Are We There Yet – Weekly Blog # 754

Immature Impatience

One experience learned from driving children on what seems to be a long trip is the repeated question of “are we there yet?” What should be learned from this experience is the impatience of youth and their sense of elapsed time.

One way to look at the experience is in terms of the elapsed time as a percent of one’s life. For a four-year old, a single day awake is one out of 1460 days, whereas for a ninety-year-old, it is one out of 32,850 days. Investors have been experiencing fluctuating prices for reasons we have attempted to explain for at least for 3,650,000 days, or since the world first began investing.

Attempts are made to explain a day’s price action tied to an established number or set of conditions after the fact. Hoping to quiet the chattering classes of young and old alike. The plain truth is that we don’t have a complete or even sound explanation with any certainty. Nevertheless, as self- appointed experts, we attempt to quiet the chattering crowds.

Maybe We Have Seen the Low of 2022

In the art form of market analysis, we require a low be declared post its occurrence, whenever another price decline comes close to the first and does not fall much differently than the declared low. On Friday, we may have seen this phenomenon. (Percent above the prior lows – Dow Jones Industrial Average +1.91%, S&P 500 +1.51%, Nasdaq +0.71%, or close enough.)

Based on prior experience, evidence of a year’s low price would be identified by an oversold condition caused by an unusual period of net selling, which we have probably had. Additionally, the so-called VIX fear index has only risen to 30, not to the extreme level of 40.

As usual, there are some contrary conditions. The most important of which is whether the declared low is for a relatively small cyclical price decline or, at worst, a very mild economic recession.

Looking for a low to herald a structural correction or, worst case, a period of stagflation. We have not yet seen any steps to address severe imbalances within the society. Nor have we seen a new leadership mentality from government, corporate/non-profit, or political segments which are desperately needed for a structural recession or a period of stagflation.

One major concern is the magnitude of recent price rises being less than prior expansions on a percentage basis. Due to societal and technological changes have we entered a period of somewhat limited, but significant, multi-year gains.

Recent Thoughts which Could be Important

1. Absence of multi-year profit projections.
2. Will the return to physical on-site visits produce better insights?
3. A view of “Sell Hubris and buy humiliation”.
4. Tesla’s market cap equals the sum of the European banking sector.
5. The US Strategic Oil Reserve is back to 1981 levels.
6. The liquidity collapse in the UK has led to a possible 100 bps rise for US and other markets.
7. Recognition that socialization of large bailouts is too expensive.
8. Bonds not yet attractive on a capital basis.
9. China’s growth is pivotal to global growth.
10. Life insurance income statements benefit from rising interest rates.
11. Top 5 holdings in index sectors that worked: communications 71.2%, consumer discretionary 64.6%, energy 63.5%, infotech 58.6%, consumer staples 55.0%. Thus, just 25 out of 500 names hold 35.46% of the assets, disproportionately driving so-called diversified performance. While they have added to recent performance, will they always?

Question of the Week:

What odds do you place on a new market phase?

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.