November 18, 2020

What’s Going On

The most valuable thing is knowing what’s going on.

The country is closing amid Covid cases. Simultaneously, the Shiller PE ratio of earnings in the S&P 500 is 33, a level exceeded in history only at the bursting of the Internet Bubble in 2000.

What’s going on? (The picture here is Howelsen, our beloved Steamboat local ski hill since 1907…a way away from it.)

Stocks are screaming. In contrast, a country jumping in the mummy bag and zipping up suggests sharp impending economic contraction.

Right?

We’re a service society. That is, the bulk of jobs are in doing something for somebody. Bartending to window-washing. Yoga classes to yardwork. Street-sweeping and sanitation, and shearing hair and shearing sheep, and stocking shelves and fixing Internet problems.

Yes, there’s a big spike on the graph from “Information” or whatever you call it.

As income from hairdressing and table-waiting takes a hit, the stock market jumps to eternal highs.  It’s the sort of thing that leads to class envy.

Don’t fall for that.  Follow me here.

Payroll-protection-plan checks are gone, and the mayor or health department or somebody has said you can’t have more than 25% occupancy, everybody working dawn till dusk blending schedules. To make money.

My own stylist says hours are long, pay is down, and taxes are due because there’s not enough for the taxman and the mortgage.

And two weeks ago into the election there was a surge for stocks.

We told you it would happen, nothing to do with the National Haircutting Rate, the Countrywide Window-Washing Ratio. Or whatever.  We call it Sentiment, the way machines set prices.

It’s now topped, smoking cinders falling away.

Jim Cramer said on CNBC, “They just don’t want to sell, Mike.” (Mike Santoli in this case.)

I love Cramer’s iconoclastic verve. He never loses his confidence.

“The open-up trade is back on!” he shouts now to David Faber, who is stoic with a blink and a wan smile.

Who in the markets doesn’t love CNBC?

But they don’t know what’s going on.

Is the Shiller PE right?  Should we wring our hands?

How many body punches from government can the American Economy – hairdressers, restaurateurs, yoga instructors, window-washers, landscapers, on it goes – take before we snap enough ribs to drop to our knees?

It’s like everyone in government is playing craps around that possibility, party affiliation doesn’t matter.

And up goes the market.

Investor-relations professionals tell the c-suite, “We are delivering returns to our investors on superior financial results.”

Everyone shuffles uncomfortably.

Let’s stipulate that if your earnings are accelerating faster than your peers, your stock might do better, even if hairdressers are struggling to pay taxes and other bills.

Couldn’t we all screen for that and make those stocks the most valuable?

Yes. And no.  Yes, you can.  No, it doesn’t work.

A quant fund could screen for all the stocks with 25% annual EPS growth.  That’s got nothing to do with what you do, public companies. Just what you produce. And what if those funds decide to trade your options?

And earnings don’t guarantee stock-appreciation because the market has limited supply. Is GE a great company, BYND a lousy stock?  Explain, please?

I’m making the same point I’ve been making here at the Market Structure Map since 2006, when the whole market was ceded to machines by a rule called Regulation National Market System.

Stop telling your c-suite and Board that you’re flying or falling because of “operating margins.” It’s not true.

The world is math. You need to know what’s going on.

Investors, it’s the same for you. You believe, “Home Depot will be higher because people are buying home-improvement products at record levels.”

That’s not what’s going on.

As for society, we’re deciding if we’ll be a liberal democracy or not. Stock prices won’t decide it.  Knowing what’s going on will.

We can help. Some. (We can help you with knowing what’s going on, IR folks and traders. We have thoughts on society too. But that takes a group effort.)

 

 

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