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The race to reprice assets. The coming recession. Time to abjure individual stocks. Stay with index funds for now

Bear markets don’t go straight down. They have bounces. Today we’re having one.

We’re still in a bear market and facing a recession by fall.

Here’s a great chart from the New York Times.

The chart shows:

+ Bear markets and recessions happen somewhat regularly.

+ Despite the recessions, log-term, stocks rise.

For a bigger chart, click here.

Josh Brown is a money manager and an excellent CNBC talking head.

Josh recently wrote:

+ And it is not until you’ve accepted and internalized the truth of what I am relaying to you here that you begin to understand a very important truth about the stock market: Anything can happen and nobody knows nothing.

I’ve been writing this column for 20+ years. Josh is right. Which brings us to today’s lessons:

+ Skip picking individual stocks. Stay away from “hot” assets like bitcoin.

+ Buy index funds. My favorites are VGT (technology) and VTI (the whole market).

The latest Atlantic Magazine has a piece:

The author writes:

Here’s a bit of esoterica I think about from time to time: Mark Zuckerberg has a mortgage.

Or at least, he had one. A decade ago, the Facebook founder refinanced his loan on a $6 million Palo Alto mansion. He was worth $16 billion at the time, meaning he could have bought that house and a hundred more outright, no mortgage necessary. But First Republic Bank offered him an adjustable-rate loan with an initial interest rate of just 1.05 percent—below the rate of inflation, meaning the financier was paying him for the privilege of lending him money. Zuckerberg got to preserve his Facebook holdings, load up with tax-advantaged debt, and benefit from rising Silicon Valley real-estate prices. Why not take the loan?

“Why not take the loan?” has been a pretty good summary of American wealth building and class dynamics in the past few decades. An extended period of low interest rates has translated into surging asset values. That has made the small share of Americans capable of investing in homes, farmland, stocks, bonds, commodities, art, patents, water rights, start-ups, private equity, hedge funds, and other assets breathtakingly rich, fostering astonishing levels of wealth inequality. Given low labor-force participation and sluggish wage growth, the United States has come to look like what the theorists Lisa Adkins, Melinda Cooper, and Martijn Konings have termed an “asset economy”—in which prosperity is determined not by what you earn but by what you own.

The Federal Reserve is hiking interest rates as it struggles to tamp down on inflation. That has pushed equities into a bear market (because corporate profits are at risk and investors are pulling back to safe assets), the housing market into a correction (because mortgages have become much more expensive), and the tech sector into free fall (as many companies are being asked to deliver profits, for once). Financing for mergers, acquisitions, and start-ups has dried up. And the economy might be on the verge of its second recession in two years, particularly if gas prices remain high. Animal spirits and a few hundred additional basis points have erased colossal sums of paper wealth in the past half year: $2 trillion and counting in crypto, $7 trillion and counting in stocks, uncalculated sums of home equity.

Rising interest rates and spiraling inflation might be killing off our age of asset capitalism, with no more 1.05 percent loans available for anyone, not even the richest of the rich.

To read the full Atlantic piece, click here.

Wait, wasn’t Bitcoin supposed to be a hedge against inflation?

Paul Krugman writes:

There’s a financial joke, whose origin I don’t know, that has been making the rounds lately. It goes like this: If inflation continues at current rates, the purchasing power of wealth held in dollars will be cut in half over the next eight years. But cryptocurrencies can beat that: They can lose half their value in just a few months.

Haha. But crypto enthusiasts have indeed marketed their products as an inflation hedge. Coinbase, the biggest United States crypto exchange, declares that cryptocurrencies are appealing because “they’re more resistant to inflation than fiat currencies like the U.S. dollar.” This is, not incidentally, the same argument people used to make for holding gold.

But a funny thing happened as fears of inflation grew, as seen in this chart showing Bitcoin’s price in U.S. dollars over the past year:

You can read Krugman’s full article here.

Still testing positive for covid

It’s my eighth day. The good news is I have more energy. The bad news I’m still testing positive.

I have to quarantine until I test negative. Which maybe 20 days. This gives excitement a whole new meaning.

I ran away from the city in March 2020 and successfully avoid covid for 2 1/4 years. But then my birthday party. People came from all over, as far as Australia.

Our doctor guessed  that I caught a variant that someone had brought in from afar. I was OK with the local stuff, but couldn’t handle the exotic variant.

I can’t stress how important it is for everyone reading this blog — all my dear friends — to stay careful. Masked and distancing.

My friend Dena writes me, “David (her son) has Covid now. His stupid partner came in to the law office not feeling well and unmasked and shared his virus with most of the law firm.”

My personal family history

My father was born and lived in a town called Chernivtsi.

Its history reflects how things changed. It’s now in Ukraine, but most recently was in the Soviet Union.

Here’s the town’s history. For most of father’s life, the town was in Romania. It’s now in the Ukraine.

Wikipedia looked at who owned Ukraine over the years:

Ukraine has only been independent for 21 years. It was part of the Soviet Union for 48 years.

My father and mother left Chernivtsi (it’s had several names) in the late 1930s. Father figured, if he stayed, the Russians would get him because he was a “capitalist.” The Germans would get him because he was Jewish. He wanted to go to America but couldn’t get in, but could to Australia. There he gave up his profession of oenology (wine making) and opened a hamburger store. When he finally closed the hamburger place, he vowed to the family he would never eat an onion again. He spent seven years chopping them for his hamburgers. American servicemen on R&R during the war taught him how to make hamburgers, replete with onions. Richard Newton’s hamburgers were the best in Sydney. I had visions of his great smile yesterday, Father’s Day.

There’s a final irony in this family story. When I came to America to go to grad school, father encouraged me to stay.  He saw America as an insurance if Australia ever got Nazis or Russians. It never did. And he lived happily ever after in Australia. And I lived happily ever after in America. A situation that makes Qantas rich, occasionally.

Technology continues to improve

Technology mightn’t be doing us great in the stockmarket, but at home and in the office, it’s hugely helpful:

+ New laptops are hugely faster, have much bigger storage and do much better with the Internet. If you haven’t bought one in several years, do yourself a favor, get one from Apple or one from Lenovo (for Windows).  I use Windows because I’m used to it. I bought myself a super fast X1 Carbon machine from Lenovo back in May as a birthday present. It was meant to arrive in October. It came yesterday.  Maybe the Chinese supply chain problems are easing?

+ Great news: It’s easy to downgrade your new Windows 11 laptop to Windows 10. Here’s how to do it. I did it last night. It worked flawlessly. Follow the bouncing ball. Click here.

+ The biggest technology is fiber. I now have one gig in the country. Higher Internet speed makes everything easier — from watching streaming to researching and writing this blog. Upgrade your Internet today.

+ Streaming is a huge pleasure. It makes quarantine less horrible. Susan is watching Rake. Dan is watching Hit & Run. There are millions more. She’s watching via Roku, the newest model of which is superb.

Click here.

Useful Tips

+ Any service on auto-pay will sneakily raise your monthly bill without telling you. The worst is DirecTV.

+ Verizon wireless will give yo a $30 deduction off your monthly bill if you pay by debit card. Go figure.

+ There are two sizes of USB chargers — 2.1 AMP and the little 1.0 AMP. The small one is useless. It works, but oh so slowly.

The 51 most beautiful places in the world

Here are two. The first is Trolltunga, Norway, which I hope to visit with Michael, my son, on a bicycle trip this August.

This is Denali in Alaska. Maybe next year.

You can see the other 49 at Conde Nast. Click here.

The best piece ever on China

To read McMaster’s brilliant piece (and why you never, ever want to invest in China), click here.

That’s it for today.

See you tomorrow. — Harry Newton