on yesterday’s post

When I think of capitulation, I think of a climactic event. A selling panic–a short, sharp, highly emotional, fear- and margin call-induced, high-volume market decline. It signals the final purging of any speculative belief that may remain from the prior bull market. It also establishes a base on which the gradual return of positive sentiment can build. October 1987 or March 2009 are prime examples of this.

The ultimate significance of epic selloffs like these is only 100% clear once time has passed, the big question being whether there’ll be an aftershock (there usually is) and, if so, when and how bad it will be (often six weeks or so later and less shocking). Still, they are pretty clear markers that a bottom is forming.

Sometimes, like now, we’re not “lucky” enough to have a few definitive ugly days from which to argue that the worst is over. So we have to depend on less reliable secondary signs: valuation of securities and institutional investor positioning (the latter meaning a judgment that these investors have done all the selling they’re likely to do).

So the assertion in the Merrill report I wrote about yesterday that we’ve entered a post-capitulation market may have been calculated more to get press coverage than anything else. The real question is whether we’re at the worst now and this bear ends with a whimper.

what I’m thinking/doing

–I’m in the out-with-a-whimper camp. I’d be feeling more bullish if part of me were trying to figure out how I’d make a living selling NFTs of apples on street corners, but the reality is that I’m not at that extreme of worry

–if we characterize the market of 2020-21 as one where stories and concepts counted the most, I think the keys to success in today’s market are valuations and near-term earnings/earnings growth

–one of the oddities of the current market is that some former concept stocks have been pummeled enough that, while they may not have stellar earnings at the moment, they are, I think, trading at discounts to asset value. There are big conceptual issues for investors to deal with in this area, including: integrity of the financial statements, assessing the value of tax losses and calculating the worth of intangibles like brand names and proprietary software. I own HOOD. But although I find the area interesting and I think takeovers have the potential to buoy investor sentiment, I feel there are easier ways to make money right now, like…

–figuring out how the post-pandemic world will work. Specifically,

—identifying (and avoiding) pure stay-at-home companies vs. companies that will benefit from the return to whatever the new normal will turn out to be

—I think it’s roughly correct that at mid-year retailers had 50% more inventory than usual. The consensus view, I think, is that supply chains will be back to normal within six months, meaning all that extra should be gone by then. Probably good for the TJXs of the world. TGT says it has already handled its excess. Who will be the losers?

—working out the implications of new restrictions for tech hardware companies on technology transfer to China

—the oil/base metal/electric car nexus, including the speed of change and what shortage items may be