“Insane consistency” in today’s markets

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American poet and writer Ralph Waldo Emerson wrote: “Insane consistency is the hobgoblin of little minds. While the stock and risk mania continued through 2020 and into 2021, as evidenced by sky-high valuations in much of the tech arena (i.e., FAANG stocks ) and the record number of IPOs in 2020 (480 in the US and during a non -less pandemic), we have certainly seen ‘insane consistency’ as investors continually suffer from ‘fear of missing out’ “.

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The evidence seems endless. Look no further than Tesla
TSLA
market value well over $ 700 billion, which now exceeds “the stock values ​​of the world’s top ten carmakers combined, even though these companies produced 140 times the number of cars Tesla made last year,” according to the strategist Fred Hickey. Hickey also highlights the popular ARK Innovation ETF with a size of almost $ 18 billion, double the size of the previous quarter! Naturally, his biggest stake is Tesla. Though reminiscent of the dot.com internet era of the late 1990s, the ultimate parabolic mania has been in the cryptocurrency darling Bitcoin, as pervasive irrationality seemed to peak.

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While minimizing risk can sometimes be a lonely sport, we’ve often said that when investors are greedy, many fund managers prefer to avoid career risk. Any focus on fundamentals or defensiveness took precedence over “concepts”. While much of this risk is due to manipulated interest rates suppressed by the Fed for twelve years now, many wonder how and when does it all end? Former Fed Chairman Janet Yellen, soon to be head of the US Treasury Department, we’ll see Modern Monetary Theory (MMT) in full swing. As the helicopter money arrives with additional fiscal stimulus, we would expect to see increased consumer price inflation manifested in a much weaker US dollar, which would push costs down. import to increase. We could see more inflation driven by a deficit of economic inputs due to supply constraints of natural resources coupled with shrinking labor force produced by demographics, which will drive up the cost of labor. work in a growing regulatory environment. In short, this cocktail of inflation won’t need to be shaken or stirred.

The weaker dollar would be more pronounced against the Chinese yuan, as China’s response to the pandemic has been much faster and much better orchestrated. As economist Stephanie Pomboy points out, the balance sheets of the ECB and the Fed since the inception of Covid “have increased by $ 2 trillion and $ 3 trillion respectively”, while the People’s Bank of China stands ” exactly where they were 2 years ago ”. She adds: “as the Fed, the ECB and the BOJ desperately try to prevent their credit markets from imploding … China allows free market cleansing of economic and credit excesses.”

In essence, as Charles Gave puts it, “the United States is moving from a cycle of a deflationary boom to an inflationary boom”. In this environment, one needs to focus on stores of value like gold, mining stocks and energy, as well as cash flow value stocks in areas like health, as well as income-producing real estate. Playing speculative excesses will inevitably create significant pain for investors, as it has in previous cycles. As Orson Welles said, “If you want a happy ending, it depends, of course, on where you end your story.”

The Rosenau Group is a team of investment professionals registered with Hightower Securities, LLC, a member of FINRA, SIPC & Hightower Advisors, LLC, an investment advisor registered with the SEC. This document was created for informational purposes only; the opinions expressed are solely those of the author and do not represent those of Hightower or its affiliates. This is not an offer to buy or sell any securities, and Hightower will not be responsible for any claims relating to this writing and makes no representations or warranties, express or implied, as to its accuracy or its completeness.

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