Vol. ^ No. 4 Waiting for Godot

What a way to end the week…on a Thursday no less! Will it be a Good Friday tomorrow? At least there is no risk of the market tanking tomorrow after a lackluster day today. In light of this, TB thought it might be a good time to share his, and some thoughts of others he knows, both professionally and justly concerned friends on their feelings on the markets.

Nobody is diving back in: TB was heavily in cash before the virus broke out due to not liking the market. No one he knows was anywhere near fully invested. In a rout cash is king and as far as he knows nob.

Despite the pundits who think that new highs imply a bull market, Ed Easterling of Crestmont Research (which TB highly recommends and it is free: www.crestmontresearch.com .There is more information there than you will find anywhere else on the Web…have been using it for more than a decade. It is possible to be in a secular bull market inside a secular BEAR market and this secular bear began in 2000!

This is the third or fourth of these events since 1929 and the secular bear can last as long 20 years!  TB hasn’t believed in the rally since the night of the 2016 election. Why? First, much of the rally was done through stock buybacks and much of that with loans. That is what pushed P/E’s to nosebleed levels  At the beginning of the selloff, the average p/e of the S&P500 was 25x, contrast that with the long term average of 15x, or over 60%. That understates it however given p/e’s of the mega-caps that overweight the index.  Not to pick on Amazon (AMZN) but despite the selloff it remains at a p/e multiple of 89x earnings. Wait, how can that happen? First, look at the forward p/e which is 51x – moving in the right direction and from their move to the PEG rate (p/e/growth rate), which is 2.74x projected earnings. Therein lies the rub: projected . Companies haven’t revised down their estimates yet but it is safe to say the earnings will be significantly lower than projected for most if not all stocks, given COVAD-17. Worse, we have no idea what the outcome will be but people TB talks to and those he hears on Bloomberg, etc. are not projecting anything close to what it was. Furthermore, new companies that have significant sales growth may not be making a profit but it is projected to make these stocks priced right…but will it come to fruition. Look what happened to AirBnB this week. Still not public they went to investors and asked for $1 billion in loans…the rate 10%+! This is not the time to borrow from a venture capitalist unless you can’t do it elsewhere….consider how they have been burned over the past month or so!

The point is: if you decide to enter the water, wade in slowly, diversify your stocks and instead of buying round lots, buy 50, 25, even 10 shares depending on price…and hope you are right! Remember most brokerages led by Schwab in the race to zero fees, so a round lot for a small investor is a luxury and there is no penalty for trading odd-lot shares…not even in price!  Maintain at a minimum, 75% cash.

Remember we are in uncharted territory and every aspect of our lives could potentially change as it has now and in ways we haven’t imagined. God Bless the United States of America…and the world!

Now on to a more pleasant topic: WINE

Wine, as TB discussed yesterday, is arising from the ashes of weakening demand along with hard alcohol and beeeer (as SOTUS Justice Brett Kavanaugh proclaimed at his confirmation hearings). Already, warnings are being issued about the increased consumption of alcohol and effect on the body, especially the heart. Go easy!

Along with Constellation Brands, and Gallo, which were discussed yesterday, Treasury Wine Estates is the next largest company. The big guys mentioned first are trying to reduce their $10 and under wines, while TWE is going to sell off its premier holding: Penfelds, a famed Australian vintner. With shifting demographics , and now the virus, it is difficult to determine which will prove to be the right strategy.

Stay tuned and don’t let your cellar go untouched but don’t run out of wine either.  Well, with tomorrow being Good Friday, TB is going to take the weekend off….hope you can find something fun to do too.


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