Hey Friends,
From a recession/bear market just over a couple of months ago to the Nasdaq setting its all time high today — who would have imagined it? The job report today was a major surprise, for sure. Go here to read about one very interesting observation on the “much better than expected” report.
So, what comes next? There’s no debating the fact that the jobs market is certainly indicative of economic activity. We also know that earnings drive future stock prices. How quickly will earnings actually recover? To what degree is the three trillion dollars of stimulus money now circulating playing a role in the most recent economic activity? Will it translate into growing demand across sectors that continues?
Many questions remain. But, at the moment, the market indices clearly imply confidence toward a strong rebound in economic demand.
While the numbers today surprised me too, I’m not prepared to opine. For the moment, stock charts of the overall market reflect a belief in a V-shaped recovery.
See you next time.
In your book you do a very good job of identifying the characteristics of companies that represent good value for the money. You outline financial metrics that are helpful for uncovering firms with very good long-term prospects. If one uses those metrics today what becomes apparent from the analysis? Are there a lot of companies that represent outstanding prospects at very, very attractive prices? What about the firms responsible for generating this unprecedented expansion in the financial markets in a very short period of time? Just how many of those companies have negative earnings, or outrageous P/E ratios and are selling at prices way beyond any common sense value? Does this mean that other value companies may be a bargain? Well, even with the firms having fundamental value, their prices do not appear to be at outstanding levels so as to provide a comfortable cushion for long-term appreciation? Why would Berkshire Hawthaway be keeping such a large cash/near cash position in this type of market? Do we really have a V-shaped recovery or a dead cat bounce? Why wouldn’t an investor look towards having 30 to 40% in cash/near cash in this market given the vast uncertainties going forward?
Andrew, that is a one of the best comments, in my view, shared at this website If I could agree beyond 100%, I would. I hope you and other readers can read between the lines in my post yesterday about my personal doubts in this so-called recovery. The word I used that refers to the recovery, namely a stock “chart of major indices,” doesn’t prove underlying economic fundamentals. To make your point about companies flying ahead on mostly thin air, consider all the biotechs doing COVID19 research. Many of these companies have broken balance sheets but have soared on speculation while using the situation to do capital raise after capital raise. I’m sure you noted that a most recent post I did gave attention to Warren Buffett’s conservative stance toward this, again, “so-called” recovery. My own theory on this recent job surprise of yesterday though is the monetary “rush” of an immediate “super-hyped” influx of 3 trillion dollars of government (debt supplied) capital. This money is likely to get “crowded out” and the aftermath could be very problematic.
Again, thank you for that commentary — excellent in my view because it is simply “sane.”