When Stocks Only Go Up?

Spoiler alert to the Wall Street Journal post, What Happens When Stocks Only Go Up – they don’t. But far more interesting than the impossibility of predicting a major correction, whether this time it’s really different, or some other alternative, is the exploration into the psychology of the investor (or trader):

In February 2020, before the pandemic had fully hit home, these investors estimated the odds of such a bear market at an average of only 4%. By April, just after the S&P 500 had fallen by one third, their expectations that the market would plunge again in the coming year nearly doubled to 8%.

Those fears swiftly faded. By last December, investors in the Vanguard survey estimated the probability of another crash in the ensuing 12 months at only 5%. That was slightly lower than their average estimate during the three years before the pandemic.

But one group was different:

…those who went into early 2020 with the highest expectations for stock returns in the upcoming year. They ended up reducing their exposure to stocks much more sharply during the crash of February and March 2020 than those who had been expecting lower returns.

Again, not necessarily by way of prediction but a historical account of the madness of the crowds that should at least give pause, “in the 1920s, a “new era” of technological disruption made caution look absurd—until stocks crashed by 89%.”

Zoom CEO: “I have Zoom Fatigue”

Well over a year into this, the comments in the Wall Street Journal are sad, perplexing, and give pause to what we have done all at the same time:

After more than a year of working virtually during the pandemic, executives in banking and technology are pushing back on the idea that workers should be able to do their jobs entirely from home in the coming months. Though some said they expect more flexible work arrangements to endure going forward, they say there are clear signs of burnout in an era of nonstop video calls.

Eric Yuan, the CEO of Zoom, told a virtual audience of The Wall Street Journal’s CEO Council Summit Tuesday that he had personally experienced Zoom fatigue. On one day last year, he said he had 19 Zoom meetings in a row.

The post goes on to report that, “like many companies, Zoom is planning an eventual return to its offices,” phasing in on-site work. The inquiry really should be what is holding these firms back? Many CEOs like that of JPMorgan have observed what anyone over the age of 50 knows:

Remote work doesn’t work well for generating new ideas, preserving corporate culture and competing for clients—or “for those who want to hustle,” Mr. Dimon said, adding he has been back in the office for months. 

The technology is wonderful, and for working on specific projects that require a shared document or dataset, Zoom, Teams, et. al., work exceedingly well. But you cannot replicate the energy of face to face collaboration, and I think our culture would do well re-thinking some of what we have done over the last year. 

Optimism everywhere – as well as the expectation of inflationary pressures

A post in the Wall Street Journal last week reported pre-pandemic levels of consumer confidence and for good reason(s), “as more people received vaccinations, stimulus payments reached households and businesses more fully reopened.” Employment, stimulus, an opening economy, vaccinations – all very compelling and obvious drivers to an overall feel of things, as well as the continued disucssion of inflation and how this will shape policy choices in the mid to long-term.

The University of Michigan Surveys of Consumers shows a consistent trend (with the next update in two weeks):

The survey adds the following commentary on inflation the finds support for either direction with:

Each side in the current policy debate finds support in the consumer data. The recovery is far from complete as less than half of the fall in consumer sentiment has so far been recovered, and the current and prospective stimulus and infrastructure spending has the potential to spark a renewed inflationary psychology, although that will not occur immediately…

Inflationary psychology preceded actual inflation by about two years in the last bout in the 1970s. The key balance is not to underestimate the ultimate impact of those policies on jobs and inflation, and not to overestimate the ability of policies to bring any excesses to a painless soft-landing.

Similarly, in the May 1 Berkshire annual meeting Buffett noted on the one hand the last 20 plus years, “was not a highly inflationary period as a whole,” but what they are seeing is:

…very substantial inflation. It’s very interesting. We’re raising prices. People are raising prices to us, and it’s being accepted. Take home building. We’ve got nine home builders in addition to our manufactured housing operation, which is the largest in the country. So we really do a lot of housing. The costs are just up, up, up. Steel costs, just every day they’re they’re going up. And there hasn’t yet been because the wage stuff follows. The UAW writes a three-year contract, we got a three-year contract, but if you’re buying steel at General motors or someplace, you’re paying more every day. So it’s an economy really, it’s red hot. And we weren’t expecting it.

When asked in the Q & A his thoughts on the worry of “more inflation or that we will have a pretty dramatic fiscal monetary collision,” Buffett diplomatically answered, “we don’t know.”

Ford vs. Ford – All-Electric Mustang Showdown

You don’t have to be a car enthusiest to appreciate Ford’s developement of a 1,400 horsepower EV that sounds like a landspeeder as the company doubles down on what is possible in the electrified market. Watch the Mustang Mach-E 1400 and all-electric Mustang Cobra Jet 1400 on the track at the same time:

From last year: Ford introduced its All-Electric Mustang Mach-E 1400 Prototype:

Ford introduces Mustang Mach-E 1400, an all-electric road rocket that shows just how much performance can be harnessed without using a drop of gas. Coming hot on the heels of the 1,400-horsepower all-electric Mustang Cobra Jet 1400, this one-off Mustang Mach-E with its seven electric motors and high downforce is ready for the track, drag strip or gymkhana course – anywhere it can show how electric propulsion promises extreme Mustang performance.

Her is the original introductory post from last year:

Blistering earnings and consumer sentiment (Apple Computer)

It is always interesting to observe blockbuster earning results (genuine fundamentals) and realize what is good for business, the economy, and employment, often has little or nothing to do with what drives the capital markets. In other words, what’s good for business is not necessarily good for stocks, and vice versa. Put another way still, investor and consumer confidence are two entirely different things, sometimes. Take just one example with Apple Computer and the 5-day price movement:

How does that reflect a company that just reported earnings that are on track to exceed last year by 30%? Additionally, Apple reported

Profit of $23.6 billion in the latest quarter as revenue rose 54% to $89.6 billion, far exceeding Wall Street expectations. The company also announced a 7% increase to its cash dividend to 22 cents a share and that the board had authorized an increase of $90 billion to an existing share-repurchase program (Ameritrade).

A similar assessment with the same question in Barron’s:

At least a dozen analysts raised their targets for the (AAPL) stock price…and every single one of them raised their earnings estimates in response to the results…previous (Goldman) view that iPhone sales would disappoint during the pandemic was “clearly wrong.”

…growth of 66% in iPhone sales, 70% for Macs, 79% for iPads, and 25% for Wearables, with 27% growth in Services. The company posted 56% growth in Europe, and a remarkable 88% in China…

One obvious question is what can Apple do as an encore?

The suggestion that the earning report might be a little “too good” kind of sound like a search something to say in the absence of any real explanation. But the question of what happens in post-pandemic consumer behavior is a valid one:

“Will there be a trough on the other side as Covid-driven wallet share shifts return to normal?”…“We think the answer is unequivocally yes. It’s just hard to know when and how big that trough might be. We believe that iPad and Mac strength could persist for the next two quarters, but even if the WFH trend persists, we doubt the surge will rival this year’s” (Barron’s).

So again, this week the positive news seems to continue the concern over what happens on the other side of pent up recovery and stimulus, as well as the threat of rising interest rates. But on the good for business and consumer side of things, it is noted, “Apple remains our top idea as we think the hardware business is still in the early parts of a multi-year growth cycle aided by product refreshes and work from home/hybrid work environments.”

What a difference a year makes

While the Fed continues its stimulus through low rates and bond buying, optimistic news continues as reflected in the following (and practically everywhere) which raises questions about the path forward:

Kelly, D. (2021, April 19). Economic Update. J.P. Morgan Asset Management. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/economic-update/ 
Khan, K. (2021, April 23). Goldman Sachs says U.S. economic growth is peaking. SeekingAlpha. https://seekingalpha.com/news/3685126-goldman-sachs-says-us-economic-growth-is-peaking
Cox, J. (2021, April 23). The Fed is unlikely to hint at policy changes next week, even with a stronger economy. CNBC. https://www.cnbc.com/2021/04/23/the-fed-is-unlikely-to-hint-at-policy-change-despite-stronger-economy.html
Tepper, T., & Curry, B. (2021, April 16). 2021 April FOMC Meeting Preview: The Fed Remains On Guard. Forbes Advisor. https://www.forbes.com/advisor/investing/fomc-meeting-federal-reserve/

Of course those articles that were suggesting no action yesterday were right per the concensus. But the question remains for economists and investors: how much good news (and at what rate of recovery) is too much? As quoted in Reuters, “we do feel that a higher inflation reading this year and in 2022 will prove to be not transitory, that the Fed will hit that 2% threshold and above, if not even higher, on a more sustained basis. So that’s where I think we would be on the side of disagreeing with Chairman Powell, that we think inflation is going to gain a toehold.”

Fed Chair Transcript: No Changes for Now

As somewhat expected, the transcript from the Fed Chair today indicated no expected change to rates or bond buying activity in the immediate future. This prompts questions from economists regarding how long this can last given the good news that continues to emerge. For instance:

Economists think a decision to taper is months away although a minority think the Fed might start discussing the issue in June. Fed officials have said they want to see “substantial further progress” in meeting their goals of full employment and 2% inflation before tapering.

The post goes one to cite the recurring themes of optimism, inflation and pandemic risks as potential drivers for a change in policy.

Chair Powell reiterated that, “the FOMC and I kept interest rates near zero and maintained our sizable asset purchases. These measures, along with our strong guidance on interest rates and on our balance sheet, will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete.” Again, no surprise, but he continues, “while the recovery has progressed more quickly than generally expected, it remains uneven and far from complete.” 

But one brief comment also describes some of the most felt implications of Federal and local policy decisions (and recovery):

The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been the hardest hit. In particular, the high level of joblessness has been especially severe for lower-wage workers in the service sector.

In conclusion, the Fed will:

Continue to increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward our maximum-employment and price-stability goals.

Which will in turn extend the trend of low interest rates, housing prices and asset inflation of all kinds.

Updated CDC Mask Guidelines

The CDC has updated its official guidelines (for April 27, 2021) on masks for those fully vaccinated (as well as a few for those who are not). The following are noted in the update:

  • Clarification that fully vaccinated workers no longer need to be restricted from work following an exposure as long as they are asymptomatic.
  • Fully vaccinated residents of non-healthcare congregate settings no longer need to quarantine following a known exposure.
  • Fully vaccinated asymptomatic people without an exposure may be exempted from routine screening testing, if feasible.

The good, better, best scenarios are shown in the partial infographic:

This is great news, but it was just four weeks prior that we read CDC Director Fears ‘Impending Doom’ and the CDC was still recommending the vaccinated to wear masks in public. I think most would not question the sincerity of such concerns or the excellent news of current progress – but what many have questioned for over a year: accuracy of what appear to be contradictory guidelines. Consider the following on the same page. A fully vaccinated people can:

  • Visit with other fully vaccinated people indoors without wearing masks or physical distancing
  • Visit with unvaccinated people (including children) from a single household who are at low risk for severe COVID-19 disease indoors without wearing masks or physical distancing
  • Refrain from testing following a known exposure, if asymptomatic, with some exceptions for specific settings
  • Refrain from quarantine following a known exposure if asymptomatic
  • Refrain from routine screening testing if asymptomatic and feasible

The Future of Self-Driving Cars – Designed Around People (132 years later)

Although the deployment of a number of technologies may have been delayed due to the pandemic, others may accelerate as a result of it. Just as the pandemic and lockdown removed the barrier (now 20 years into the 21st Century!) for paperless workflow in the office, remote meetings, remote work, education disruption, etc., others may be demanded and accepted for a number of reasons and preferences in a post-pandemic world as noted in the Wall Street Journal:

“Over the last 100 years you can’t really say the car was designed around the people; they got what space was left over”…

…As the auto industry contemplates the impact of technology—from electric cars, internet connectivity, and ultimately vehicles that drive themselves—designers are reinventing the interior of the automobile and how its passengers experience the ride. One doesn’t have to imagine some fantastic future with Jetsons-like inventions zipping around on the ground and in the air because the future is already on the drawing boards of car makers today.

What is most striking in these automobile innovations (and very consistent with the unfolding of the whole pandemic response) is the great reversal that cars now represent as a “safe space.” This of course is it due to both the inherent risk of traveling as well as the potential inconvenience of protracted wait times (or potentially getting stranded). So traveling within a large state such as California, people may simply choose to use their cars. The “oasis” concept revolves around the eventual full engagement of self-driving vehicles, technology with “head up” screens and embeded within the window, space utilization for sleeping, and ride-hailing/self-parking, all designed to prividing to create a viable and formitable competitor to air travel.

Again, what is most interesting is that these concepts are not new, but the demand may entirely shift due to the realities of a post-pandemic world. See the full WSJ post here.

First 100 days after shelter-in-place – where are we now?

Today markes the 100th day since the shelter-in-place in the northern California Bay Area, with some interesting reflections in The San Francisico Chronicle on what happened – and going forward:

Wednesday will mark 100 days since shelter-in-place orders were issued on March 17. Experts believe the move prevented thousands of deaths and tens of thousands of infections. It kept hospitals from being overrun and gave cities and counties precious time to learn about this new virus and mount a defense against it.

But more than 500 Bay Area residents died of COVID-19 in that time. More than 18,000 tested positive. And the coronavirus that drove millions of people into isolation remains as sinister and unpredictable now as it was 100 days ago. What’s changed over the past three months is not the virus, but the way the Bay Area lives with it.

…No one in public health really expected [three weeks] would be enough time to suppress the virus and let life resume as normal — but few predicted that 14 weeks later there would be no end in sight to this pandemic.

What is most remarkable is that many experts believe “the world is going to be cozy with this virus for a long while…coronavirus is still here…it’s probably far more widespread now than it was in March,”  which certainly gives pause to the last three and a half months. It is further interesting to note that the shelter orders were self described as a “draconian strike,” with profound consequences:

But understanding that their decision would have profound repercussions was not the same as watching those effects play out, said Louise Rogers, chief of San Mateo County Health.

…I didn’t really have a full understanding of how deeply impacted so many people would be, and how much it would reveal some of the deep systemic issues that already exist in society – the inequalities and the disproportionate effects.

See the full post here.

WSJ: A question of purpose as many go back to work

Purpose, satisfaction, and relevance have been ongoing topics of discussion in a workplace that has changed over the last several decades but is especially felt in our present time as the Wall Street Journal points out:

Companies may have to address the angst some workers feel about their relevance and the purpose behind their jobs. Decades of research show people crave a sense of purpose to feel motivated at work. Without the coffee dates, meetings and camaraderie of time with colleagues, “you’re left with the work itself,” and if the work starts to feel wanting, it can lead to painful reckonings.

It is probably not a stretch to say that everyone has had extended, contemplative stretches of time as many (if not most) of us have had more time on our hands (even those working) than in our entire adult lives, and it would appear rotating back into the workplace is more abrupt than expected:

“Purpose” has been invoked in recent years by business leaders and employees, who say they want their careers to have meaning broader than the bottom line. Companies have embraced the term as they recruit young employees, casting their work and mission as solving important problems.

In addition to several suggestions, I would add don’t miss this unique opportunity, while it is still fresh in our minds, to contemplate why and how we are not meant to be isolated. See the full post here.

COVID-19: Ioannidis vs. Taleb (International Institute of Forecasters)

The International Institute of Forecasters facilitated a very interesting discussion in the form of two scholarly blog posts – COVID-19: Ioannidis vs. Taleb, Learning from the positions of Nassim N. Taleb and John P. Ioannidis in the COVID-19 debate. The idea of this match up of differing views from such profound thinkers is literally brilliant. The setting is what may be the closest thing we have seen of an old fashioned discourse. Pardon me for being old fashioned but actual, respectful dialogue and discourse is what is desperately needed in our present time and has been missing for decades. How much more do we need such a thing in an age where many of our national and international challenges have taken on a complexity due to the natural order of progress, technology and globalization. From the introduction page:

“Two…voices have been highly visible in the public debate, with seemingly diverging opinions. I am thinking here of John P. Ioannidis and Nassim N. Taleb (arguably two of the greatest living thinkers) holding opposing views about how to deal with the present pandemic and its potentially destructive consequences.

…Nassim N. Taleb believes that all efforts and resources should be directed to halt its spread and reduce the number of infected and deaths without any concern about forecasting its future course as the uncertainty of doing so cannot be measured and the risks involved are highly asymmetric. John P. Ioannidis, on the other hand, claims that more reliable information is needed to make multiple billion-dollar decisions and that forecasting has failed us by being too pessimistic about the future growth of the pandemic and by exaggerating its negative effects.

…This debate will not only allow us to better understand the points of view of the two great thinkers but be also left as a guide for how to deal with future pandemics.”

I would only take issue with the comment, billion-dollar decisions, since we are already well north of multi-trillion dollar decisions. Of the two positions, Taleb remains consistent with his central theme for more than a decade, namely, the profound consequences of risk versus upside benefits, and this is only amplified in pandemics, where he states they “represent existential risk.” In other words, survive now:

“Science is a procedure to update knowledge; it can be wrong provided it produces interesting discussions that lead to more discoveries…for matters that have systemic effects and/or entail survival, the asymmetry is even more pronounced.”

Ioannidis, on the other hand, has been one of the few critics of our nation and the world being put on “horror-alert,” with models that he states have:

“Failed when they used more speculation and theoretical assumptions and tried to predict long-term outcomes, e.g. using early SIR-based models to predict what would happen in the entire season.”

One note that I frequently see as both a criticism and straw man argument against Ioannidis that is worth mentioning: he is clearly not saying to do nothing, or that COVID-19 is trivial. He opens his post with the following, “COVID-19 is a major acute crisis with unpredictable consequences.” Later he and his colleagues state, “a doomsday forecast may come handy to protect civilization, when and if calamity hits. However, even then, we have little evidence that aggressive measures which focus only on few dimensions of impact actually reduce death toll and do more good than harm.” See introductory post here, Taleb here, Ioannidis here.