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Monday, July 22, 2024

2024-07-22

 ***** denotes well-worth reading in full at source (even if excerpted extensively here)


Economic and Market Fare:




Bubble Fare:

***** Hussman: You’re Soaking in It

On Tuesday, July 16, our most reliable gauge of U.S. stock market valuations hit the steepest extreme in U.S. financial history. We cannot, and do not, assert that this places a “limit” on speculation – even the previous January 2022 peak slightly exceeded the high of 1929. In our investment discipline, valuations are not enough. The uniformity or divergence of market internals is critically important (particularly following our 2021 adaptations), and we also attend to syndromes of extremely overextended market conditions. Our discipline does not rely on forecasts, scenarios, or projections of market action. Instead, we try to align our investment stance with observable, measurable market conditions as they change over the market cycle. Still, there’s a very rare set of market conditions extreme enough to deserve a “warning.” As Madge said in the old Palmolive dish soap commercials, “you’re soaking in it.” ...........................................





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Five reasons to question the frenzy behind the technology


Huber: Walter Schloss, Nifty Fifty, Current Market Valuations and Opportunities

I was going to say there is good news and bad news, but like the wise turtle from Kung Fu Panda says, “there is just news, there is no good or bad”. This post has my thoughts on how I see current market conditions and the opportunities it’s creating (which is the good news part).

With the S&P 500 trading north of 25 P/E and many of the world’s great companies trading at 40 P/E or higher (Costco is now at 55 P/E!), I think we could be at valuation levels that might lead to disappointing results for these stocks over the next 5-10 years, even if the businesses continue to do well (which I expect many of them to do).

A cut from 40 P/E to a more normal 20 P/E is difficult to overcome over even a long period — a stock that grows earnings at 12% annually for a decade would lead to just a 4% annualized return in the stock if the multiple fell by half over that time. Most of the world’s best businesses today will not grow at 12% annually over the next decade (though a very select few might). It’s far more rare than people realize, especially for companies that grew this fast or faster over the previous decade.

I wrote a post recently about how the largest tech companies are looking very different than they were just five years ago. If the AI spending boom slows down or if demand for AI proves to be somewhat less than expected (or takes longer to materialize, which is what happened in the late 90’s telecom/internet boom), then some of these companies will have excess capacity and lower returns on capital. They became great stocks in large part because their ROIC’s were sky high coupled with a starting valuation of 10-15 P/E in many cases (AAPL, META, MSFT and GOOG all traded around this level or cheaper at times last decade). Now we’re faced with the opposite: much more capital intensive businesses with much higher starting valuations closer to 30-40 P/E.

These are truly great companies and many of them will have continued strong fundamentals. I’ve owned stock in a few of these over the years and I’ve never been opposed to mega-caps, but as a group, I think these stocks have become much riskier. Durability in an investment comes from paying a price that is far less than the stock is worth (a margin of safety). Fragility comes from doing the opposite. Stocks of the world’s best companies can fall into either of those two groups depending on price.

So what’s an investor to do?

The good news is there are lots of opportunities to find great value outside of the mega-caps currently (see a few examples in my recent archives). I think there is an interesting valuation gap emerging between the largest 25-50 stocks and everything else. This has happened numerous times in the past where the large high-quality stocks became expensive while bargains existed elsewhere, most famously in the early 1970’s and the late 1990’s. Both of these periods were followed by a multi-year correction where the expensive stocks fell and the cheapest stocks soared. ...........

I recently re-listened to this guest lecture he gave in 2008. Sometimes it's helpful to go back to basics. Schloss was focused on downside protection, which he prioritized through investing in stocks that traded below an easily identifiable net asset value (he often used tangible book value) and that also had great balance sheets. He used the numbers and ran an insurance type approach that utilized the law of large numbers approach where any one stock might not work out, but “if you have 15 to 20 of them”…

It's amazing how simple Schloss's strategy was and how well it worked. He must have mentioned 10 times "I don't like to lose money"  ...........


Universa’s Mark Spitznagel, who has made billions from past crashes, sees last hurrah for stocks before severe reckoning

............... But now he sees a major selloff approaching with stocks potentially losing more than half of their value. Yet predicting even approximately when the market will crash is a lot harder than hedging a portfolio against it—many would say impossible. In the same way that so many fund managers and strategists always sound optimistic, scary talk sounds like a shrewd marketing exercise for someone insuring against tail risk.

“I think we’re on the way to something really, really bad—but of course I’d say that,” joked Spitznagel in an interview this week. ...............

Spitznagel predicts an even worse shakeout than a quarter-century ago because the excesses are more extreme—the “greatest bubble in human history.” High public indebtedness and valuations make a Washington-led rescue harder to pull off. He sees today’s benign slowdown in inflation overshooting and says the U.S. economy could enter a recession by the end of the year.

The ominous language Spitznagel uses to describe the macroeconomic situation is a “Mega-Tinderbox-Timebomb.” ...........



Vid Fare:

Charts:
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(not just) for the ESG crowd:



Pettifor: Global Economic Governance: What’s “Growth” Got to Do with It?
An obsession with growth has generated massive inequality, undermined global economic stability, and weakened faith in democracy. Reversing these trends requires reining in the power of financial capital and managing global trade flows.



Geopolitical Fare:

Genocide Monster Drops Out, Endorses Fellow Genocide Monster

President Biden has caved to mounting pressure to drop out of the presidential race due to widespread concerns about his obvious neurological decline, bowing out and endorsing his exact ideological clone Kamala Harris. Apparently the consensus is that he’s too demented to run for president, but is not too demented to actually be president for the next six months.

And hell, whatever man. This means nothing and changes nothing, other than perhaps arguably somewhat diminishing the likelihood of a Republican empire manager being sworn into the White House in January. Harris differs from Biden only in voice and appearance, and has been an enthusiastic supporter of Biden’s genocidal atrocities in Gaza over the last nine and a half months.

Harris, assuming she wins the nomination, will campaign on the promise of continuing Biden’s incineration of Gaza, continuing Biden’s “ironclad” support for Israel, continuing Biden’s proxy war in Ukraine, continuing Biden’s escalations against Russia and China, continuing Biden’s expansion of the US war machine, continuing Biden’s facilitation of ecocidal capitalism, and continuing Biden’s dehumanizing policies of worldwide exploitation and imperialist extraction. If she gets into the White House the face of the operation will change, but the operation itself will not.

And the same will be true if Trump gets in. Every few years the US empire has this weird little festival where it pretends the government is changing hands and will now begin operating in a way that is meaningfully different from the way it was operating before. But then exploitation continues, the injustice continues, the ecocide continues, the wars continue, the militarism continues, the imperialism continues, the propaganda indoctrination continues, the authoritarianism and oppression continues.

The behavior of the empire is no more changed by getting a new president than a corporation is changed by getting a new secretary at the front desk of its main office. 

Much will be made of Kamala Harris’ race and gender. Much will be made of the fact that she is not Donald Trump. Much emotion will surround her campaign. And then, whether she wins or loses, nothing much will change. ........



Sci Fare:




tweet pic of the Week:



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