Most of the mainstream financial media are consumed with the debt ceiling talks.
Sometimes China is mentioned, referencing the PRC’s One China policy and the ramifications for the global economy if China were to gain control of the world’s supply of semiconductors.
The buzzword is ‘deglobalisation’, a de-coupling of international trade where the CHIPS act and similar state investments into the manufacture of semiconductors from governments around the world have started to gain pace.
But I’m getting ahead of myself.
Today’s post highlights the two macro themes present in todays markets.
It’s an exercise I do periodically to think about the market ‘as is’ and deny Dementors access to my psyche.
Don’t fight the Fed
I get it.
It is cliched and low-hanging fruit. So I’ll pass you over to a Wall Street veteran:
“The Fed injected trillions of dollars into the market to fight Covid and the old saying is true: ‘don’t fight the Fed.'”— D J Thomas (@djthomas) May 20, 2023
“If I kept the parameters I always believed in … I would have been fine”
“I made the mistake of not adhering to my own advice in recent years.”
Carl Icahn pic.twitter.com/XwwUdgl4xe
What I like about Ichan’s self-assessment is that he is able to have an open and frank discussion about his shortcomings.
‘Don’t fight the Fed’ would have saved Ichan’s ass $9 billion.
However overused the phrase has become, ignore the substance of its meaning at your peril.
When the Fed injects liquidity, stocks go up. When it tightens, stocks should decline.
But right now, the Fed is tightening, banks are failing, and stocks are going up which leads me to…
Why tech has led the YTD returns v the S&P 500
An overdone selloff in tech in 2022 encouraged many investors to hark back to the bad old days of the dot com minnows at the turn of the millennium.
Today’s tech stocks have become titans, leviathan entities that actually have earnings, and have woven themselves into the fabric of the global economy.
A far cry from the 2000s when the words ‘dot com’ in your prospectus would get you a listing and a centuries high price-to-earnings ratio.
Year to date:— D J Thomas (@djthomas) May 20, 2023
S&P 500 (8.8%) v NASDAQ (21.3%) pic.twitter.com/45yHjQoNJB
Tech titans make so much money, they can afford to overhire, spend money on vanity projects and woke initiatives then cut back on both headcount and ‘non-core priorities’ making investors and the market happy again.
It reminds me of how rappers, ever boastful about how much money, houses, cars, women, and narcotics they can amass, metaphorize their excess:
There’s so much coke that you could run the slalomJay Z
Pause and reflect
Tech and the excess cashflows it generates are here to stay, AI is the next tech frontier and the race for global dominance has already begun.
Position your portfolio accordingly.
PS Wealth Accumulated and its author do not in any way sanction the use of narcotics, but we do think it’s funny that you could go skiing on it due to the excesses of recording artists