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.
TB
©traderbillonwine.com 2020
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traderbill
How did Trader Bill originate?
It was conceived by me as a way of providing information summaries of global financial markets so that friends and associates could bring themselves up to speed on events and changing market conditions upon their arrival at work. In addition, it provides information on speakers and economic releases that day with consensus estimates and level of last release so that the reader is prepared to react, or knows how the market might react upon the release of information.
Who is Trader Bill?
Initially any reference to me was as ‘i’. This is to remove the aura of ego and to suggest that i am but a humble reporter, albeit with 35 years of investment experience. Investments are demanding of ego, however, or one would not feel that he was qualified to manage someone else’s money in the first instance. Therefore i needed an ‘alter-ego’. Like Winchell and Mahoney, Edgar Bergen and Charlie McCarthy and especially Trader Vic and Mai Tai’s! Why Trader Vic? Because he was a likeable man who delivered pleasure to his customers and knew exactly what their desires were. The reason for the alter ego became obvious once I introduced Trader Bill into my commentaries: people started asking what Trader Bill thought. They had never asked me what I thought before, but suddenly they wanted to know what TB thought! Now mind you they KNEW that I was Trader Bill but for some reason he became bigger than life. Maybe it was the small ‘I’?
What does Trader Bill try to do?His goal is to educate from his years of experience. Consider that most of the traders and people managing investments weren’t even around in 1987 for the crash! Consider that Graham and Dodd, and even Warren Buffet are not relevant to them, too old hat. Their historical perceptions of markets and fundamentals (earnings, price/earnings ratios, bonds, debt service coverage) are irrelevant in this fast moving world. This is the NEW ECONOMY, or is it?
How did your style originate?Years ago i found that i had a knack and talent for writing. In addition, i developed an ability to analyze market news about 15 years ago. It took the Crash of ‘87. Prior to that i was just listening to what others said about the economy. But bond yields had been soaring in ‘87 yet the stock market just kept hitting new highs. That was when i began to learn about markets. i have both a dry and witty sense of humor (some call it inane!). Therefore i
attempt to make even the worst news somewhat amusing: whether it is the absurdity of an economic release, or the comments of a CEO. This is trading desk humor (or gallows humor). It isn’t politically correct but it does ease tension. Ironically, it is seeing the light at the end of the tunnel (in the Navy they say: it’s always darkest before it’s pitch black!), that allows you to be more objective in your analysis, as bad as a situation is there will still be a tomorrow! You will see that i practice three-dot journalism, a style made famous by San Francisco reporter Herb Caen, whom i idolized. At least to me it is effective.
What is so special about your analysis?Frankly, i don’t know that it is special, but at least it beats “the market closed down today on profit taking.” What i do know is that most of what you read is spat out without considering whether or not it is rational, like the above statement. Is it right? Sometimes yes and sometimes no, and that is the key to what is different about my analysis: it is meant to make you think. Is Dan Rather right or is Trader Bill right? If it causes you to stop and think about it, regardless of whether you agree, i win! Because THAT is my goal…not to have you think i am a guru, got that? Bet you never heard that ANYWHERE before in my business! Instead they want you to think just how smart they are but remember in this business if you are right 60% of the time you ARE a genius! Another thing that is different is when i am wrong on an analysis i will tell you, not hope you forget what i said. So now you have the tools to do what the speculators and hedge funds do: challenge authority, and if you make money it is because YOU did it not me. i was just a tool, your flunky to do the grunt work and let you decide…course you could be wrong too but at least you looked at the big picture. But the goal is also to have fun! This shouldn’t be a business of hushed tones and grim faces. It is a living, breathing thing and nowhere else in the world do you have the odds as much in your favor as here. Just beware of the guy who wants to put his arm around you and tell you he is your friend.
So there you have it. I hope you select me as one of your sources for market information. If you do I promise to work my best for your financial success.
Trader Bill
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Trader Bill on Wine 
Having worked in the wine biz from the mid-’80s to mid-90’s, it saddens me to see what’s become of the industry. So many once-proud wineries are now just labels in a huge corporate portfolio. I was selling the first release of Opus One, Robert Mondavi’s pride and joy. I was there when Sam Sebastiani broke away from his family business, and started Viansa. I was at Geyser Peak when it first started turning around with winemaker Daryl Groom, who was making some incredible wines, and Penfolds was getting involved. I suppose I should just consider myself lucky to have been there during the golden age of California wine. It used to be a lot of fun, but the corporate incursion was starting to be visible by the mid-90’s, and Napa Valley was turning into Disneyland. Now I see some of the earliest and some of the best labels of old are bought and sold by corporations, some of which haven’t existed for long, some of which are already gone, viewing these brands as just another means to make a buck.
Perhaps it started with Sterling Vineyards in the ’70’s, which at one point was owned by Coca-Cola, then Seagram, then Diageo. Now it’s in the TWE portfolio, along with other notable CA brands Beringer, Acacia, St. Clement, Chateau St. Jean, Stags’ Leap, and historic BV. That’s not to say TWE is the only corporate raider; the aforementioned Gallo has certainly done its share of label collecting.
From what I can piece together, Geyser Peak itself has bounced around from Schlitz to Stroh Brewery, to Henry Trione in 1982 (who tried to bring it back from obscurity), to Penfolds, to Fortune Brands, to Constellation Brands, to Ascentia (now defunct), to Entertainment Properties Trust (REIT), to Accolade Wines, which was bought by the Carlyle Group, to Francis Ford Coppola, but Accolade kept the brand name and Geyser Peak now seems destined for the dust bin of history.
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