The markets traded sideways today. The Dow was up about 1%. Welcome relief as bank earnings give the broad market a little respite from the Bear.
That being said, the word on the street still paints a picture of uncertainty.
Bank of America earnings “suggest U.S. consumers remain strong and active,” the New York Times reports. “If there are signs of an impending recession in the United States,” writes Emily Flitter, “they are hard to find in Bank of America’s quarterly earnings report released on Monday.”
We might claim that an uptick in consumer spending is actually not a good sign– it means we’re just printing our way through inflation rather than letting a “growth recession” accomplish the healing it is meant to.
Our own on-the-ground R & D – “scuttlebutting” as the American investor Phillip “Fish” Fisher called it – shows people are waiting for that “Big Bottom” for tech stocks, crypto, and gold. Lo and behold the day when gold is lumped in with these new wave assets…
In its everyday sense, the word ‘scuttlebutt’ refers to vague and unsubstantiated rumor.
Fisher’s use of the term is far more systematic and precise. “It is amazing…” Fisher says in a rare interview with Forbes magazine following the 1987 Crash, “…what an accurate picture of the relative points of strength and weakness of each company in an industry can be obtained from a representative cross-section of the opinions of those who in one way or another are concerned with any particular company.”
The grounds at the Woodlock House in Waterford, Ireland. (Source: Woodlock House Family Capital)
We were clued into Fisher’s interview by Chris Mayer, portfolio manager at Woodlock House Family Capital. Fisher is known to have heavily influenced Warren Buffet’s investment methodology. And we have seen a lot of Fisher’s mindset in Mayer’s approach to 100 Baggers too. “There are two fundamental approaches to investment,” Fisher claims. He continues:
There’s the approach Ben Graham pioneered, which is to find something intrinsically so cheap that there is little chance of it having a big decline. He’s got financial safeguards to that. It isn’t going to go down much, and sooner or later value will come into it. Then there is my approach, which is to find something so good–if you don’t pay too much for it–that it will have very, very large growth.
Timing these things is so damnably difficult. I don’t want to be the smart guy with too much cash because I think a big break is coming. Nor do I want, once it comes, to spend too long getting myself ready. When you’re not sure, you hedge. Very roughly, I have between 65% and 68% in the four stocks I really like, between 20% and 25% in cash and equivalents, and the balance in the five stocks that are in the grooming stage.
At the time, Fisher was drawing comparisons between the economic climate in the late 1980s and the late 1920s. His strategy was more focused on that keyword “growth.” But not in the sense that American banks are projecting right now. In fact, we think Fisher would agree that consumer spending is putting a bandaid on a bleeding wound. Fisher again:
I haven’t the faintest idea whether we are in 1927 or 1929. Some awfully bright, able, sound people were scared as hell in 1927. But the thing rolled on for two more years, and that may happen here. I don’t know. We have learned how to take dope and stop the pain. That dope is very simple. You run the printing presses or run the credit machine, to have huge, huge expenditures of government money and expansion of credit. Instead of a crash, what will happen is exactly the kind of hyperinflation that you have seen in Argentina and Brazil. I think in two years, one or two years, it will start and then run on for maybe four or five years.
Regardless of one’s opinion of the Keynesian welfare state pumping and pumping and still pumping more money out the pipeline, no amount of computers or Ivy League quants can help you make good investments. Just a refined and practiced mind. Elastic, autonomous, and ready for change.
We leave you with a nugget of wisdom from Buffet… When investing, “You don’t need tons of IQ … You need a stable personality. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd because this is not a business where you take polls. It’s a business where you think.”
P.S. We’ll be on track with Kunstler tomorrow, as well as back on tight market watch. You can watch this week’s Session by clicking here.