Hard Vs Soft Assets: Who Takes Home The Bacon?

I guess Sotheby’s would term me a well-healed player in the contemporary art market. My theme is perception, both in art and the securities market, which provided me the wherewithal to play. 

I came back to New York in 1954 after two years of combat service in Korea. This war has never ended. We have a truce with the North Koreans, nothing more after 70 years.

My sole possessions then were a footlocker and duffel bag filled with army fatigues, long underwear and woolen socks. I found my liberal arts degree from CCNY was worthless. No job offers forthcoming, excepting a trainee spot at a prominent advertising agency. You worked in the mail room for six months while executives looked you over. After leading an airborne rifle company in combat, I found this sop demeaning. But,  everyone told me I was crazy.

Starched white collar outfits like General Motors, US Steel 

 didn’t hire Jewish boys then. I never forgave such biased operators. Never bought their stock. When International Harvester bit the dust from their stupid expansion, I celebrated.

During the mid-fifties,  great art went for a song, namely, $1,000 bucks. I’m talking about Jackson Pollock, Mark Rothko, and Williem de Kooning. My buddies were young painters in Woodstock and lower Broadway. The going rate for a piece was $300. You paid it off $25, monthly, over the year.

Alfred Barr, headman at MoMA took Peggy Guggenheim and David Rockefeller under his wing. They bought the Pollocks and Rothkos I couldn’t handle. Today, ignorant honchos buy such works for $100 million, apiece.

Lemme tell one on myself. Mid-fifties Mary Boone offered me half a dozen Basquiat canvases at $2,500 apiece. I turned her down. After all,  this kid had just come in from chalking up subway cars.

Disregard reports on international art fairs to guide you.

Art Basel in Miami was hailed as a great success. Actually, work shown there was pretty mediocre. A bunch of B paintings for over the sofa. Nothing challenging in design, subject matter and coloration. What decorators purchase for their clients who remain pretty ignorant of the art world's leading edges. 

Nothing is simplistic. When you look at this table of stock prices vs. tangible assets, you find that stocks can consistently underperform tangible assets like art, gold and real estate. Underperformance can stretch for decades, like it did from mid-sixties into the eighties.

What’re we faced with today? Well, at yearend, the S&P 500 Index sells at approximately 20 times forward 12 months earnings power. As for the FRB, it’s breathing a bit easier. Nobody's talking any longer about raising interest rates, reducing the money supply or inflationary tendencies. The soft landing for our economy is now accepted as a given.  Oil futures turned wobbly. 

Looking back, Jimmy Hoffa, plumping for 7% raises for his Teamsters, now looks conservative.  But the Fed went crazy in 1985 and pressed interest rates to 15%. A deep recession then unfolded.

After digesting all the current stats, my deep basic is the stock market stands very pricey, historically speaking. It rarely sells for very long at 20 times earnings. Today the Magnificent Seven with trillions upon trillions accounts for most of the NASDAQ 100 asset base. Warren Buffett at 93, has chosen to take early retirement. Let someone else worry about Apple. Microsoft is my biggest position but I’m afraid to pare it down much. I think I can still model its earnings power next couple of years. Is this a concert?

My soft landing scenario prompts me to choose ragamuffins like Macy’s and American Airlines. I’m thirsty for 

paper, yielding 7% like Enterprise Products Partners.

Underweighted,  at 40% of assets I could be criticized for conservatism these days. True. 

After all, I started this journey in the late fifties and averaged 150% invested even when the Fed was working against me and all other operators, who used other people's money (OPM) to get a stake in the game.

Go Microsoft! Go Macy’s!