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The basic conundrum in investing. The reality versus the projections

The stockmarket is booming, again. Here’s this year’s three major indices. The blue one is the S&P 500.

Half the investing world thinks we’re going back to work and the economy will henceforth be honky dory. Hence rising stock prices. Back to full employment. In a blink of an eyelid.

The other half believes what a dear Conservative friend wrote me:

I’m almost convinced we will  be facing a near term and long term financial disaster. I need to rethink the makeup of my family’s asset allocation. We need to look at  investments clinically, without political bias and emotion.

I now believe Trump will lose in November and take the House and Senate down with him. Covid-19 will take its toll on his support which has been problematical anyway and the economy will rejuvenate much slower than planned, his heretofore ace in the hole.

These are the assumptions I’ve been formulating:

1. Republicans lose all three branches of Government. Democrats will mismanage the economy and health care.

2. No vaccine for Covid-19 is available for widespread use until 2022.

3. Problematic use  of mitigation drugs.

4. Antibody tests for immunity show too many  false positives.

5. A strong re occurrence of Covid-19 in fall and winter.

6. Continued skepticism about safety by the public and therefore slow to re-engage.

7. Continued to worsening unemployment in the US and the world.

8. Whole industries disappearing, i.e., restaurants, travel services, airlines, cruise ships, movie theaters, entertainment events, conventions.

9. GDP down 30-40% for 2021. Higher internationally.

10. Huge world debt to refinance.

11. State debt defaults or bankruptcies, loss of principal for Munis.

12. Education in crisis, schools closing and teachers unemployed.

13. Dramatic increase in crime.

14. Trade imbalances will resume as China reneges.

15. No serious action will be initiated by Biden/Hillary/Michelle/Newsome/Cuomo (take your pick)

So far this year, the correct action for successful investing has been to do absolutely nothing.

If you had not owned the industries I have been railing against — like energy, banks, retail and airlines — you’d actually be up a smidge this  year.

Sleeping through crises is a viable investment strategy.

Going forward?

Here is my “brilliant” going forward strategy:

+ Stock prices are largely over-priced — based on standard value theories of earnings, growth, dividends, etc. Hence few bargains left, though I continue to look.

+ Stock prices today are based on several things — heavy emotion, “hot” areas (like stray-at-home stocks). Emotions can evaporate from one moment to another, as they did in late February/early March.

+ When things are uncertain (as of now), my “strategy” is called diversification and be opportunistic. Hold lots of cash to be able to pounce, if something good comes along.

+ Wear a mask. Stay distant. Wash your hands. Don’t touch your face. The usual stuff.

+ Stay normal. Stop panicking. Stop freaking out. Do what I can for the family. Play oodles of tennis. Don’t get too fat.

Two disasters: Credit cards and Telephone Call Centers

+ Citicard is changing the number of my main MasterCard credit card. They want to give me a card I can tap. Which I need like a hole in the head. I have no choice. Scr*w Citicard. And change all my auto-pays.

+ Suddenly spurious fraud charges are appearing on my Citi MasterCard. I can’t dispute them until they are “posted.” Whatever that means.

+ My Chase Amazon Visa credit card has so many 5-4-3-2-1% rebates. They sound great, but aren’t because I need to call them to redeem the “points” I earn into dollars, bitcoin or buffaloes. Or whatever.

+ All customer “service” phone centers are blaming their 2-hour waits on the virus. I thought their people were answering the phones at their homes. There’s a million companies that provide that service, .e.g. Ring Central. There’s a list here. For me, the simplest solution is to have Verizon FiOS ring my Manhattan office number and my cell phone simultaneously.

Enticed by all the “bargains” from places like Nordstrom,  I spent a little money buying stuff I didn’t need. That was a disaster because of their messed-up computer systems. (All retailers’ online systems are a mess– except Amazon). Nordstrom kept one and a half hours on hold. Eventually they promised they’d fix my problem, but didn’t.

Meantime, I’m off buying anything and everything. And I’m back to using cash. What a simple idea. I give them money. They give me change. I don’t have to check the bill, check some distance computer…

If it’s two sandwiches, it’s $12. I have the sandwiches. I give them $12 cash.  They have the cash. No plastic. No computers. No call centers. End of story. Cash is wonderful.

52 days in quarantine

I read why we need to open up. We’ll kill each other if we don’t.

This is tasteless, but very funny.

Our country house

  + ..now has a new water cleaning system.

  + ..now has a faster Internet connection and better WiFi.

  + ..now has new LED bulbs to replace the old ones that died.

  + ..is about to have a Cherry Blossom tree planted to remind the family of the Spring of 2020 when Mr. (or Mrs?) Coronavirus visited us.

You can apparently buy cherry blossom trees at — where else? – Home Depot. Under $40 no less.

I need to buy more tennis balls.

See you tomorrow — Harry Newton

  • TomFromVa

    Good column and good comments below. I envy that you play tennis every day. Around here it is hard to find courts – all county-run courts are closed with the nets down, and clubs are fearful of running afoul of lawsuits if anyone would contract Corona and blame it on them. There are still a few courts at private facilities but you have to know someone in order to play there. This, plus racquetball and volleyball, are the only things I really miss during the Great Detention. On the plus side, my wife has become a pretty fair barber.
    You know, for guys our age, the story of the stuff we have lived through in Gumpian fashion would make a story that would be hard to believe: the Iron Curtain, polio, civil defense, Korea, the Red Scare, Sputnik, Bay of Pigs, assassination, VietNam, Moon Landing, Watergate, losing VietNam, Symbionese Liberation Army, double bump recession, Reagan, the end (we thought) of the Iron Curtain, Gulf War I, the dot.com bubble, 911+anthrax+DC sniper, Gulf War II, the normalization of drug use, random sex, and disrespect for the country; the rise of politics as religion, Trump, and now The New Plague. If you have lived through all this and prospered then you should have sufficient perspective to know what to do now.

  • Hugh

    Harry. I think you are missing two things – 1. the biggest factor in today’s stock market valuation, the unprecedented Federal Reserve printing of money without which the stock market would be much lower and 2. the greatest investment opportunity in the market today namely –gold and gold miners which have been steadily moving up (largely unnoticed so far) due to the rapidly increasing fiat money supply.

  • btcutter

    Base on your friend’s conservative or pessimistic view of 2020 and 2021 people should be in all cash really and play tennis.

    What’s the real upside in this market? How much upside is really there? Any pop is not as a result of earnings but rather intervention by Fed. Is the upset even sustainable?

    What’s the downside? 25-40% from current market possibly?

    Harder question maybe for long term 5-10 year investors who don’t need the cash already invested. Do you convert to cash until this blows over? Do you continue dollar cost average into index or retirement funds? But can one be disciplined enough to reenter the market at some point? Maybe this is the right time to reshuffle portfolio to reflex new economy/technology after the pandemic.