When you go to new highs, you do not try to find justifications for why things have gone right. You try to find reasons that they could fail. If you are not believing that way, then you aren’t demonstrating the kind of critical reasoning that’s required to be an excellent financier.
So, on the eve of earnings season, let me articulate 7 concerns I have that describe some caution I just recently showed when I took $100,000 out of the market for my charitable trust, which you can follow along by signing up with the Action Informs PLUS club. These are not “what keeps me up in the evening” comments to that ridiculous concern– I sleep like an infant if I can sleep– they are just good reasons to take some earnings and put the cash aside for a rainy selloff.
First, are the profits. This week we have bank earnings and, as much as I like the banks, the stocks have actually increased, up and away, something that makes it crucial that revenues have to be ideal. The banks have two things choosing them, the yield curve, which isn’t as bad as it was, and their relative cheapness.
Even after this run they are still affordable versus the remainder of the market. Those are good reasons to own the stocks, but are they a sufficient factor to purchase the stocks? If you believe the Fed really isn’t going to tighten up, or you think the rest of the market is too pricey relative to the banks, then you do not have a leg to stand on. I keep seeing the stock of JP Morgan (JPM) opening up a buck and a half and after that slowly, however surely working itself down to flat and then having all of individuals who bought it up big barfing it up as if they had no conviction, either in themselves or in the bank, which they most likely didn’t understand much about anyhow. Bank incomes are so hard to know and learn about that the headlines are a dice-roll and there are a great deal of dice rollers out there who are right away dissatisfied.
So, call me worried about this red hot group, and what it can do to harm the tenor of earnings season.
Two, inflation. I believe Fed Chief Jay Powell is right that the inflation spike is transitory. I see oil up well beyond where the basics determine, even with the fantastic reopening, because the Saudi Arabian leaders could awaken one day and say, “Jeez, at these rates Americans are drilling once again, so let’s produce more oil and get them to stop.”
I believe that oil is up artificially. Yes, there are worries about whether President Joe Biden will cut drilling or firmly insist that emission requirements are met that would limit fracking, but I think that oil might fall 10 dollars in a heart beat if the Saudis even whispered that they want it lower.
I believe that plastics are up a lot, since of the severe blackouts along the Gulf Coast triggered by Superstorm Uri. But what if it takes months to get these plants restarted as it is looking increasingly more the case? At what point do we say that the port blockage that is triggering unlimited price boosts really is endless and is therefore not transitory? Will Jay Powell have to reverse himself? Maybe I am being too enthusiastic about inflation in agreeing with Powell?
3: endless supply. Wednesday, Coinbase, among the biggest companies to come public in years, starts trading as a direct offering. Given that the business hasn’t provided us much to go on in terms of its future, you need to wonder if organizations will play. If individuals storm evictions with rowdy purchasing, if it rapidly ends up being a “Wall Street Bets” job, will it collapse on the first truly down day for bitcoin?
We have actually seen method a lot of deals this year currently to make me feel comfortable with a $100 billion dollar direct listing. Not self-confidence motivating. Plus I believe that the special function acquisition business, the dominant offerings these last few months, have taken a short-term pause, that will quickly end when the SPAC GRAB will introduce for $37 billion, which appears to be a combination of Uber (UBER) and maybe banking. This one sounds major: The sponsor is staying. But there’s excessive cash being distributed for the stars to withstand. Will the Securities and Exchange Commission examine SPACs? I am constantly mentioning that supply is what eliminates the bull. It will be sorely evaluated today, and Coinbase will check it.
I don’t like the 37% of tech business that are profitless today, however there’s certainly not a lot of discipline being exercised. This is the greatest quantity of unprofitable tech business because 2000. Threatening? Too much supply, a lot of questions,
4, the complacency we are seeing about the infection amazes me. Social distancing seems like it is a distant memory. We act as if we have this thing under control, yet nobody even seems to understand whether the vaccines really work versus all sorts of new variants. Individuals are sick of quarantining and lots of appear to think that the infection was never ever lethal, so what’s the point of using a mask.
Right now, however, in the province of Ontario, physicians quickly might need to decide which clients can get a bed in an ICU and which ones can’t. This is playing out in Toronto, not some backwater location where denial reigns supreme. Right now in the U.S. the vaccinators appear to be outrunning the afflict– Johnson & Johnson (JNJ) notwithstanding– because its pause isn’t that meaningful considered that it’s not had the ability to produce the darned thing conserve about 4 million dosages imported from the Netherlands. Remember, its outsourced plant had a mess up, and isn’t going to be opened whenever quickly. Viewpoint: The JNJ blood clot numbers are very low, no higher than the regular influenza vaccine. We need to anticipate that those who are already immunized might need boosters if this maintains. We are all weary. We are jointly in risk of letting our guard down.
Five, we are overbought on the S&P oscillator you understand I swear by. It’s not dreadful, less than 5 on a thermometer that tells you if we have a fever. However I would feel more comfortable after a run like this if we had the ability to have a gentle decrease rather than some sort of cliff dive and the longer we hang up here the more worried I get, specifically due to the crucial story we ran recently about Tom Demark, a terrific professional and his appointments.
Six, the scarcities really do stress me, particularly the chip scarcity. There actually isn’t anything numerous manufacturers can do to increase production. Business like Ford (F) and GM (GM) simply can’t cash in on the need, since of an absence of chips, and I don’t see it improving. Not in the time needed to make a distinction to 2022 incomes. I think it is excellent that the president is focused on this problem and he managed to attend a few of the Washington conference about the scarcities held simply the other day. However you can’t simply toss up factories in a couple of months time. It’s more like years. And there merely aren’t adequate makers being made to develop more chips, even as they are working pretty much around the clock to do so. You believe that the stocks of Applied Products (AMAT), KLA (KLAC) and Lam Research (LRCX) would be this high otherwise?
We have shortages throughout the system, because of decisions made years back by our business to deal with inventory in an in the nick of time way, rather than a simply in case manner, which is how they do it in China. It’s left our companies with no options, however shutdowns and loss of sales as far as the eye can see.
Finally, 7: diplomacy. We have a new president and it seems that everybody from the Iranians to the North Koreans to the Russians and the Chinese wish to check his resolve. Is it time for him to come out and discuss an “Axis of Evil” as George W. Bush did not long after 9/11? Definitely appears like there is one.
The most important issue here has to be China, which appears to determined to show Biden that it doesn’t want to hear anything about civil liberties or it will make a move on Taiwan if it keeps up. I think that such an action is no longer unlikely.
To me this flashpoint, this action by a country that has constantly claimed it owned Taiwan anyway, is the most dangerous story line worldwide today. I am quite concerned that we might wake up one morning with a statement by the Chinese that it is time for the Taiwanese government to submit to its rule, otherwise, with or else being an unknown. Why else would the Chinese send out 25 airplanes over Taiwan airspace last night if they didn’t intend to exercise their alleged sovereignty over Taiwan?
Again, I am not a bear. However I wished to give you some of the reasons why we sold so much for the charitable trust on the eve of last week’s club call. The market can handle one or perhaps two of the issues I have actually traced out, but not all of them. So why not raise a little money and be ready if one ideas the scale in favor of the bears?
( Ford is a holding in Jim Cramer’s Action Signals PLUS member club. Want to look out prior to Jim Cramer buys or sells these stocks? Find out more now.)