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  • Martin Sosnoff

Never Cried For Eva Peron

Nobody believes me when I tell them how I sold newspapers in front of Yankee Stadium when I was barely six years old. It’s true. My brother George, three years my elder, introduced me to Fats, the genial newsstand dealer who would give us 10 New York Suns and Journal-Americans. These were the afternoon papers that front-paged box scores and Aqueduct’s racing results.

In the 1930’s, baseball was solely an afternoon game, starting at 3:00pm. No field electric lighting. Games were called on account of darkness. The “break” when the crowd emptied out of the stands came early evening. You needed something to read as you strap-hanged on the shoulder-high loops that dangled in the subway car that you took to Times Square or more distant station stops.

I made a penny on a 3-cent newspaper. George, my bigger brother and more visible to the “break” crowd, would sell 20 or so papers and was Fats’s favorite. “Paper, paper here! Latest box scores.” George’s voice carried better than mine. Fifty years later, Mike Milken would paraphrase what I had learned as a street kid., “You’ve gotta give em what they want when they want it” It was his way of coaxing out a block of stock when he had the other side of the trade.

A good trader goes for both sides, buyer and seller. Milken understood leverage; at 6 years old, I had no clue. In the seventies, Mike explained to me his MAD ratio. When the market value of a stock is greater than the market value of its debt, the company is financeable, nowhere near insolvency. The reverse of First Republic.

Lest we forget, Sancho Panza begged his master, Don Quixote, then on his deathbed, to rise up, so they both could venture forth, again, and tilt at windmills.

Like Eva Peron, I don’t need anyone to mourn me. After all, I still pole vault out of bed at 6. Then work out with 20-pound weights. You won’t ever see me pictured as a retired grinning idiot, telling how I got along with $1,900 a month income plus annual Social Security of $32,000. The near revolution in France over raising retirement age from 62 to 64 is indicative of a mindset that has lost its get-up-and go for got up and gone.

Meanwhile, at home, wealth management, as perpetuated by our big banks is a big mess. The 60/40 ratio of equity to debt holdings no longer is working for passive investors. They shudder at the notion of overspeculation, actually any speculation. But suffering shows no end in sight. Silent Investors, silent losers.

Our major banks hold trillions of assets under management. Client losses past year ran into the teens and so far 2023 is nothing to write home about. Aside from survival issues for banks, this profit center is in a constraction phase.

For those not in the clutches of wealth managers, the issue is how spread your assets in markets that churn viciously, both debt and equity sectors. There’s still too much overvaluation built into the S&P 500, and in Treasuries.

Even corporate bonds are chancy because the yield on prime credits is still too low. I prefer BB corporates yielding 7% for 5- year duration paper. The spread over 10-year Treasuries is over 300 basis points which is good enough for me. I can’t rationalize the negative yield curve between 2 and 10-Year Treasuries, so I own 2-year paper, but so far I’m a loser and one dumb bunny.

I can’t put a number on political risk in the world, except we are in a pressure cooker. Still un-recognized in financial markets. Punditry today is solely focused on whether money market rates go much above 5%. The answer is nobody knows!

The Fed focuses on the Personal Consumption rate of inflation, but is clueless on predicting whether we surge past 5%. Wage inflation numbers still scary, but nobody seems to care. I care and it’s a worrysome number, running over 5%. Actually double for the recent pilots’ union contract.

What worries me the most is the stretched valuation level of the S&P 500 Index. Everyone, sooner or later, must deal with-at least in its historical range.

Eerily, nobody is paying much attention or cares to pontificate whether the market is fairly valued, undervalued (no way) or overvalued which is my cause. I can’t remember the last time I was 35% invested in equities. I can go as high as 150% long when I’m turned on.

A couple of years ago I bought ragamuffins like Halliburton, US Steel, Alcoa, American Airlines, Freeport McMoran, and Citigroup. All of em doubled or more over 12 months’ trading. I’ve long kicked them out excepting American Airlines. This is a wild card based on the possibility of rising airline traffic, both personal and corporate sectors. I like to hold at least one wild card. But, unlike Buffett, I can’t bring myself to put 40% of my assets in Apple, or a controlling position in Occidental Petroleum. I carry a 5% position here.

Back to the elongation of all equity indices, Dow Jones, S&P 500 and NASDAQ 100. March of 202o the Dow bottomed below 2000 and over a year ago peaked around 3700. The S&P 500, what polite money invokes as its measurement index, presently, pushing near 4000 could easily correct 20% and still sell at 15 times earnings. Such is fair value, normally, but no bargain. A market at 20 times earnings is actually vulnerable to an earnings decline or worse, prolonged interest rate escalation.

The market and the FRB totally ignored risks on bank balance sheets. For First Republic the ratio of its savings to net worth exceeds 4 to 1. This compares with a JP Morgan ratio closer to 2 to 1, what is rational. Where were First Republic’s outside board members? Did they comprehend such a risk ratio in a time of savings outflow? No way!

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1 comentário

Dave Martin
Dave Martin
03 de abr. de 2023

I like the stories about when you were a kid.

I would be happy to see more of them.

David Sosnow

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