Taylor Collins: Commodities And Market Rotation

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Commodity prices and performance of many resource-related stocks have been picking up recently. In addition to this, many of the wildly popular, most-talked about tech/growth stocks now seem to be going sideways and/or sputtering altogether. If we go back just a few months to July of this year, NASDAQ was up almost 20% YTD, and we've all probably heard about the record IPO filings and insane valuations on many of those stocks (something we've discussed previously). 

It appears that we are witnessing a market rotation out of tech/growth and into value, and I believe this is just getting started.

There is a great saying from the historian James Grant, "Progress is cumulative in science and engineering,  but cyclical in finance." We will revisit this idea later, but for now let's take a look at a few indicators of commodity prices since the COVID correction back in March.

Chris Mayer: A Tale of Bubbles Past

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Winter invites reflection. As I look back on the year, I am sure I am not alone in thinking 2020 has been unlike anything I’ve ever experienced. But in the stock market, at least, I do have a certain feeling of déjà vu.

In the course of cleaning out a section of my office -- something I have to do every once in a while or risk burial by books and paper -- I came across a stack of old magazines that make my point.

This magazine was called Technology Investor and it debuted -- I am not making this up -- in March of 2000. As you may know, that was the peak of the great tech bubble. The magazine had an eye-catching cover, as you can see.

The NASDAQ peaked on March 10, 2000. It was a Friday. And the close was 5,048.62. Then the party ended. The NASDAQ didn’t bottom until October 2002, after it lost 78% of its value.

Charlie Munger: How to Identify a Resilient Economic Moat

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When considering a company's investment potential, according to Warren Buffett (Trades, Portfolio), it is critical to determine whether it has "a moat around it with a very valuable castle in the middle." While such a moat can take different forms, its function is the same: protecting the company from competitive threats.

"Moats have been breached time after time. Imagine the Eastman Chemical Company going broke. Imagine all these great department stores being on the edge of extinction. Imagine all those monopoly newspapers going down. Look at the strength of the American auto industry compared to what it was, say in 1950. I think the moats are disappearing rapidly. I mean the old classical moats. I think it's probably a natural part of the modern economic system, as in old moats stop working."

"Berkshire owns the Burlington Northern railroad. You can hardly think of a more old-fashioned business than a railroad business. It's an excellent asset. Who is going to create another trunk railroad? We made that a success, not by conquering change but by avoiding it. It helps to have a position that almost can't be taken away by technology. How else will you haul goods across the land, from Los Angeles to Chicago?"

Sam Zell: The Single Greatest Risk' Facing Americans Could Hit Within Decade

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“The single greatest risk that we are dealing with today is the loss of the U.S. dollar as the reserve currency,” Sam Zell, the founder and chairman of Equity Group Investments said in recent RealVision interview.

“If we keep doing what we are doing right now, I think it is 10 or 15 years away,” he was quoted by MarketWatch as saying.

“A 25% reduction in our standard of living” could take place if the dollar loses its reserve status, which he says is a very real possibility, he said.

“Unlimited debt and irresponsible activity don’t lead to positive outcomes,” the billionaire real-estate mogul added. “That’s a disastrous kind of scenario.”

Charlie Munger: CalTech interview 14. December 2020

 

Charlie Munger appeared for the first time since January on a public interview with Caltech faculty.

Crescat Capital: December Research Letter The End Game

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Markets are cyclical. Today, stocks trade at record high valuations while commodities are historically undervalued in relation. The setup is in place for a macro pivot in the relative performance of these two asset classes. Comparable conditions were present with the 1972 Nifty Fifty and 2000 Dotcom bubbles as we show in the chart below.

As capital seeks to redeploy towards the highest growth and lowest valuation opportunities, we expect analytically minded investors will soon be rotating, if not stampeding, out of expensive deflation-era growth equities and fixed income securities and into cheap hard assets, creating a reversal in the 30-year declining trend of money velocity.

Today’s Modern Monetary Theory world with its double barreled fiscal and monetary stimulus is crashing head on with an accumulation of years of declining investment in the basic industries such as materials, energy, and agriculture. In our analysis, the “end game” for the Fed’s twin asset bubbles in stocks and bonds is inflation. We can already see it developing on the commodity front.

Taylor Collins: Mind Blowing Valuations – Tesla, AirBnB, DoorDash

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The stock market, and in particular, stocks popular among millennial “Robinhood traders” (who have never had the privilege of experiencing a deflating bubble) have been all the rage lately.

It’s fascinating to see companies like Tesla being added to the S & P 500, when it took 16 years for the company to even turn an annual profit. What’s even more astonishing is the enormous market capitalization of Tesla (and similar companies we’ll look at), when compared with their senior and more established competitors.

Tesla’s market cap currently stands at $658 billion ($659 billion if rounding up), beating out Warren Buffett’s Berkshire Hathaway by roughly $133 billion. This is incredible considering Tesla only has a global market share of 1% for passenger vehicles. The chart below illustrates how Tesla’s market cap exceeds the combined market cap of the world’s biggest auto makers – keep in mind Tesla has added 80 billion to their market cap since this chart: