The Long Term Investor

In fact.....I happen to like this little article on the inflation issue:

Stop Stressing About Inflation

https://ritholtz.com/2021/02/stop-stressing-about-inflation/

(BOLD is my opinion OR what I consider important content)

"Forecasts of the return of inflation have been greatly exaggerated.

Today, I want to discuss several “Flations,” from De-flation to Re-flation to In-flation and its bastard offspring, Hyper-inflation.

Inflation occurs when one or more factors combine to drive prices higher. Often, wage pressures raise prices for good and services, filtering into the general economy (1960s). Sometimes, the combination of a weakening dollar and rising commodity prices send input costs higher, which kicks off an inflationary spiral (1970s). Third, there are times when the cost of capital becomes so cheap it sends anything priced in dollars or debt off into an upwards spiral of (2000s).

But Inflation is not inevitable. There are numerous countervailing forces that have been at work for much of the past 50 years. The three big Deflation drivers: 1) Technology, which creates massive economies of scale, especially in digital products (e.g., Software); 2) Robotics/Automation, which efficiently create more physical goods at lower prices; and 3) Globalization and Labor Arbitrage, which sends work to lower cost regions, making goods and services less expensive.

Put into this context, Inflation is periodic, driven by specific events; Deflation is consistent, the background state of the modern economy. To fully understand this requires grasping how scarcity and abundance act as the drivers of the price of labor and goods. My suspicion is many economists who came of age during earlier eras of inflation fail to discern how the world has changed since.

Consider what this combination implies: the dominant modern world “flation” tends to be biased more towards falling than rising prices. We live in an era of Deflation, punctuated by occasional spasms of Inflation. This suggests that fears of inflation are likely to be more overstated, even with low monetary rates and high fiscal stimulus.

The net result: Forecasters have been over-estimating inflation by more than a little and hyper-inflation by more than a lot. Indeed, the Fed and most economists got this wrong in the 2000s, radically under-estimating how the novelty of ultra-low rates, high employment, and weak dollar caused prices to go higher.

Inflation was robust until the Great Financial Crisis came along; in its aftermath, inflation was (despite all too many forecasts) a no show. Persistent under-employment led to a lot of slack in the labor force, even as the US economy saw unemployment fall to below the 4% levels.

Perhaps this explains why so many economists forecast a post GFC inflation that never arrived. Post Covid, we should see hiring and lots of pent up demand and a transitory bout of modest inflation. But even that is likely to be much less of a threat than it has been in prior decades.

But not to the old school economists. Perhaps they need to reconfigure their models of what causes inflation and deflation. Being wrong for the past two decades should provide the motivation to update those models. Unfortunately, we see little evidence they are interested in changing their fundamental concept of what drives prices higher.

Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon” — 50 years ago, in 1970. The world has changed dramatically since. I wish economists understanding of inflation would change also.



What Pent Up Demand?


UPDATE: February 12 2021

This is the chart of rising inflation expectations — not inflation per se, but what people think might happen.


Its worth pointing out that people’s expectations have been mostly wrong, and even if they get this one right, inflation under 2.5% is nothing to freak out about.


"
MY COMMENT

ACTUALLY....inflation in the range of 2% is considered NORMAL and is a good thing. In FACT.....inflation levels of 1% to 2% per year are generally considered acceptable, while inflation rates greater than 3% represents a more concerning level.....at least by HISTORICAL economic thinking. BUT....I understand....we are in an era where history and past experience....means nothing.

So......for those that have been worrying about inflation for the past 20....30...35 years.......WORRY ON. I severely doubt that you will be right any time soon. In fact....as I have been arguing for the past 15 years The WORLD is in a DEFLATIONARY situation and if anything is a danger....it continues to be DEFLATION.

The CRISIS....that we saw with the EU and Italy and Greece and the rest of the failing stagnant economies in 2008/2009 and up to now has been symptoms of.....DEFLATION.

The bottom line......as a stock investor.....I would LOVE to see inflation hover at that 2-2.5% range.

 

HERE is....yet another.....article that I can not access the whole thing....since it is subscriber content. BUT......the GOOD NEWS.....is very clear when it comes to the general economy and expectations for 2021. MORE good news for investors....especially....long term investors:

Forecasters Lift Expectations for 2021 Economic Growth
Upbeat projections buoyed by vaccinations and stimulus outlook, though fears of virus variants are rising

https://www.wsj.com/articles/economic-survey-11613000382

"Forecasters are increasingly optimistic about economic growth this year, though less so about the labor market’s prospects, as it recovers from the effects of the coronavirus pandemic, a new Wall Street Journal survey shows.

Economists on average expected gross domestic product to expand nearly 4.9% this year, measured from the fourth quarter of the prior year, according to the business and academic economists surveyed in February, an improvement from their 4.3% forecast in January. They cited the distribution of Covid-19 vaccinations and the prospect of additional fiscal relief from Washington for the brightening outlook.

However, they were more cautious about the recovery in jobs. Economists this month on average expected employers to add 4.8 million jobs this year, down from the 5.0 million they projected in January and equal to just half of the 9.6 million jobs lost since February 2020. The forecasters saw a mean unemployment rate of 5.3% by year’s end, about the same level they projected in last month’s survey. The Labor Department said Friday the national jobless rate was 6.3% in January.

“The economy is already picking up some growth momentum in the first quarter,” said Brian Bethune, professor of economics at Boston College. “The large $1.9 trillion stimulus package will provide significant insurance against a relapse into recession,” he said, referring to President Biden’s proposal.

More than half of the respondents said the amount of fiscal aid the economy needs to recover from the coronavirus shock was less than $1 trillion, while only one said that more than $2 trillion was required."

MY COMMENT

This is the latest WSJ economic growth survey. A very good indicator for stock and fund investors and the fundamental financials of the actual business that we invest in.

 

AND......one last VERY POSITIVE little article that I like for a....snow day.

Schwab Sector Views: The Earnings Recession Has Ended

https://www.schwab.com/resource-center/insights/content/sector-views?cmp=em-QYC

(BOLD is my opinion OR what I consider important content)

"The economic recovery began last spring, but the COVID-19 corporate profits recession is just now coming to an end.

As the fourth-quarter 2020 earnings reporting season draws to a close, the vast majority of companies across the equity sectors have beaten analysts’ expectations by a large margin. While sectors like Consumer Discretionary, Communication Services, and Information Technology can be thanked for the impressive results, the Financials sector has become one of the dominant forces. I believe this could continue, for reasons I’ll discuss below. Meanwhile, rising forward earnings expectations have kept lofty valuations in check, particularly for Financials and Health Care, which I also continue to favor.

Earnings growth has recovered from COVID-19
While S&P 500® index earnings were sharply lower in 2020 in the aftermath of the COVID-19 crisis, they made an impressive comeback in the fourth quarter, nearly matching year-ago results. The unparalleled stimulus and speed of the economic recovery boosted analysts’ expectations throughout the year. However, with nearly two-thirds of the S&P 500 companies having released Q4 2020 financial results so far, 80% have beat even their relatively optimistic earnings outlooks. This compares with a 70% average beat rate going back to 2013.

Earnings growth returned to positive territory in Q4


Source: SCFR, Yardeni.com as of 2/8/2021. Chart reflects year-over-year quarterly earnings growth for the S&P 500 Index. Past performance is no guarantee of future results.

The percentage of positive surprises has been strong, as has the degree by which earnings beat expectations. In part, this reflects the highly uncertain economic environment that led many companies to withdraw their earnings and revenue guidance. Nevertheless, as can be seen in the table below, most of the sectors have contributed to positive surprises, exceeding earnings expectations by a healthy 19%, on average.

Earnings surprises have been surprisingly strong


Source: SCFR, Bloomberg as of 2/8/2021. Positive Surprise is the percentage of earnings reports that exceeded analysts’ consensus expectations. Earnings Surprise is the average percent by which actual earnings exceeded expectations. Earnings growth is the average quarterly year-over-year change in earnings per share. The Energy sector’s Earnings Surprise bar is truncated for chart size reasons.

While the earnings results have been broadly positive, it’s the behemoths in many of the sectors that have moved the dial the most. The Consumer Discretionary sector was a significant contributor to upside surprises after internet retailing giant Amazon announced that earnings-per-share (EPS) beat estimates by 192%, with earnings up 64% and revenues jumping 44% year over year, due to strong growth in online Amazon Prime sales and Amazon Web Services profits. Meanwhile, Tesla missed estimates by 22%, but posted 86% jump in year-over-year EPS. This more than offset the sharp losses within the hotel, restaurant and leisure industry, which saw revenues fall 50% on average.

Communications Services sector giant Facebook announced earnings growth of 52%, north of the consensus estimate by 20%, on strong ad revenues. Likewise, Alphabet (parent of Google) posted Q4 EPS growth of 45%, besting expectations by 43%.

The Information Technology sector has seen broad participation in the Q4 earnings season, with more than 90% of the companies beating expectations, but it was again the mega caps Apple and Microsoft that led performance. Apple reported earnings that surprised by 18.3%, with EPS growing 34% on strong high-end iPhone sales. Microsoft reported EPS that rose 34% year-over-year, beating estimates by 24%, on increasing demand for web cloud services and the work-from-home boom in laptop and gaming sales.

Another big surprise has come from the Financials sector, where earnings are up 18% on average, and 86% of earnings reports so far have exceeded estimates by nearly 35% on average. While some financial companies have credited higher-than-expected trading revenues, many of the biggest banks have said lower-than-expected loan defaults are allowing them to reverse expenses charged earlier in the year as loan loss reserves. This trend may continue amid additional stimulus out of Washington and broader distribution of the COVID-19 vaccines, which likely will continue to bolster sharp improvements in consumer and business credit conditions.

Bank earnings and loan loss reserves


Source: SCFR, Bloomberg as of 2/8/2021. S&P 500 Index Financials earnings per share, diluted. Loan Loss Reserves to Total Loans as reported by JPMorgan Chase & Co. For illustrative purposes, only data from the largest U.S. bank by market capitalization was used. The next three largest banks (Bank of America Corp, Wells Fargo & Co., and Citibank Inc.) also reported reductions in Loan Loss Reserves to Total Loans.

While the Financials sector accounts for only about 10% of the market cap in the S&P 500 index, it’s notable that it is estimated to have contributed 20% of the total earnings in Q4 2020. As the largest sector of the market and a net beneficiary of the COVID-19 crisis, Information Technology is unsurprisingly expected to be the largest contributor once the 4Q earnings season concludes.

Sector contribution to S&P 500 index earnings


Source: SCFR, Bloomberg as of 1/31/2021. Earnings contribution is the percent of total S&P 500 index earnings by each sector, and is compared to the sector weight (market capitalization) of each sector as a percent of the S&P 500 index.

Like the Financials sector, Health Care also has contributed significantly to overall earnings. With steady-Eddie revenue and earnings trends, earnings have beat analysts’ estimates by a modest margin (about 7%), but those trends have remained solidly positive, with earnings growth of 15% in Q4. In fact, Health Care was one of the sectors least affected by the COVID-19 crisis in terms of earnings growth, which was down just 2% in the second quarter of 2020. I like the Health Care sector for many reasons, but some that stand out include its relative immunity to crises, steady and moderately strong earnings growth, and attractive valuations (more on this below).

Momentum in future earnings expectations
Along with the economy, earnings for the overall equity market are quickly recovering from the crisis, and the rising trend through the end of 2020 is likely to have legs well into 2021. Revisions in analysts’ earnings estimates—both the direction and magnitude—can provide a read on relative earnings momentum across the sectors. Like price momentum, these revisions can be slow to react to changes in direction of actual earnings. But once a trend is established, they can be decent signals as to which sector might outperform in the coming months. As you can see in the chart below, the Financials and Energy sectors have the highest positive earnings revision rates. This is consistent with the rotation that we’ve been seeing in the markets recently, with Financials and Energy among the best-performing sectors over the past three months. On the flip side, Utilities and Consumer Staples—which saw the slowest upward revisions—have been the worst performers.

Three-month change in earnings estimates and total return


Source: SCFR, Bloomberg as of 2/8/2021. 3-month percent change of Bloomberg analysts’ consensus earnings estimates (BEst) and the total return of the S&P 500 Index and sectors. *BEst bar for the Energy sector is truncated from 99%, for chart size purposes.

Forward-looking valuations have leveled off
To be sure, valuations in general are lofty. The massive run-up in stocks since the market lows last March has pushed trailing 12-month price/earnings ratios (P/Es) to levels even higher than was seen in the late-90’s tech bubble. But keep in mind when hearing about the sky-high trailing P/Es that the markets are forward-looking, so a comparison to forward earnings expectations can provide a better sense of valuations. Currently, they are below the tech-bubble highs, and have leveled off as upward earnings revisions have kept up with the gains in stocks—as can be seen with the flattening trend in the forward P/Es since last July.

Trailing and forward P/E ratios


Source: SCFR, Bloomberg as of 2/5/2021.

At the sector level, using mix of trailing and forward-looking valuations makes sense, as well. But judging valuations across sectors can be like comparing apples to oranges.

Let’s use the common “value” and “growth” equity-style categories to explain what I mean. When we talk about value sectors (like Financials and Energy), we’re usually referring to those sectors that have attractive valuations relative to the overall market by a number of metrics: price to earnings, price to book, enterprise value to earnings, etc. Growth sectors typically have higher valuations relative to the broad market, because they are characteristically priced high in anticipation of better-than-average future revenue and earnings growth. So, to compare attractive valuations of the Financials sector (value) to the Information Technology Sector (growth) in absolute terms is not very useful. You would expect to see higher valuations in Technology, based on their higher projected growth.

One way to make them comparable is to evaluate each sector’s current valuation metric against their respective historical average and variability. This is called a Z-score, and it measures the number of standard deviations away from the mean. For example, let’s say Information Technology has a valuation Z-score of 3.17 and the Financials sector’s valuation Z-score is 0.46—as represented in the chart below. They are both expensive from a historical perspective relative to their own history, but Financials has a lower Z-score and is more attractive relative to Information Technology. The chart below shows a compilation of numerous forward and trailing valuation metrics, such as dividend yield, price-to-earnings, and price-to-cash flow, among others. From them, we can see that Financials and Health Care—the two sectors that I think will outperform the overall market in the near term—are both attractive relative to most other sectors.

S&P 500 Index sector valuations


Source: SCFR, Bloomberg as of 1/31/2021. Bars represent value composites that include six different valuation metrics that provide a holistic perspective on current valuations relative to each of the sectors’ own historical valuations, as well as relative to the other sectors.

While the Energy sector also looks very attractive, I assess these composite valuation measures in the context of many other considerations—such as the macroeconomic environment, fundamentals and behavioral factors (momentum, sentiment, etc.), as well as geopolitics. The Energy sector still faces heightened uncertainties, such as regulatory and OPEC supply risks—both of which are difficult to assess currently. On the other end of the spectrum, Information Technology and Consumer Discretionary are relatively expensive. Yet these sectors have many other factors going for them—so I currently have them rated as “marketperform.”

Keep in mind that no matter what our view is on any of the sectors, remaining diversified is very important. Concentrating in too few sectors can dramatically affect the risk profile and performance of your portfolio. So, if you do make any sector tilts in your portfolio, keeping them small is a good way to maintain appropriate diversification and potentially enhance the performance of your portfolio."

MY COMMENT

Sounds good to me. I believe we will see.....A LOT....of new highs and new records over the course of 2021. BUT....as usual....we will see time periods of doubt and correction In other words.....a healthy and normal market....with HUGE upside potential....that we will ENJOY greatly.....especially those that have the guts to stay fully invested. You can NEVER.....anticipate.....when the explosive stock gains will happen....week to week and month to month.

I REALLY like that this little article reads like a.....who's who.....of my portfolio model in the specific stocks mentioned as well as the categories. AND.....

I continue to be fully invested for the long term as usual.

 

DAX

Yes...that appears to be one. There are many NASDAQ 100 Index Funds and ETS's. Same way there are many SP500 Index Funds or ETF's. Another NASDAQ ETF....probably the best known one.... is QQQ. I know USAA has one. They ALL should basically....track....the NASDAQ 100 each day.

 

Just to....JUICE...the anticipation of the markets being open tomorrow....the futures are as strong as I have seen them in a while....UP by 250 points. I NEED the markets open........it will help with the boredom of being home-bound.......by ice and snow......for the next few days.

 

That is AMAZING....weight333. The markets have been very hot for a while. AND....it shows no sign of letting up. The.......HIGH END...... sports cards and collectables have gotten to be like buying an Andy Warhol original......ONLY for the wealthy. They have become a commodity used to....store wealth.

I remember very well the mid to late 1980's when the sports card FRENZY hit and there were card shops opening in every little strip mall and on every block. My kids were into them......like everyone. We still have boxes of lose cards and some complete factory sets stored with the kids stuff. Some day we will have to go through them.

I happened to be looking at a few cards on eBay the other day.......not to buy.....just out of curiosity. I was looking at the prices of the Ken Griffey rookie cards that were graded PSA 10. I saw some as low as $149. I was surprised by that. I guess by that time the manufacture of cards was so good that there are more high grade cards.....so like everything....supply holds the price down.

Over the next 10-30 years there are going to be a lot of kids like mine........rediscovering their old cards.......when their parents die or down-size. So there should be a lot of cards coming on the market at that time.

AS a good customer.......(I am not sure it is a good thing to be a "good customer" of an auction house).......of Heritage....I get any catalogs that I want as well as their "Intelligent Collector" magazine and other "special" invites...at no charge. I have about ten categories of catalogs that I told them I want.........I kind of follow the sports collectables a little bit......just because it is amazing to see the prices.

I personally think........someone could do pretty well for themselves buying select....."young" STAR players PSA 10 cards....and holding them for the long term....15-40 years. Cards that right now might be in the $500 to $1500 range. BUT.........it will all come down to supply and demand in the future.

What do you consider the.....UP and COMING.....high end cards of the future.....if someone wanted to speculate?

 

LOL.....I just looked at my primary account. DOWN....of course. In fact I ONLY had 2 holdings that were positive.....GOOGL and NVDA. Everything else was RED.

At least GOOGL and NVDA are doing nicely.....both up more than 1% so far.

It is one of those days that is very much.......stock specific. BUT it is very early in the day....and...lately we have seen this sort of thing over and over where the tech and other market leaders are weak in the morning and mid day and than close stronger. JUST the variation of the short term markets.....as well as..........the current normal market action.

Seems like we are....often....seeing these waves of selling and profit taking in the early to mid day time periods.....the new market norm for a while. My belief.....this reflects fear and skittishness on the part of many....so they are taking profits when they can. It also.....obviously....reflects the current trading mentality.

I have seen this sort of market when there is a lot of AI and PROGRAM TRADING. I suspect that there is a lot of that sort of action going on in the current markets. ADD IN.....the day traders and young speculators......and.....it is what it is.....for the short term. I am very glad that I am a long term investor and able to IGNORE and AVOID this short term market schizophrenia.

People.....investors.....are worn down and not sure what to expect or do.....so they are NOT seeing or appreciating the GOOD NEWS that will drive the near future.......6-12 months.....or......they are confused by the CONSTANT.....mixed messages coming from every direction. Simply short term CHAFF in my opinion. I think there is a REAL feeling of....waiting for the next shoe to drop....out there among many investors. I dont agree or feel that way....but....I can see why people would.

THAT.....is my markets.......PSYCHOANALYSIS...... for the day.