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What to Do as the “Tech Bubble 2.0” Looms in the Distance

As we discussed on Tuesday, the dot-com era still has things to teach us 20 years later.

Source: GoodIdeas / Shutterstock.com

While history doesn’t…

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This article was originally published by Investor Place

As we discussed on Tuesday, the dot-com era still has things to teach us 20 years later.

Source: GoodIdeas / Shutterstock.com

While history doesn’t always repeat itself, it does rhyme. Now that stock valuations are higher than they have ever been, and some pockets of the market are looking a bit frothy, the current investment environment feels  eerily similar to the dot-com bubble of 1999-2000.

This isn’t necessarily an indicator that we’re approaching a “rhyme” of what happened in 2000, but it also does not mean that we are not.

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Because of this, today I’d like to show you how to perform a couple of simple portfolio tests that could help you prepare for any incoming market fluxes.

The Portfolio Test: Trimming, Patience, and Timing

We should take a few minutes to reexamine each of our investments to be sure that we are still enthusiastic about each of their prospects going forward.

At the same time, we should make sure that our total allocation to stocks aligns with our actual risk tolerance and investment objectives.

Run a simple test that goes like this: If a market selloff caused my stock holdings to fall 20%, would I be okay with it? What if my stocks fell 40%, would I be okay with that?

Another way to ask that same question would be: What would bother me more; missing out on a 30% gain… or suffering a 30% drawdown?

Only you know the answers to these questions, but given the market’s sky-high valuations, you should probably be asking them.

No matter what cautious steps you might take, some level of regret is almost inevitable.

If you trim positions and the market soars over the next 12 months, you might regret that you sold anything. On the other hand, even if you sold half of your holdings before a major selloff, you would probably regret not selling even more.

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There is no perfect, all-weather approach to managing risk; long-term investing is both a science and an art.

That’s why I recommend taking profits along the way, while still continuing to invest in the most promising investments you can find… no matter what the market environment might be.

Timing is important, but it isn’t the only determinant of investment success. Patience is also critical.

Richly valued stocks can inflict a lot of pain as they “deflate” during a bad bear market. That’s the bad news.

But there’s another side to this story, brought to us again by Kevin Landis.

Be Bold… Be Not Too Bold

Two years after dot-com peak, when Landis’s Firsthand Technology Value Fund was still nursing an 80% loss, he addressed a conference of professional investors and quoted the poet William Blake:

“If a fool would persist in his folly, he would be wise.”

In other words, many “foolish” ideas become brilliant… eventually.

Back in 1900, for example, Ferdinand Porsche designed and produce the first commercial all-electric automobile. Called the Lohner-Porsche Electromobile, he presented his innovation at the World Expo in Paris.

A photograph of Ferdinand Porsche's Lohner-Porsche Electromobile.Source: LCO Photography / Shutterstock.com

Part of the inventor’s motivation was his fear that the air we breathe was being “ruthlessly spoiled by the large number of petrol engines in use.”

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But the motorcar consumers of the early 1900s had no interest in such foolishness; they wanted gasoline-powered vehicles instead.

More than a century later, Elon Musk persisted in the folly of building all-electric cars, and investors have rewarded his company, Tesla (NASDAQ:TSLA), with a $1 trillion market value.

Even Landis’s own career makes the point that “foolish” ideas can become brilliant. The man is still at the helm of the Firsthand Technology Opportunities Fund, which has racked up a 2,000% gain from the lows of 2002.

Clearly, brilliance and foolishness share an intimate relationship. Sometimes the only factor dividing the two is the public attitude toward stocks.

So, what’s the takeaway from all this?

Investors should heed the famous line from Edmund Spenser’s Faerie Queene:

“Be bold… Be not too bold.”

In other words, be bold enough to buy and maintain positions in a select group of “forever stocks” that have the potential to deliver gains of 1,000% or more over time.

But do not be so bold that you hold an entire portfolio full of richly valued stocks that could implode during a serious bear market.

I talk more in depth about this in the most recent issue of Fry’s Investment Report. There, you’ll learn which stocks are on my radar this month — and even more about what to do as the “Tech Bubble 2.0” looms in the distance.

Click here for details.

Regards,

Eric Fry

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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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