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What the Dot-Com Era Has to Teach Us 20 Years Later

We don’t tell the stock market what to do; it tells us.

Source: klublu / Shutterstock.com

No matter how often, or how painfully, the stock market…

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This article was originally published by Investor Place

We don’t tell the stock market what to do; it tells us.

Source: klublu / Shutterstock.com

No matter how often, or how painfully, the stock market may remind us that it is cyclical, many of us investors simply forget it… or turn a blind eye to it.

We become overly fearful when we should be courageous, and overly confident when we should be cautious.

One decade after the grisly dot-com bust, a MarketWatch story accurately conveyed the giddy excesses of the era by describing late-1990s tech fund managers as “masters of a parallel universe… [and] Poseidons astride the Internet-stock wave.”

But as the MarketWatch story also pointed out:

“The bust ended a brief but phenomenally lucrative period for investors willing to take a chance on unproven technology companies… and on largely unproven fund managers who claimed to understand them.

“The rallying cry of the Internet crowd, “It’s different this time,” was at once bullish and bullying. Anyone who said otherwise about stock valuation — that sales and earnings still mattered — just didn’t get it.

“Technology-fund managers of the time were media celebrities, highly sought seers of the stock market with their fingers on the Internet’s pulse and promise.”

But as soon as the dot-com bubble burst, these “Poseidons” found themselves drowning in wave after wave of “sell” orders.

Could this stock be the #1 5G play?

By now, you’re probably asking… why the heck are we talking about something that happened 20 years ago?

Simply because history never repeats itself precisely, but it usually rhymes. Today’s giddy stock market environment rhymes with 1999 as closely as “cat” rhymes with “hat.”

Here’s what I mean…

Find the Balance Between Naysayers and Fearmongers

“I don’t think it’s a bubble… For the long term, tech equals growth… I don’t think I’m going to be any less enthusiastic about this next year, or the year after that, or the year after that.”

The source of that quote was a guy named Kevin Landis, and he offered these insights on February 27, 2000 — just days before the dot-com bubble burst spectacularly… and tech stocks of all shapes and sizes plummeted.

During the boom years of the dot-com era, guys like Landis achieved rock-star status… and for obvious reasons. They could do no wrong.

30-Year Wall Street Vet: Media Ignoring This 5G Investment

In the five years preceding the dot-com peak, Landis’ Firsthand Technology Value was the No. 1 mutual fund in America. It had soared more than 700% over that time frame, and investors were throwing money at Landis’s high-octane fund.

But that’s when the party ended.

The dot-com bubble burst, stocks cratered, and investors fled the scene as quickly as possible.

Amid the severe two-year selloff that ensued, the tech-heavy Nasdaq Composite Index tumbled 75%, while Firsthand Technology Value — and many other funds like it — plummeted more than 85%.

And right now, stock valuations are hitting all-time highs — even surpassing the lofty levels of the dot-com peak of 2000.

And yet, investors of all sophistication levels are trotting out rationalizations for these high valuations. The higher prices soar, the more eagerly investors rationalize sky-high valuations.

Cathie Wood, the pedal-to-metal tech-stock investor/celebrity who has guided the ARK Innovation ETF (NYSEARCA:ARKK) to spectacular gains during the last few years, recently echoed the exact words Landis uttered in 2000 when she said, regarding today’s conditions, “This is no bubble.”

She expanded upon that statement by saying, “I do believe that the market is beginning to understand how profound some of these platform opportunities are and how sustained and rapid the growth rates are going to be.”

In Wood’s view, unprecedented tech innovation we’re seeing presently justifies higher company valuations. That’s because tech stocks can grow at such incredible rates that they render traditional valuation metrics irrelevant.

Stock-Picking Legend Shares One of His Top Plays for 2022

This bullish narrative is not the only financial phenomenon that rhymes with its 1999 counterparts. Some price trends are also rhyming… as the chart below shows.

An “Eerily Similar” Trajectory

During the past five years, Wood’s ARKK has traced out a price trajectory that has been eerily similar to the five-year price trajectory of Landis’ Firsthand Technology Value Fund during the late 1990s.

A chart showing the performance of ARKK in the last five years compared to the Firsthand Technology Fund from 1995 to 2001.

To be clear, this chart does not possess any mystical predictive power.

So even though ARKK has tracked closely with Firsthand’s trajectory 20 years earlier, that striking similarity does not mean ARKK will begin plummeting like Landis’ fund did.

That said, bad things often happen to richly valued stocks… and Wood has not shied away from loading her portfolios with pricey stocks.

Now, significant differences exist between today’s stock market and the 1999 edition.

Many of the technologies in focus today are arguably more potent and transformational than those of two decades ago.

But human psychology never changes — especially not the psychology that causes the stock market to cycle through periods of low valuation to high valuation and back again.

Because stock market values today are higher than they have ever been, and because tech-stock valuations are among the highest of the high, we investors owe it to ourselves to do a gut check.

On Thursday, I’m going to show you how to perform a couple of simple portfolio tests to ensure you’re prepared to weather any incoming market fluxes in the best way possible.

Stay tuned…

Regards,

Eric Fry

P.S. First electricity, then the internet. Could this new $56 trillion platform be the next great groundbreaking tech? I think so. Click here to see why.

On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.

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Author: Eric Fry

Economics

Are These The Charts That Spooked Jerome Powell?

#CKStrong Fed Chair, Jerome Powell finally admitted today there is too much stimulus demand (in the macro context) in the global economy and the Fed will…

#CKStrong

Fed Chair, Jerome Powell finally admitted today there is too much stimulus demand (in the macro context) in the global economy and the Fed will have to accelerate its tapering.

The following charts clearly illustrate the U.S. economy is overheating and a major contributing factor to inflation. Nominal retail sales and core capital good shipments remain 15 percent above and years ahead of their pre-COVID trend. Think of the trend line as the supply curve.

In hindsight, it is easy to say the global policymakers overshot with their stimulus, but it is certainly better than the alternative and a deep recession/depression.  Just as you and I, policymakers make decisions with imperfect information.  Counterfactuals don’t go a long way in the political arena.

We think it is about time the FOMC finally starts to focus on the problems caused by the “monetary supply chain,” rather than blaming the economic imbalances on “supply chain issues,” and it appears they have. If demand were not so strong, the supply chain issues would have worked themselves long ago, and the Port of Los Angeles and Long Beach wouldn’t look the 405 freeway during rush hour.   

As reflected in the charts below, the supply chain broke early during the pandemic as upstream suppliers were “bullwhipped” by the massive volatility in point-of-sale or end demand.

We believe the next inflection point, where the Fed keeps tapering and then tightening until something breaks, which leads to reversal and a new monetary regimes, is a long way off.

Stay tuned.



Author: macromon

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Economics

Financial Markets and Omicron and Powell

Five year inflation breakeven (unadjusted) down, 10yr-3mo term spread down, VIX and EPU up, and S&P 500 down. Figure 1: Five year inflation breakeven…

Five year inflation breakeven (unadjusted) down, 10yr-3mo term spread down, VIX and EPU up, and S&P 500 down.

Figure 1: Five year inflation breakeven (blue), ten year – three month Treasury spread (red), both %. Source: Treasury via FRED, and author’s calculations.

Ignoring adjustments for inflation risk term and liquidity premia, implied expected 5 year inflation is down to 2.8%, while growth prospects also revert back to September levels.

Figure 2: VIX (blue, left scale), and Economic Policy Uncertainty index (red, right scale).  Source: CBOE via FRED, policyuncertainty.com.

Risk and policy uncertainty are also at recent highs, but still are dwarfed by Trump era highs (83 for VIX at 27.2; 862 for EPU at 180 on 11/29).

Figure 3: S&P 500 index (blue, log scale). Source: S&P via FRED. 

Given this backdrop (lower expectations for growth and presumably profits, due to Omicron, and higher interest rates from Powell’s statement re: inflation persistence), it’s not surprising to see a drop in stock indices.




Author: Menzie Chinn

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Economics

Retailers Open Pop-Up Container Yards To Bypass Savannah Port Jams

Retailers Open Pop-Up Container Yards To Bypass Savannah Port Jams

By Eric Kulisch of American Shipper,

Overflow lots set up by large retailers…

Retailers Open Pop-Up Container Yards To Bypass Savannah Port Jams

By Eric Kulisch of American Shipper,

Overflow lots set up by large retailers this month as temporary staging areas for imported containers have helped bring down congestion levels at the Port of Savannah, and Georgia officials expect further efficiency gains with this week’s opening of two more port-sponsored pop-up sites.

The Georgia Ports Authority, in partnership with the Norfolk Southern, will start accepting loaded containers on Monday at the freight railroad’s nearby Dillon Yard and later this week will begin routing shipping units to a general aviation airport in Statesboro, located about 60 miles west of Savannah, Chief Operating Officer Ed McCarthy told FreightWaves.

Moving containers to off-port properties is part of the recently announced South Atlantic Supply Chain Relief Program designed to reclaim space at the Garden City Terminal, where container crowding is making it difficult for vessels to unload and for stacking equipment and trucks to maneuver. In October, Savannah handled an all-time record of 504,350 twenty-foot equivalent units for a single month, an increase of 8.7% over October 2020. The volume surpassed the GPA’s previous record of 498,000 TEUs set in March.

Port officials began testing the Dillon Yard and Statesboro locations last week after renting top loaders for stacking and truck transfers, installing computer lines in order to track containers entering the gate with radio frequency identification, and laying extra pavement at the rail facility, McCarthy said. 

Four or five more pop-up container facilities are scheduled to open around Georgia by mid-December and the port authority is talking with freight railroad CSX about an auxiliary storage site in Rocky Mount, North Carolina, the COO said in an interview. 

The sites are mini-versions of inland ports where containers are brought to strategically located sites by intermodal rail, shortening the distance trucks have to travel to collect imports or drop off exports and reducing traffic in and around busy seaports. The concept essentially brings the seaport closer to manufacturing, agriculture and population centers. 

The GPA currently operates a large inland intermodal rail terminal in Murray County, Georgia, as well as an inland dry bulk facility. Construction on a second inland rail link for containerized cargo in northeast Georgia is scheduled to begin in April and be completed by mid- to late 2024, spokesman Robert Morris said. South Carolina also operates two inland ports, Virginia has one in the northwestern part of the state and the Port of Long Beach in California recently launched an effort to quickly flow cargo to Utah for distribution by converting truck traffic to rail.

Several users of the Port of Savannah this month have opened pop-up yards of their own where they can directly flow import containers to avoid waiting for longshoremen to sort through shipping units for their cargo and then retrieve them when space opens at one of their distribution centers. Each of the private spillover yards can accommodate 2,000 to 3,000 containers. 

“We’re starting to see some of our customer base do their own pop-ups. They’re contracting with some folks who have capabilities in the Savannah region and … taking their long-term destiny in their own hands,” McCarthy said in an interview.

The Rocky Mount intermodal facility being discussed with CSX will probably be used as an alternative storage location for empty containers. It could be running by early December, the COO said. Whether containers are diverted from other locations or whether empties are loaded up in Savannah and sent there remains to be determined. 

The Biden administration, which is focused on alleviating a nationwide supply chain crisis that is creating product shortages and contributing to inflation, helped fund the GPA’s emergency storage yards by reallocating $8 million in federal funds. Additional flexibility recently granted by the Department of Transportation allows port authorities to redirect cost savings from previous projects funded by port infrastructure grants toward mitigating truck, rail and terminal delays that are preventing the swift evacuation of containers from ports.

White House port envoy John Porcari, the liaison between industry and the White House Supply Chain Disruptions Task Force, said the government is looking to create more inland ports. 

“We’re encouraging other ports to do the same [thing as Savannah.] I think you’ll see a generation of projects in the short term around the country that will help maximize the existing on-dock capacity through interior pop-up sites,” Porcari said on Bloomberg’s “Odd Lots” podcast last week. 

“The fundamental issue is that the docks themselves are such valuable pieces of real estate that you don’t want the containers dwelling there a second longer than you have to. You want to get them to the interior or back on ships to their target markets overseas,” he said.

Better Fluidity

Improvements in rail handling, a dip in import volumes in line with seasonal patterns and the customer pop-up yards have combined to improve cargo flow and reduce the number of ships waiting for a berth at the Port of Savannah, McCarthy said. 

The port authority released an operations update last week showing the average dwell time for a container moving by rail after vessel unloading is two days, and that the average resting time within the terminal for import and export containers is about eight days, down from 11 and 10 days, respectively. The backlog of empty containers remains a problem, with boxes lingering an average of 17.8 days.

The improved performance is helping personnel work vessels faster and reduce Savannah’s cargo backlog. The number of ships at anchor in the Atlantic Ocean declined to 15 as of Monday morning from 22 two weeks ago, Morris said. There were 24 container vessels at anchor in mid-October. Total containers on the terminal also declined 13% and are down 16% from the peak of 85,000, according to the update.

McCarthy said there are about 225,000 TEUs currently on the water, a 10% to 12% reduction from early November that indicates “we are over the hump of the peak season.”

Last week, ocean carrier CMA CGM said its Liberty Bridge service from northern Europe to the U.S. East Coast would temporarily skip Savannah due to the congestion. According to the revised schedule, seven stops between late December and early February will be omitted. Shippers can send Savannah cargo to the Port of Charleston, South Carolina, until then, it said.

The GPA also noted that providers have increased the supply of chassis, the wheeled frames on which containers rest when pulled by truck, and are increasingly able to repair more chassis to help meet demand for cargo deliveries.

Mason Rail Terminal expansion. (Source: Georgia Ports Authority)

The Port of Savannah increased its near-dock rail capacity by 30% with the commissioning two weeks ago of a second set of nine tracks at the Mason Mega Rail Terminal. The port moved 550,000 containers by rail last year and now has more than 2 million TEUs of capacity with an eye toward future growth. The ability to discharge cargo from a vessel and ship it out by train in less than two days is best in class for the U.S., McCarthy noted.

A huge new container yard will come online in phases starting in December and culminate with about 820,000 TEUs of additional capacity by March. The project includes rubber-tired gantry cranes for sorting, stacking and transferring containers.

Construction of another berth is underway and scheduled to be complete in 2023.

Meanwhile, the federal dredging project to deepen the Savannah River to 47 feet (54 feet at high tide) is expected to be completed in the first quarter of 2022. It has already allowed vessels with deeper drafts to enter the port, McCarthy said. The deepening translates to about 200 extra loaded containers per foot and a total of 1,000 per vessel when the project is finished.

Tyler Durden
Tue, 11/30/2021 – 19:45

Author: Tyler Durden

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