If The Fed Won’t Budge Cut To 40% Long

My picture gallery of Fed Chairmen dates back to early sixties when they carried big sticks. Does anybody but me remember McChesney Martin? I was a fully invested $10,000 player then. What mattered was paying 9% interest on my debit just so long as I felt my picks would take me to the moon. 

If you were around for Syntex’s birth control pill, or Xerox’s 914 copier installed in your office,  you know what growth means. I was too young for Polaroid’s long distance run. The breakout in technology with American Telephone’s invention of the electronic transistor which did away with wires and slow data transmissions. 

AT&T licensed its transistor to all carriers, early sixties. Motorola and Fairchild Camera proved powerful properties for years and years. Throw in color television, a must for everyone. 

Early sixties, utilities sold at 30 times earnings. A 9-figure portfolio under 10% in utilities was unthinkable. Analysts toted long slide rulers and felt secure in this sector. But, step-by-step, values got cut in half over 10-years. Utilities rapidly lost their long credit ratings while growth stocks sold at 8% yields. Interest rates surged from 4% to 9%, even for big Telephone in 1970. Nobody remembers much about disjointing markets but they’re recurrent. 

Suddenly, one morning in early November I felt the market could snap back. A meeting with the Fed’s economists convinced me they were panic stricken about the economy and would do anything to pump money into the system. 

I dreaded the bond market where yields were at 8.6% to 9%, my borrowed money at 7.5%. I picked out a couple of corporates with 10-year call protection.   Bonds immediately started to rally, something not done in the entire postwar period. 

Money management is all about making simple decisions and committing tons of capital. Panic by the Fed was the basic catalyst here. The eerie quality of the early seventies market was the foreshortening of the confidence factor with each successive cycle. General Motors and Dupont both reduced their dividends early in 1975. A few years earlier who woulda thought this possible?

Arthur Schlesinger once said after he left the White House that one of the sidelights was that he could never again believe everything he read in the newspaper. The way the Wall Street Journal can panic on a negative think piece is just a shabby sidelight on how money was managed past 50 years. 

During 1973-’74 the conceptual framework of the market was torn apart. Earnings power had collapsed. No FRB action could counter the deep recession. Today, the debate is over cutting interest rates maybe a quarter to half percent. But it may not be enough,  just a spat in the ocean. Nobody is talking 

about a massive discount rate cut. 

My biggest positions are Amazon, Microsoft, Apple and Goldman Sachs. But my invested position stays at 40%. Sometimes cowards are winners. What would I do if I suddenly turned bullish? That’s easy. I’d just wade into some Apple, Microsoft, Amazon, even Goldman Sachs, maybe an energy play like Berkshire Hathaway. The market would fill me in  minutes and hopefully, I’d go to the moon.