Interest Rate History Confirms Stocks Playable

My historical chart on interest rates for 10-year Treasuries is food for the bulls. Rates at 4.1%, inflation is a dead issue-for now. So run along children and dabble in the magnificent seven. 

Does anyone remember 2% Treasuries? Well, we got that low and as high as 15%. The current 4.1% rate on 10-Year Treasuries suggests inflation is a quiet issue.  How else explain the stock market at 20 times earnings power? 

Courage ain’t even mentioned by big banks, just their diversification. If somebody cites pie chart diversification, run for the hills. When’s the last time you reviewed stocks in the NASDAQ 100 Index? 

I’ve pressed ahead from 30% invested to 45%. The next 15% on the table probably adds to what I already own. Never look back.  Keep repeating to yourself “never look back.”

Does anyone but me remember how Douglas Aircraft bankrupted itself by underpricing its upcoming DC-9 aircraft? They took hundreds of orders that couldn’t be fulfilled where they had priced them. What saves Boeing from all its stupidity is its strong balance sheet and free cash flow.

One trading rule is not obvious: Never invest in a company with a skimpy balance sheet and minimal free cash flow.  Playing ragamuffins a step away from bankruptcy is a different business best left to junk peddlers with hard hats. 

I grew up in the East Bronx where the concept of free cash flow didn’t percolate. Mothers used the example of the Lindbergh baby kidnapping as what can go wrong beyond your control.

In 1939 the price for a pound carton of sugar cubes was 10 cents. When the price got hiked to 11 cents, mother went bananas. She looped down over the kitchen table a sugar cube attached to a thread. Dinkers would gaze up to the dangling sugar cube while sipping their coffee, satisfied.

The concept of hardship and survival also applies to the stock market and money managers.  Earnings get capitalized anywhere from 10 to 40 times for stocks whose fortune can waver dramatically. Look at Tesla. 

(To be continued next week)