Oh! That Shanghai
Don’t Bet Your Money On The Shanghai
Bet Your Money On The Chicken In The Middle
Don't Bet Your Money On The Shanghai
Like Warren Buffett, my mind works in 10 year intervals going back over 60 years. I remember when NASDAQ touched down at 1100 in 2002. Today we’re at 17,000. Going around the clock 18 times is heady stuff but the hands work both ways. There were years when even IBM got into trouble. The data processing industry decades ago was changing too fast for their overcommitted management to keep pace. The pursuit of growth entails a double-edged sword.
Today’s NASDAQ 100
By Percentage Weighting
Microsoft 8.8%
Apple 8.2%
Nvidia 5.6%
Amazon 5.2%
Meta-platforms 4.9%
Alphabet 4.7%
Tesla 4.5%
Costco 2.4%
Advanced Micro 2.1%
Netflix 1.9%
Such 10 entities account for nearly half this index. Actually, Microsoft has dished out Apple as Numero Uno. If you’re bullish on NASDAQ 100, forget the S&P 500 which is comparatively stodgy. Dow Jones Index to get more competitive has upscaled with growth names. It is no longer a stodgy old fashioned list of GDP companies.
Today, The Magnificent 7 covers NASDAQ and NASDAQ is the magnificent 7 in terms of stock asset weighting. Back in 1972 JP Morgan’s 1-decision portfolio too was supposed to be a compilation of growthies good till the end of time. Morgan‘s portfolio as of yearend, 1972, showed Walt Disney, Schlumberger and Polaroid selling at a premium to the S&P 500 Index, running as high as 390%. Even Eastman Kodak sold at 165% of the S&P 500.
In my book “Master Class For Investors”, I termed NASDAQ as a gigantic car wash emporium that used dirty water and normally soiled its users. The market, at its peak in 2001, sold at 25 times earnings, but was unsustainable and plummeted to below five times earnings a couple of years later. Currently, I’m packed with 2-year and 10-year Treasuries. They don’t yield so much less than high yield BB debentures, yet to see their day in the sun.
NASDAQ currently 17,000, touched bottom at 1,108 in 2002.
The market sniffed recession coming from all the excesses by banks in writing mortgages with phantom asset coverage. If your entry point in NASDAQ is near its top, you can destroy yourself. The FRB doesn’t care what happens to you. Lower stock prices put downward pressure on interest rates and inflation, what regulators yearn for.
Early 80’s the FRB put up interest rates to 13 to 14%. Home builders mailed to Paul Volcker 2x4’s in the shape of crosses. Earlier, I would curse out McChesney Martin when he escalated margin requirements to 90%. How could I possibly operate and get rich in the 1960ies? JP Morgan then denied me a home mortgage, claiming they had bad experiences with loans for one-of-a-kind properties. I went elsewhere and years ago my “one-of-a-kind” home mortgage got retired.
In Warren Buffett’s current report to shareholders, he brags about the longevity of his holdings, particularly Coca-Cola, American Express. But nothing is forever. Berkshire moved out of heavy positions in newspaper stocks which Warren had called “toll takers” because of their monopolies in major municipalities. But the business changed in broadcasting with the internet. Buffett sold out. Meanwhile, an operator like Rupert Murdoch came to the U.S. from Australia and built his News Corp. into a major player in broadcasting and the Internet. Rupert saw clearly, Americans loved sports broadcasting, he pointed out to me decades ago.
If Buffett and Jamie Dimon are peeling off blocks of their shares in their company, why should any of us consider owning Apple and JP Morgan? The macros have to get much better, specifically interest rates, inflation, and corporate earnings. I am too cowardly to make such a call, so I’m sticking with my hand of 40% long and a bunch of Treasuries.
Let the Russians pull out of the Ukraine. Gimme soft oil futures and a prime interest rate of 4% not 6%. Home mortgages at 8% wax punitive for prospective homebuyers. I’d go from 40% long to 80% long in a shot.
Few bulls in commodity cyclicals like steel, copper, aluminum, even for the oils. Bank stocks no longer are cheap. Nobody can give me a rational supposition why we have the negative yield curve in Treasuries or how it unwinds.
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