one hand, inflation is still clearly troublesome. On the other hand, how many companies and people have been double-ordering things to try to keep things in stock, (which means that whenever supply does catch up with demand there might be some serious deflation trends that kick in as demand ratchets back down and the double-ordering stops)? It’s going to be hard for companies to manage their margins when supply finally does catch back up to demand in semiconductors, for example.
My six year-old daughter, Amaris, has Trisomy 13 and she doesn’t walk or talk, and we’ve been doing a new therapy with her that has helped her learn to sit up and directly engage with us more than she ever has. We’ve been doing this over Zoom, obviously, because of the pandemic. But we scheduled a special one-on-one in person ten day therapy session for her in Austin a few months ago and we are going to drive there this Wednesday. We won’t be going out to eat or anything else that would require us to be around people unnecessarily in what has become a hot spot for Covid in the last week or two, but we are still going to make the trip.
Because of this trip, I won’t be writing the rest of this week and we won’t have a chat. On the other hand, I will certainly send out a brief Trade Alert if I do any major moves. Otherwise, I’ll see you next week.
