MARCH 18, 2020
storms happen more frequently now. Thus the “once in 100 years” line is wholly meaningless. Canned goods are still good, and still canned. Katrina was tragic and also an apt analogy to our market, and now our economy.
The Ka Ka’s sharply hit the props when TV waves bow beneath the weight of canned policy verbiage from Capitol Hill and your closed library. That’s why Reed Hastings built Netflix.
Meanwhile, financial facilitation and relief thinking is said to be coursing on Capitol Hill. We’ll see. Much of what the Fed actually does exists below the media line. Only financial professionals even understand the repo market and Fed actions that maintain liquidity. The fed’s doing those things. Yet banks and REITS are disastrous.
The Fed’s for real, but not alone. Being informed is essential, but bathing in “we’re making sure” isn’t. We’re watching closely yet shuffling in a dose of “the Hunker.”
Financial has enticed ten million Millennials in to the equity investing world. Most made it just in time for the worst fall since ’87. The Menlo Park fractional share broker has fractured three times in two weeks, including on the two biggest days in market history. Many of those newbie investors will vanish and never return. On two gigantic days Robinhood’s clients were locked out of their accounts as the market tanked, and then as it rocketed. Welcome to equity investing.
Websites go down and so do indexes. Investors are some times tossed into the sea and enjoy that if you can. We’re trying. Does it really mater why you’re in the waves and can’t reach your account, when it’s sinking? Yeah, it does. And when it’s roaring? Also yes. Would you care if it were Robinhood or Carnival Cruise Lines(CCL)? Only as it relates to your lawsuit.
Investing’s like sea fishing. You can’t simply check conditions once a month and expect to survive.
Everyone’s hurting as our account balances cascade down like dominoes. We’ve basically stopped buying and begun to simply sit tight. The problem? Losing large amounts of money hurts, because it’s frightening. It brings out emotion and emotion rampages our opportunities to do what we yet can. The work of investing goes on. We will wash ashore, eventually.
We now lug our investing life about as though a club foot. The income of REITs has transformed into a tourniquet. A flatish yield curve has settled into a flatline disappearing on the horizon. Banks and real estate REITs now suffer from a zero net interest income environment, one that could last for years. That’s also referred to as the NIM, or net interest margin. That’s the difference between how much money costs and how much you can charge others for using yours.
hold mortgages and various loan products. That’s interest income. Margins have vanished. As their more lucrative assets mature and begin rolling off their books, they’ll have nothing profitable with which to replace them. Oops. As rising unemployment becomes the norm, mortgages will increasingly be challenged. Think mounting delinquencies, and write-downs. Dividend cuts seem unavoidable.
Quality utilities and drug makers remain viable options, and more so as their prices fall, and they are and will. Southern(SO) is working for us now. No longer are we concerned about a defensive portfolio being crushed by an inevitable snap rotation back to growth. That will come. No such rotation however is in the works. Nonetheless, we correctly follow the barbell portfolio formula; recession-resistant dividend payers on one end, and secular growth on the opposite. Think MSFT; “GARP,” or “growth at a reasonable price.” That is the silver lining here.
This collapse has a silver lining for those with sidelined cash. The superb have been smashed along with the trash. No need exists to rush or chase. Pass on Zoom(ZM), Teladoc(TDOC), or maybe even Walmart(WMT). GOOG and MSFT are cash flowing monsters and examples of GARP. Amazon’s too expensive and Apple’s in too much trouble. Boeing’s a fundamental disaster, in our opinion untouchable at any price. GE is much the same. Southern(4.38% yield) remains a strong dividend play at a great price.
This is life preserver time, an ugly drift in dark seas. But then that’s just emotion talking again. Several times we’ve approached our keyboards with a muttering desk-clearing sensibility–a single sweep of the arm and everything’s swept overboard. Yet instead we hold more individual positions than ever–13, ironically; two utilities, two REITs, two semiconductors, two non-bank financials, two techs, TSLA, TREX, and KL, a gold miner. We won’t be selling any. As always good luck and hang in.
Jam of the Day
Maria Callas, Norma – Casta Diva – Bellini