On the eve of the end of hostilities in the American Civil War, cotton traders began their flop as raw cotton prices tumbled. Traders hadn’t considered early reassumption of the South’s productive capacity, plus new capacity from China, India, and elsewhere.
Even the Sassoon family, Arabic Jews, got bruised. The Sassoon’s had forged their family fortune in opium trading. Their house was comparable with the Goldman Sachs of today with a presence in Hong Kong, Bombay and Calcutta. In 1842 the Brits dispatched an expeditionary force into China and opium trading was legalized.
On the eve of the end of hostilities in the American Civil War, smart, Oriental cotton traders began to drop like flies. Nobody had anticipated what the war's end would do to the price of cotton, worldwide. Prices collapsed overnight. During the war, sizable cotton production in China, and India had tapped into world markets.
Even the Sassoon family of enterprising Arabic Jews was caught long cotton. Trading opium worldwide bailed them out. The family allocated 1/4 of 1% of its earnings to charitable causes. In those days, this was unheard of, but broadley noticed. Such an act would be laughable today, but not in the mid-19th century business world, The Sassoons, then communicated with their operatives using a mix of Arabic and Hebrew, an effective secretive code language.
Past couple of hundred years, nothing much has changed as to volatility in commodities markets. Volatility, forever a given, and the penalty for being dead wrong deals out total bankruptcy. For me, the major investor misconception today is the valuation structure of the stock market itself . Its price earnings ratio rests at least 30% too high. Growth stocks still trade in the sky, even after several haircuts of 50%. I’m talking about paper like Meta Platforms, Amazon, Alphabat, Tesla, Netflix et al.
The consensus of analysts hardley wavers much, always bullish. Some 4 dozen analysts adhere to their recommendations. There’s a couple of neutrals and, a few outright “sells.” Nobody ever gets his earnings projections close to reality, quarter after quarter. Management guidance forever unusable.
My deep basic is no property should ever sell at more than 2 times the market's earnings multiplier. Further, the market should sell at 15 times earnings because earnings, price earnings ratios and valuations are unpredictable. Jay Powell, whatever he does, will be wrong, most of the time, particularly on inflation in the country.
The preent forecast on interest rates and inflation, clusters around a peak of 5% for interest rates with inflation set to peak at 7% soon. If you believe this scenario, you are entitled to pursue a fully invested portfolio structure. Just remember what happened to the price of cotton when our Civil War ended in 1865. I still don’t understand why even the Sassoons ignored the predictable price impact on cotton.
Does anyone today give any weight to the price history of growth stocks? I used to promise my clients in the early 60s that Polaroid would appreciate 2% monthly, then a conservative projection. Back of mind, everyone should appreciate that the life of a prime growth stock lasts no more than approximately five years.
NASDAQ’S 100 TOP 12
YEAREND 2001 CAPITALIZATIONS
Today, even for traders, the penalty for being wrong on a stock or an industry sector has escalated from 5% overnight to as much as 10%. Buying the American dream can cost you big time. Sometimes, like in airline paper, the price swing gets as high as 10% as it did past week in American Airlines, Delta and United Airlines. Even Microsoft and Apple can turn ugly, overnight. Same goes for bank stocks like Citibank and Bank America. No exceptions.
Bernie Baruch’s quip applies here, Told a worried investor to throw away his paper sheet covering his portfolio “Sell down to your sleeping level,” BB tossed out. Nobody, bar none ever gave out free and better advice.
I’ve done this, now around 30% long, but the Great Humbler still collared me. I put 40% of assets in 2- year Treasuries and they’ve faded badly. Now yielding 4.2%, I’ve a fat loss for doing what seemed conservative on its surface. Yes! I know, hold to maturity and get whole, again. Who would’ve dreamed that a negative yield curve could develop between 2 and 10-year paper? But it did so and I look foolish. I haven’t owned Treasuries, ever, over 60 years of trading. This is not a question of selling down to the sleeping level. If you can’t sleep, owning 2-year Treasuries, buy 90-day paper.