I’ve just updated my Keeping Score page for October. No mutual fund selloff this year. This likely means only a tepid yearend rally to come.
I’ve just updated my Keeping Score page for September 2019. No sign so far of the traditional actively-managed mutual fund selloff in advance of the Halloween yearend. I wonder why. Is this a function of the AI era? …the fact that passive money under management exceeds actively managed? …is selling just late?
Will no selloff now mean no 4Q rally? …that would be my guess.
I’ve just updated my Keeping Score page for August.
When I first became interested in Tiffany (TIF) as a stock years ago, one thing that stood out was that the company was doing a land office business in almost all facets of its rapid international expansion. One exception: the EU. I quickly became convinced that the reason was because TIF is an American company.
For Europeans, France, Germany, Italy, and to a lesser extent the rest of the EU, are the font of all knowledge and culture. As local literature and philosophy make clear, being situated on the sacred soil of (fill in any EU country) is the key to its superiority. The US, lacking requisite hallowed ground, is a semi-boorish johnny-come-lately. Sporting a piece of jewelry from an American firm therefore implies one has suffered a devastating reversal of fortune that puts “authentic” jewelry out of reach.
In the rest of the world, however, the US is a symbol of aspiration. America stands for freedom, opportunity, cutting-edge technology, the best universities and an ethos that prizes accomplishment not heritage. It’s “all men are created equal” “give me your …huddled masses yearning to be free” and “I am not throwing away my shot.” Wearing, or just owning, a piece of American jewelry becomes a symbolic linking of the holder to these national values. It hasn’t hurt, either, particularly with an older generation (paradoxically, ex the EU) that the US made a monumental effort to help heal the world after WWII.
The “brand” of the United States has taken a real beating since Mr. Trump has become president. Surveys, one of which is reported in INC magazine, show a sharp drop in US prestige right after his victory and continuing deterioration since. I don’t think the biggest negative issue is the president’s insecurities, his constant prevarication, his very weak record as a real estate developer or his (hare-brained) economic policies while in office. I see the worst damage coming instead from his love of leaders with poor human rights records and his disdain for women and people of color …plus the whiff of sadism detectable in his treatment of both.
Whatever the precise cause may be, the deterioration of the America’s reputation under Mr. Trump is a very real worry for domestic consumer companies. Damage will likely show itself in two ways: weaker sales to foreign tourists, and the absence of positive surprises from foreign subsidiaries. For domestic retail firms, it seems clear that economic recovery has finally come to the less wealthy parts of the US over the past year or two–witness the profit performance of Walmart or the dollar stores. On the other hand, it seems to me that people who have trusted Mr. Trump in the past–like the banks that lent him money, the contractors who built his casinos, those who bought DJT stock and bonds, farmers who voted for him–have all ended up considerably worse off than the more wary. So while they may be good temporary hiding places, holders should be nimble.
One final thought: brands don’t deteriorate overnight but the cumulative damage can be enormous. The first to react will be younger consumers, who have the least experience with/of the “old” brand. They will be the most difficult to win back. As well, as time passes, their views will be increasingly important in commerce.
I’ve just updated my Keeping Score page for June/1H 2019.
I’ve just updated my Keeping Score page for a gloomy May.
There’s no solid connection among the three topics above, but the title gives me the chance to write about three only-sort-of connected ideas in one post.
The crazy up-and-down pattern of recent stock market trading in the US is being triggered, I think, by Mr. Trump’s tweets about trade–and about tariffs in particular. I think a lot of the action is being caused by computers trading on the President’s tweets themselves, or some derivative of them–likes, media mentions, reflexive response to stock movements (or a proxy like trading volume).
–it’s hard to know whether the misinformation Mr. Trump is spewing about tariffs is art or he simply doesn’t know/care.
Tariffs are paid to US Customs by the importer. In some small number of instances, a Chinese exporter may have a US-based, US-incorporated subsidiary that imports items from the parent for distribution here. In this case, a Chinese entity is paying tariffs on imported Chinese-made goods. To that degree. Mr. Trump is correct. Mostly, however, the entity that pays a tariff on Chinese goods is not itself Chinese.
This is not the end of the story, however. The importer will attempt to recover the cost of the tariff through a higher price charged to the US consumer and/or through a discount received from the Chinese manufacturer. In the case of washing machines, which I wrote about recently, for example, all US consumers ended up paying enough extra to cover the entire tariff …and some paid more than 2x the levy. The prime beneficiaries of this largesse were Korean companies Samsung and LG.
–one of the oddest parts of the current tariff saga is that Mr. Trump has decided not to work in concert with other consuming nations. In fact, one of his first actions as president was to withdraw from the international coalition attempting to curb China’s theft of intellectual property worldwide. The Trump tariffs are only bilateral, so there’s nothing to stop a Chinese company from shipping a partially assembled product to, say, Canada, do some modification there and reexport the now-Canadian item to the US.
The administration has been artful in selecting intermediates rather than consumer end products for its tariffs so far. This makes it harder to trace price increases back to their source in Trump tariffs. However, the fact that the administration has taken pains to cover its trail, so to speak, implies it understands that tariff costs will be disproportionately borne by Americans.
–in trading controlled by humans, a lot of tariff developments should have been baked in the cake a long time ago. Continuing volatility implies to me that much of the reacting is being done by AI, which are learning as they go–and which, by the way, may never adopt the discounting conventions humans have employed for decades.
–I think it’s important to examine the trading of the past five days (including today as one of them) for clues to the direction in which the market will evolve. Basically, I think the selling has been relatively indiscriminate. The rebound, in contrast, has not been. The S&P and NASDAQ, for example, are back at the highs of last Friday as I’m writing this in the early afternoon. The Russell 2000, however, is not. FB is (slightly) below its Friday high; Netflix is about even; Micron is down by 4%. On the other hand, Microsoft and Disney are 1% higher than their Friday tops, Paycom is 2.5% up, Okta is 5% higher.
No one knows how long the pattern will last, and I’m not so sure about DIS, but I think there’s information about what the market wants to buy in these differences. And periods of volatility are usually good times for tweaks–large and small–to portfolio strategy. This is especially so in cases like this, where the movements seem to be excessive.
One thing to do is to confirm one’s conviction level in laggards. Another is to check position size in winners. In my case, my largest position at the moment is MSFT, which I’ve held since shortly after Steve Ballmer left (sorry, Clippers). I’m not sure whether to reduce now. I’d already trimmed PAYC and OKTA but if I hadn’t before I’d certainly be doing it today. I’d be happiest finding areas away from tech, because I have a lot already. On the other hand, I think Mr. Trump is doing considerable economic damage to American families of average or modest means, with no reward visible to me except for his wealthy backers. Retail would otherwise be my preferred landing spot.
–Even if you do nothing with your holdings now, make some notes about what you might do to rearrange things and see how that would have worked out. That will likely help you to decide whether to act the next time an AI-driven market decline occurs.