My wife and I are spending the weekend in our cabin in eastern PA near Scranton.
Things are really looking up around this hardscrabble area. The “Electric City” itself, that 19th-century plaything of the steel/coal/railroad magnate Scranton brothers, is showing signs of economic life for the first time since the early 1950s (when the underground coal mines flooded). There’s intense activity around the Lehigh Valley, as well, building more distribution warehouses to take advantage of the area’s road network. (I’m on a visual arts advisory committee for an area technical high school (my website is: danduane.com). This increasing demand for industrial sites was a big pre-meeting topic of discussion a week or so ago.) Lots of remote-work refugees from NYC and Philadelphia, as well.
Virtually all the Trump signs have disappeared, a process I think started after the 2021 coup attempt and really picked up steam last year. I haven’t been to see friends in the Endless Mountains yet, though. This was a shockingly poor area before the Marcellus shale began to be developed. Fracking is the major political issue there, so it’s like Trump central. Btw, zero evidence of DeSantis support.
Anyway, in Friday’s FT issue:
–the American National Conservativism institute held its annual conference in London recently. Ex tech, which the UK is an important source for but not a center of, both the UK and US are mature, slow growth, anti-immigration economies, whose right wings live in fever dreams of past glory. A receptive audience, you might think. Not so, however. According to the FT, local attendees were shocked at the naked racism and the Christian fundamentalism of the speakers, who assumed the audience was of like mind. Turns out that despite spawning the US slave culture centuries ago, the current British right wing is comparable to our Democratic centrists
–celebrity columnist Mohamed El-Erian, wrote an (uncharacteristically coherent) account of the current questioning of the US dollar-based world monetary system that we’ve had since the 1970s.
What makes El-Erian important, in my view, is not that he’s a leading edge thinker but that his views an already solidly formed international consensus. He cites two issues: the 2007-08 world financial crisis, which was centered in deep corruption in the major US banks; and the unilateral imposition of tariffs by the Trump administration. He–and by extension, the rest of the OECD–might also worry about, ex an heroic Liz Cheney, the Republican Party’s placid acceptance of Trump’s coup attempt and his continuing false assertions that the 2020 election was rigged.
Luckily for the US, the Deng era is over and Xi is in charge in China. Otherwise, I think, the dollar era might already be in the rear view mirror (or camera)
–the Lex section, which talks about stocks and is consistently good, has a strange article about the ARK funds, titled “Tech funds: the cult of Cathie Wood.”
If I had to guess, the article originally focused on “cult,” and made the (sensible, in my view) point that Ms. Wood has done a brilliant job of marketing her firm, with the result that fund net redemptions have been miniscule despite delivering unusually deep underperformance well into a third consecutive year. Add the fact that most of the money she manages came in at her relative performance top, as is usually the case, and the feat is more impressive.
I suspect that what triggered the writer was the media to-do about ARKK having sold its Nvidia (NVDA) holding at the lows of late last year. Since then, the stock has come close to tripling (I’ve owned a bunch of NVDA for years; my idea now is to buy more on decline). That fuss makes a good headline, but no sense. As I read Wood’s strategy–through her portfolio structure–she’s hitched her star to her top tens holdings, which make up 2/3 of the portfolio. (you could argue that it’s the top 6, which make up over half). NVDA was relatively miniscule at about #25 when she sold. Had she continued to hold, the position as it was back then was too small to have moved the performance needle even a percentage point.
The article asserts that large-cap tech stocks are especially sensitive to interest rate movements. Generally, maybe yes. But the real issue is a high PE, not the underlying business. And why, if the FT is correct, is the NASDAQ 100 up by 9.9% over the past year of rising rates …and the wider NASDAQ up by 7.0%? ARKK, in comparison, was down by 13.9% over the same period.
The article points out as a plus the fact that ARKK has beaten the S&P 500 so far this year. Yes, ARKK has gained 25.2% vs the S&P’s +8.1%. The trouble here is that 2/3 of the S&P is non-tech, which has been a big drag on that index’s performance. The tech portion of the S&P–IT + Communications Services–is up by 33.6% in 2023. The NASDAQ 100 is 30.7% ahead.
Maybe the point is supposed to be that ARKK is pulling out of its tailspin. Maybe so, but we’re talking about relatively small periods of time–especially for such a highly concentrated portfolio. And the past three months show ARKK slightly in the minus column, with the NASDAQ 100 up by almost 19%–with NVDA accounting for something like three of those percentage points. Microsoft made about four and Apple two or so. Take those three out and the NASDAQ 97 would be up by about 10%. My take is that while expectations about interest rates may play a part, this move is more about valuation levels and earnings growth prospects.