I wasn’t quite sure how to headline this. The FT and its parent the Nikkei News are, in my view, the two best sources of usable, professionally written, articles on the world economy in general and on individual publicly-traded companies.

One of the FT’s regular contributors is Mohammed El Erian, whom copilot describes as an accomplished global macro strategist. What I enjoy most about Mr. El Arian is his elegant and sophisticated use of the English language. In today’s newspaper, for example, he makes the point that current Treasury intervention in markets “to counter underlying market fundamentals” is counterproductive. It risks “eroding credibility” and “Using it as a routine policy lever rather than an emergency safety valve risks turning a market stabilizer into a source of moral hazard and deeper volatility.”

To the extent I understand Mr. El Erian’s prose style, he’s saying this is shockingly bad policy.

Memory chips are a boom and bust business that is already very capital intensive, and increasingly so. The dilemma for investors is this–the stocks have already gone up a lot and the industry has already planted the seeds of its own future downturn in the immense capacity expansions now underway. On the other hand, these additions are still several years off.

A side issue, which may end up becoming important at some point, is that China appears to have unused capacity. Sanctions have prevented that country from obtaining cutting edge chip-making equipment from ASML and also deter western product makers from using Chinese output of any type. We’ve already seen gamers begin to make the shift–as well as Chinese chip makeers raise prices.

Let’s put that to the side for now.

The big issue that investors are struggling with is that we know that, with or without China, the current boom will end within a few years and we surmise that the usual trainwreck will then ensue as massive new capacity come online, virtually all at once. On the other hand, Micron (MU) is still only trading at 14x earnings, even after having tripled so far this year. And it would be very unusual for the market to discount today capacity additions that are at least a couple of years in the future.

The newest piece of information that has come out is the Samsung Electronics pre-announcement of very strong earnings growth in its latest quarter. More important, though, is the fact the stock went down on the news.

Personally, I sold the MU I owned a while ago and put most of the proceeds into a dram ETF. This is after having trimmed my overall tech exposure significantly a while ago and put that money into things like the NY Times and the Atlanta Braves. Given the trainwreck the administration has made of the US economy, it’s hard to know whether cash, or foreign stocks, wouldn’t be a better move.

But my main point is that the Samsung Electronics price action suggests that the DRAM trade may well be living on borrowed time.

I’ve updated my Keeping Score page for September and 3Q performance.

If we look at 2026 so far as a whole, that stands out to me is that two sectors, IT and Communication Services (where most of the AI firms reside) together make up 47% of the total index, according to Gemini.

In a sense, everything else is tiny in comparison. But two very small natural resource sectors, Energy and Materials, who are also big ytd winners, together also make up about 5% of the index. All this is to say that the remaining 48%, which represent the heart of the domestic economy, is significantly weaker than this year’s overall stock market strength–keeping pace with the rest of the world for the first time in this administration–would lead one to believe.

Typically, in situations like this the market has tended to experience what jargon lovers would call a counter-trend rally–where the ytd losers go up and the winners go down. No sign of this so far, though. No sign either of any takeover interest–foreign or domestic–in down-and-out domestic firms with powerful brand names and distribution networks. This is also an unusually pessimistic stance.

Still, there’s no sign I can see that the market has any inclination to change its very heavy, very successful bet (1) for AI and (2) continuance of Washington’s wildly dysfunctional handling of national affairs.

As for me personally, most of my family’s money is in index funds. I have one account I actively manage, though. Early in the year I shifted away from a heavy emphasis on mainline AI-related names to less well-known suppliers of components/services. A couple of months ago, I cut my tech overweight in half and bought industrial and service names in the US and EU. Conceptually, I’ve been wanting to get involved with beaten up low-end consumer names as well, on the idea that the domestic economy can’t be bungled much more badly than it has been and these firms have potentially valuable brand names and distribution networks (the basic Warren Buffett insight of a half-century ago). I haven’t acted yet because none of the stocks I’ve been eyeing have shown any signs of life.

I also think that the upcoming election could have a significant impact on stocks. Hard to know what that might be, however. The worst outcome for the S&P, I think, would be a vote of confidence that ICE violence, tariffs… are the way to go.

It was clear from the outset that the Trump economic program, which can be seen as a copy of Japan’s rebuilding plan after the devastation of WWII, would create a rocky road for the domestic economy.

The three main ideas are:

–depress the currency, which will

–make imports more expensive, and

–discourage the use of foreign-born workers.

In the case of Japan, it was well-understood that the then current generation would suffer substantial economic pain, but the next generation, and those following it, would be substantially better off.

Unlike Japan, however, Trump has added ICE violence and foreign prison camps to the anti-nonwhite immigrant violence. This has revived memories in the rest of the world of similar episodes in Russia and Germany. And, assuming press reports are correct, the war in Iran is being masterminded by a man nicknamed “NoTabs,” to underline his lack of military knowledge and the absence of leadership skills.

…a real mess.

Taking off one’s hat as a human being and replacing it with an investor’s cap, a very important question is how long the current state of affairs will last. It’s also the point of this post.

I divide this into two issues, and look at what stock prices are saying today:

–when will consumer spending begin to pick up? Given that consumers have generally been trading down, I think an uptick in the price of dollar store stocks (based presumably on better sales) will likely be a good indicator.

OLLI (Ollies Bargain Outlet), which I regard as the lowest end of the dollar store market is up by about 20% from its early-July bottom. Year to date, it’s down by -22.4%–compared with a rise in the S&P 500 by +12.5% and NASDAQ by +15.7%.

DG (Dollar General), the high end, is also up by about 20% from its low in May. Ytd, it’s down by a bit more than -6%.

If we move up a few notches to WMT (Walmart), it’s down by almost 20% from its mid-year high and is slightly above its early September low of ~$102.

My read is that there’s not much to write home about in the dollar store industry but if I had to guess–I don’t have the confidence to want to do more than watch at this point–I’d think we’ve already hit peak trading down.

How do I explain WMT? I think it’s the last retail shoe to drop.

–I held KSS (Kohl’s) for a while on the idea that the value of its brand name and store network might be enough to entice a foreign company to make a bid for it. If not KSS, then some other similar-style company. KSS is down by -10.5% ytd, and up from its mid-May low of $11.50 or so.

This compares with book value of about $35.

I have no strongly held opinion, but it seems to me that no bid at $12-minus implies that no bid is coming. Why not? My sense is that the main issue is not the incompetence of the current administration (when was the last time a Defense Secretary had “No Tabs” (a nickname I hadn’t heard before but which I interpret as somewhere between “no basic military officer training” and “clueless”)?) but the black eye that comes from the fact that Congress and the courts are allowing organizations like ICE to prosper.

Whatever the reason, no investors seem to want exposure to the US economy as it has been shaped by the adminstration.

It will be interesting to see if/how the upcoming election changes this narrative.

I like to think about stocks in two related ways–concept and valuation.

Valuation is the price we pay for a stock today.

It’s a function of three things:

–the worth of the company as it stands now,

–the prospects for future earnings growth which will make the worth figure higher or lower tomorrow, and

–how these variables compare against the situation with every other publicly traded stock.

Concept is a bit more complicated. It’s three elevator speeches,

–one about how the company stacks up in terms of possible market share gains vs other publicly traded companies;

–one about prospects for the industry the company is in;

–a third about the shape of the overall economy–the US vs the rest of the world–which tells us whether to favor importers, exporters or whether this is a crucial distinction to make here and now.

To my mind, the most important of the three over the past few years has been the third.

Three reasons, all consequences of Washington politics.

–the first is the attempt to lower interest rates, as a way of decreasing the cost of government borrowing–put another way, to allow the government to borrow more than it could otherwise. This move has had the effect of weakening the dollar as foreign holders of Treasuries do this to lower their perceived risk.

–the second is tariffs, which not only raise the price of foreign finished goods but also the cost of imported raw materials used domestically.

–the last is the strong use of force by ICE that has the effect of retarding the growth of the domestic workforce or even shrinking it. …think of the Korean workers that ICE led off in chains last year, as they tried to open a battery factory in Georgia.

My basic idea has been to avoid the US consumer economy where possible, to focus instead on companies that have costs in $US and foreign revenues, avoiding $US revenues/foreign costs wherever possible. IT, especially software, is a prime example.

This has worked exceptionally well, until around a month or two ago.

A reasonable question to ask, but in any event the one I’m asking myself, is why the change?

The possibilities, as I see them. Either this is an issue of valuation, and the market will soon rotate back to the previous winners, or the market is now signaling a longer-lasting shift toward the domestic economy.

My guess is that it’s the former. My reason for thinking this is that low-end domestic retail has been especially weak over the past couple of months.