I'm Back!

Welcome to the new blog!

Now that I am rolling out here on my own with no new venture in place yet (and yes, I am working on that), I still feel the need to be able to write about what I see in the markets and the world. As a bonus, there is no need to filter one damn word for a sensitive audience. If I see stupidity, I will point it out. If I see something ridiculous, I will point it out if I feel like writing about baseball and books some days, that is just what I will do. If I don’t feel like doing anything on a given day, then that’s what I will do.

As everyone knows, my time at Money Morning has come to an end. I loved working with some of the brightest and talented people in the financial publishing industry abut they have chosen a new path forward that does. While I may not agree with that path, it is theirs to take, and I wish them well.

By the way, be sure and follow our posts at DailyAlts.Com. Both Garret Baldwin and I are writing there about the fascinating world of alternative investing. I have found over the years that following what is going on in private equity, private credit, and real estate, as well as venture capital, can help spot trends and pockets of undervaluation in the markets. Be sure to sign up for Garretts Daily Alts letter and my Active Alpha publication. That’s currently delivered free, and we are discussing whether to keep it monthly or go weekly or bi-weekly with that.

The markets have defied logic and have come screaming back off the March lows. As this has gone on, I keep hearing Marty Zweig telling Louis Rukeyser never to fight the Fed. The Fed has flooded the economy with cash, and Congress has done its part by making unemployment and attractive alternative for the tens of millions of people thrown out of work.

I have my doubts that the market can withstand the wave of bad news still to come. A lot of the jobs lost are never coming back. There will be high yield bond defaults. GDP will drop. Second-quarter earnings are going to resemble Kings Landing after the dragon was done his little performance. There is a lot of horrific news still coming, and it is going to be interesting, to say the least.

That’s what is happening if all the states opening back up don’t see second wave infections. If that happens, it could get really ugly really fast.

I could be wrong. I am the self-admitted worse market timer in history. If we do see a V-shaped recovery, I still have enough companies in my portfolio to see a meaningful recovery. I have all my little bank, and they will come roaring back. I do not think it plays out that way. I will be happy to be wrong about this, but I have a hard time see a fast recovery when we have collapsed the economy very quickly, and some segments of it will never come all the way back.

Whenever this end either by just burning, but like some viral pandemics have done on past years or the development of treatments and vaccines, you will want to an aggressive buyer of small banks. There will be a massive M&A wave sweep the community banking sector. You will also see consumers rewarding the small banks who got them their PPP loans in record time. I spoke with one banker the other day who told me he was getting loans done for small businesses in his community in just a few hours.

I will sound the all-clear when I think it is time to jump back into the little banks. We need to see second-quarter credit performance before the all-clear can be safely sounded. The timing of in and out of the bank sector has worked for me because I keep my opinion out of it entirely. The numbers will tell us.

The output from all the screens contains information about the markets. There are usually somewhere around 70 companies that are cheap based on enterprise multiples across all market cap sizes and have excellent fundamentals and a low risk of financial distress. In 2003 there about 200. In 2009 there were also about 200. In the first week of March, just 35 US companies passed those filters. Today there are still only 40 passing companies. You can call it what you want, but you cannot call this market cheap.

Some pundit was talking the other day about the market trading at just 17 times forward earnings, which was historically only a little high, and that adjusted for low rates stocks could be undervalued. That was the best laugh I have had in some time. No one has a clue what forward earnings will be. The virus will call that tune. So far, coronavirus has not had friendly inclinations, so it is probably not sharing that information.

It is a confusing time, to say the least. On top of everything else, the lockdown is starting to cause cabin fever for many people. I am lucky in that staying home with my family with a glass of bourbon, and a good book is my idea of a good night. I do miss the hell out of baseball, but like a junkie hanging around the methadone clinic, I have been able to hold off the worst of withdrawal playing MLB TSB 20 on my phone quiets the jitters. The liquor store kindly delivers here in Florida, so it is hard to bitch about being with the people I care about in a house full of good bourbon and good books.

Besides, there are plenty of other things to bitch about right now. We will start on those tomorrow.