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  • Martin Sosnoff

Do You Remember Gasoline At 21 Cents-A-Gallon?

I surely do. It was late Thirties in the Great Depression. Pop drove a jalopy which took him down the long hill from Mt. Airy to the Harmon railroad station. Pop then got off at the 125th St., New York station, his tailor shop a nearby walk.

Early on, Pop explained how he turned off the ignition key to coast down the long hill to save on gas consumption. Gas was 21 cents a gallon, then, a Pepsi, 3 cents and a lollipop, just a penny. I got my treats, gratefully.

In the thirties, frugality was literally baked into our heads. Daily, mom served us baked potatoes topped with sour cream. A dish of Dugan’s day-old bread sat nearby.

By contrast, today, I still own pricey pieces of paper like Apple and Microsoft, as well as value stocks at 10 times earnings. Exxon Mobil and Occidental Petroleum come to mind. Elsewhere, I’m beginning to see my negative yield curve play work out. I’m long 2-year Treasuries, awaiting the closure in yield spread with 10-year paper. I just got a 10 basis point closure, but awaiting at least another 90 basis points.

I’ve learned my lesson. You can lose tons of money doing what appears to be a conservative thing like going long 2-year Treasuries, while shorting 10-year paper. Somebody tell me why this has happened. Are the players long 10-year maturites on the concept that recession is around the corner with lessened inflation then kicking-in and bonds rallying?

It’s like buying General Electric, General Motors and Royal Dutch Petroleum in the 1940’s and see them tread water for decades. Mother ran the family's capital then, using a “customer's” man for her trades. Pop would curse out “the Generals” as SOBs.

Decades later, going through mother’s steamer trunk, I discovered mildewed stock certificates. It was a tangle to claim past dividends declared, but I prevailed.

What’s to do now with NASDAQ 100 properties that have spiked nearly 40% in a lackluster setting? I refuse to dabble in Meta Platforms and it’s ilk because I can’t model their numbers with any certainty. Meanwhile, the analysts consensus quarter-after-quarter misses its numbers, badly, on revenues and earnings, invariably, too optimistic.

Still, some energy stocks sell at 10 times earnings – Exxon Mobil and Occidental Petroleum. Let energy futures tick down a few bucks and oils can stutter and go south. Bank stocks now trade below market multipliers, well under 15 times earnings. JP Morgan forever looks expensive to me while Citigroup is too cheap and hopefully get its act together.

In the sixties, I remember sitting with Motorola’s management who told me how they’d make back their investment in a huge new semiconductor facility near Phoenix within three years. I’ll go along with management who act expansive, but, on the initial whiff of fish, you bid them “sayonara.” No rationalization for bad numbers pays off, ever.

My old buddy, Gerry Goodman, now gone, once wrote a great column “The Day They Red-Dogged Motorola” . The Street erupted violently to Motorola posting disappointing quarterly numbers. There was no Internet or even cell phones then. Everyone dashed for the sole telephone booth. The office traders had to be filled in.

During the 60s, I luxuriated with Polaroid and Xerox, and then the music stopped. They never came back, but ended in single digit despair. Morgan Guaranty Trust learned their lesson on 1-decision stocks in the recession of 19 73–’74, and became a value player.

Today, there’s little emphasis on value paper. NASDAQ 100 was where the action took place, up nearly 30%. But, with Apple’s waffling all this could change. My gut says the value index can put away its growth counterpart. If recession kicks in, you don’t want to own Citigroup and it’s ilk. Exxon Mobil is cheap paper, but could be ignored on faltering crude oil futures. You can still find stocks at 10 times earnings. Plenty of disbelief, too, on so-called misfits.

For me, wage inflation is scary, a big negative that so far the Fed is restive but uncommitted to fight head on with higher Fed Funds rates. We’ll see. Remember Paul Volcker hoisted rates to 15% and the market spiraled down to 10 times earnings. We’re still at 20 times estimates now.

To date, our FRB is vacillating, but this could change and it’s not built into the averages. A snappy 10% correction everyone would comprehend

No time to be an aggressive player. I’m 50% long so I wince on up days in the market. It’s no rose garden and gas ain’t 21 cents a gallon.

Great Blue Herons make soft landings in the waters, not investors playing growth stocks.

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