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  • Martin Sosnoff

Big Tech Too Rich To Love

On morning walks to the office, I used to cut through Central Park, coming from the West Side. Often, I’d visit the Central Park Zoo. Refreshing to see a lion swishing his tail so near to the General Motors building, my destination. I’d whistle at a zebra standing in the morning sunlight and get a blink or 2.

One keeper is offering an outlandishly blue-faced baboon, a swig from his hose while his cage is washed down. I find the zoo a great metaphor for our unruly financial markets.

Zoo cages certainly are not the African jungle. Caged animals may strike you as pretty, but they can be neurotic and deceptive, at times unpredictable. Dan, the camel may be auctioned off because he spits at visitors. Newly born lion cubs have just been eaten by their seemingly docile mother.

A mother lynx won’t let anyone near her cubs which she secures in a cardboard box. One of the cute Shetland ponies from the children’s zoo has been exiled to Brooklyn because he kept nosing the girl pony away from her oats.

If it’s so difficult to keep peace in a children’s zoo, what can escalating interest rates do to Apple, Meta Platforms and Amazon? Plenty! On the Street, rapidity of change in trend can make us all look foolish. Forget about what Amazon’s earnings look like in a couple of years. Its price-earnings ratio is now lofty and dangerous.

It’s time to pit conceptualist money managers against realists to dope out the investment cycle. Where to go and what to own? Symbolism and realism have prevailed in the arts as well as in financial markets. For me symbolists in the arts soar far above realists. But, realists in stocks own Exxon Mobil which yields nearly 5% and sells at a below average valuation. Let someone else own Amazon which isn’t defendable by its earnings.

In the arts, James Joyce and Marcel Proust got my readership. Norman Rockwell’s made a comeback in reputation, but the Abstract Expressionist canvases of Hans Hoffman, Joan Miró, Jackson Pollock and Mark Rothko captivated me. One rarely noted insight is that if you were early-on as a collector, you did better than venture capitalists. Consider, Basquiat, Pollock and Rothko sold for a thousand bucks per canvas. Early in their careers they were practically unsaleable.

On a serious down day for NASDAQ, off 2%, I noted Ford Motor buoyant, but Amazon shaky. There was money for energy, copper, even Macy’s and General Motors. Ragamuffins unite! You’ve nothing to lose but your chains.

Go against the grain. Prevailing wisdom today is that inflation is not so serious an issue. Furthermore, interest rates can show an upward bias, but remain benign. The consensus unites in a 50-basis point rise, a slithering upward as FRB advertises some tightening, maybe 50 basis points or so in the Fed Funds rate which incredibly rests below 1%.

This is nonsense. I remember 8% in previous cycles and sometimes 15% when the Fed believed inflation was the dirtiest word in our language. The foolishness of the Fed, of most central banks, is part of our financial history. Just keep in mind regulators aren’t your friends. They don’t care whether you make or lose money in the market or whether Microsoft sells at 30 times earnings or 20 times earnings or whether U.S. Steel and Freeport-McMoRan swing 5% intraday.

Categorically, growth stocks, particularly tech houses have flown too high for me, vulnerable to escalating interest rates, if not earnings shortfalls. Let someone else cotton onto trillion-dollar market capitalizations. Has anyone read Tesla’s proxy statement? Such largesse plowed into Elon Musk’s column disturbs me.

I still clutch onto my ragamuffins, starting with Citigroup. Then, I work down to Alcoa, Macy’s and U.S. Steel. My growth stocks aren’t so vulnerable to economic contraction. Zoetis, UnitedHealth Group and Pfizer aren’t outlandishly priced along with Home Depot. A trio of MLPs are my super-yield stocks: Enterprise Products Partners, Williams Companies and Magellan Midstream Partners.

For me, big cap stocks that I embrace carry modest valuation and are great inflation hedges. Exxon Mobil is up 50% from its 12-month low but fairly priced on forward 12-month earnings power. It yields more than BB bonds, 4.8%. This is as

close as you get to a widow’s and orphan’s stock that shows some pizzazz.

What’s proper valuation for technology paper? This historical chart says no more than 1.5 times the S&P 500 Index which now is still pretty extended. We’re close to 2 times market valuation currently so I’m on the sidelines, excepting for Microsoft where I hold stock at a low cost basis. Warren Buffett can hold American Express for over 5 decades. I’m still on my first decade with Microsoft, and dare not complain.

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