Santa and Reindeer in Macy’s Parade
I’m a realist. Consider, Santa Claus had me arrested when I was 10 years old. I will never forgive him. My beat was outside Macy’s on Herald Square where I hawked balloons during the Christmas season. Santa and I were both pushing cat balloons but mine was a superior product, thicker rubber, black whiskers and pointy ears, I was undercutting the white beard’s prices. Fast as my air pump could blow up the goods, I was selling out to a crowd of mothers clutching excited 4-year-olds.
I could sell out half a gross of balloons, and make at least 30 bucks net of costs. My pockets bulged with crumpled dollars, but in the end, I was collared by a long-nosed detective and pulled into their makeshift station house, grilled harshly for 2 minutes.
Anyone who grew up in the tough blocks of the East Bronx during the thirties knows Charles Darwin personally. The bucolic days of my youth were spent in jailings and muggings. I graduated to selling souvenirs at Yankee Stadium football games, Army vs. Notre Dame. The police weren’t my friends. I was the Artful Dodger that Dickens depicted in Fagin’s gang of operatives.
When I was 12, I tried to bribe my first cop, but it didn’t work out. I was pulled in but didn’t give ‘em my right name. Called myself Percy McGillicuddy. When the old Irish cop doing the intake asked me what my father did for a living, I told him Pop was gone, run over by a Sheffield Farms milk wagon before they had rubber tires. The cop looked up and told me to “Get the hell out of here,” and I did so.
I think the term teenager sprouted in the early forties, but I never knew what it meant excepting you had to be very rich to be one. Simply I was a young punk on his way to becoming a hood.
The Great Humbler, of course, is the Big Board. Sooner or later, you’ll zig when you shoulda zagged and whoosh, down go your pants. “Jeez! I shoulda seen that coming” is the phrase echoing through the halls.
Lest you think you can learn from your mistakes, I caution you that I have learned very little from mine. Forget each year and start off fresh. The forces at work shaping stock prices change continuously. It’s only by recognizing very early the pivotal facts in a financial cycle that you can develop a point of view as to whether the game is worth a shot.
Deep basic, the market is fully priced, based on my historical valuation yardsticks: Inflation, interest rates and price-earnings ratios - all volatile, subject to change as much as 50% during a cycle. Fail to react in time and you’d pay up dearly.
Aside from professional short sellers, almost everyone else is a subliminal bull. The market thrives on growth plus a story that hopefully unfolds for years to come. Analysts extrapolate numbers to recommend stocks in their zone of interest.
I’ve an MBA with a Chartered Financial Analyst designation, but it’s my years in the Bronx that prepared me for Wall Street. Early on, I learned how to stand alone. They say “You can take the boy out of the Bronx, but you can’t take the Bronx out of the boy.” Right on the money!
So how do I see the investment setting in the new year? First, discount forecasts from major houses like JPMorgan Chase and Goldman Sachs. Money management is a major profit center for them. Billions. Both manage trillions and rotate their pie-chart kinda investment constructs that pretty much work out to a 60/40 ratio of stocks to fixed income investments.
They cover dozens of categories, worldwide, but avoid highly-volatile sectors like NASDAQ 100 Index. In a bull market, NASDAQ puts away the S&P 500. If you’re still insanely bullish just tack onto Apple and its ilk, cross fingers and hope growth outperforms value paper like Exxon Mobil and Ford Motor.
High-priced growthies like Polaroid and Xerox made me rich in the sixties, but I’ve recently sold-out frothy positions like Amazon and Meta Platforms. Unanalyzable paper, like Tesla, I’ve never owned. I’ve spent the past year building a value portfolio that embraces Exxon Mobil, Ford, Alcoa and several banking properties. These include Citigroup, Bank of America, Morgan Stanley, and JPMorgan as well as Goldman Sachs. The concept is simplicity itself. Interest rates head much higher. The FRB is way behind the curve and needs to catch up. I remember rates as high as 15% in our country, not 1.4% for 10-year Treasuries.
A recession related to the spread of COVID is at least an even-money situation. Therefore, I’ve migrated serious money into the healthcare sector. My picks are Zoetis, UnitedHealth Group and Pfizer.
In the high-dividend payout category, I’ve added Exxon Mobil. Elsewhere,
my MLP picks yielding 6% to 8% remain stillborn but they're too cheap to sell out. Enterprise Products Partners and Williams Companies are my picks.
My sole concentrated holding in tech is Microsoft which is too low-cost for me to kick out. Same goes for Alcoa and Macy’s.
Lemme sum it up: Interest rates work much higher. Value stocks outperform growthies which mostly have gotten too expensive. I find it hard to accept that GDP can grow at 3% to 4% next couple of years. I’m closer to 2%. If inflation runs at 3% to 4%, there’s no money to be made in financial assets, both equities and fixed income paper next 12 months or so. Biggest gut call?
Don’t expect to see a rose garden.