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"Deplorables/Neanderthals" allowed themselves to become intimidated by radical progressives and America went down the drain.
2022 will be a decisive year because either we begin to retrieve our nation and return it to some semblance of greatness or it will probably be lost forever.
The Woke people have taken over and it is time for those who care to awaken.
I am going for hip replacement surgery January 5th and I have written about 10 days of memos which will be posted and forwarded during my absence.
Between now and then we are taking Dagny and Blake back home Thursday, watching football games and returning to Savannah on Saturday.
I wish you The Happiest, Healthiest and Best Ever of New Years.
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Ross Rants:
Maybe the Dems will find some bit or piece of BBB to do with Manchin, but I think in the end there will be nothing or nothing major. They are determined to pass the child care portion, but the true cost is $1.6 trillion, and there is no way Manchin will agree to anything like that. Manchin is so far from the radicals that I just do not see how they can do any piece of legislation they can both agree on. He won't agree to spend the level of money they demand, and he requires a work requirement the left refuses to agree to. He wants any payments only going to the poor, the radicals are trying to set up guaranteed minimum income to the middle class. He requires the costs be the full ten years measure, not the fraud the left was trying to con the voters with. Then there is how to pay for all this, and there is no acceptable answer to Sinema nor to Manchin. There are also loads of far left items in BBB that he will not go along with. There will be lots of talk, but in the end probably no major action. There will be no tax increase on corporations, nor on most of the rest of us. There will be an attempt to use executive actions which likely will end up in court and be stopped. The plan to force a vote as Schumer intends is insane for Dems. It would force vulnerable Dems to vote publicly, and put themselves in trouble in November. BBB is filled with all sorts of hidden socialist and left wing garbage, and that will not survive. Are you aware it has a subsidy to journalists-yes, paying (bribing) a portion of journalists salaries. Instead of sitting with Republicans to try to find a good way forward that can sell, the Dems and White House think they can just ram through whatever they want even though they have no majority and polls are against them. This is the classic left wing approach as they have used in academia- our way, or the highway. This is cancel culture in the extreme, right out of the campus play book. Pelosi failed miserably. Schumer thought he needed to do whatever the bartender from the Bronx said and he lost. How disgraceful. A bartender is essentially running the Senate. This is what it has come to under Democratic control.
The stock market is likely to close out the year about where I predicted in early October, 4700-4800. Omicron is not going to be as serious a problem as first feared, and there are now lots of ways to treat most people, and avoid hospitalization and death. In S Africa it is already receding. While there will be a burst of cases this week form Christmas events, there will not be a long term disruption. Most people are deciding to just go on with their life, and just be careful. Here in FL life is almost back to normal despite a sudden Christmas surge in cases. The stopping of BBB is a major good thing for the stock market, and the economy, as it will prevent another major boost to inflation. This is despite what Goldman said. However, as mentioned before, wages are spiraling, unions for the first time in many years are striking, and despite what Biden claims, the supply chain is still a mess. Truckers say the government still has not done all that is required to get more truck drivers to meet the needs. The backup of ships continues. The PPI was nearly 10% last month, so the CPI will continue to rise for several more months. Oil is rising again as Omicron proves to not last long and as things continue back on the reopening track, and the heating season ramps up. The Fed may have speeded up taper, but they are going to continue to feed cash into the economy for three more months when they should have stopped by now. The real risk of the Fed needing to push through a larger than forecast rate increase in Q3 remains.
If you take out the top six stocks in the SPX, the market is generally down, and for some stocks it is down a lot. This suggests the underpinnings of the market are weak, and as rates rise, the top tech darlings will begin to decline as well at some point, and then there is a risk that the whole market will drop much more. The offset is the consumers still have a lot of liquidity and ability to run up credit cards, but as inflation continues and wages do not keep up with inflation, spending is likely to drop, not so much in dollars due to inflation, as in SKUs. However, there are already indications of a slowdown in spending. Rents are way up and continuing up, and food prices are still rising. For lower middle class and lower class workers this is a bad scenario. The dilemma for most investors is they have big gains, and if they sell they have big taxes, so they hold on. Were it not for the big taxable gains, they would be sellers. So the odd situation of too big taxable gains is one of the big reasons the stock market has not had a major decline already. I remain pessimistic about the stock and the bond market for 2022. I may prove wrong, but getting more liquid is going to be my strategy this coming year. The cash I will receive shortly from the sale of my last major project is going to remain in cash, or cash like securities until I can determine what the year looks like. I might miss out on some large gains, but I do not feel comfortable putting that substantial cash at risk now given my negative view of the coming year potential bad political, geopolitical, and Fed actions. I do plan to hold my positions in MSFT, HD, APPL AMZN and TMO for the moment, but that could change. The good news is Covid seems to be a much lesser challenge and will possibly become just another virus like the flu, so it will not negatively impact the stock market as we go into 2022.
For some perspective-Apple's value is larger than the GDP of all but four nations. It is actually as large as India and larger than France and the UK. It is not far behind Germany. Microsoft is close behind. The top ten stocks are 30% of the total value of the S&P and 25% of the value of all publicly traded stocks in the US. That is why the SPX has done so well. The top ten stocks by capitalization have doubled in two years, far outpacing the rest of the market. The pandemic has had a major impact on this as these companies thrived during the virus and did not suffer the supply chain and labor issues of other industries. As the virus becomes a much lesser impact on the economy, it is possible these companies will not outperform as much, but their businesses will not suffer. Their positions in the world are well established and will likely remain so for a few more years. That is not to say other stocks will not outperform these top ten, but as a long term investment strategy, having substantial positions in these companies is a strategy I plan to continue to follow, at least for the moment. I could change my position as things develop in the next couple of months.
New home sales are declining. The prices are simply now getting too high. There is a huge shortage of existing homes for sale at the moment which is keeping sales of new homes still happening with rising prices, but we may have reached the peak in prices, or are near to doing so other than for high end houses. Don't be surprised if home prices decline at some point in 2022. Lumber prices have shot up again, and so the cost to build a new home is still rising. As soon as mortgage rates rise, we are likely to see the new house market reverse downward, at least at the lower and maybe middle price ranges.
There are still millions who refuse to get vaccinated, and some millions who say they would not even get the treatment with the Pfizer pill if they got sick. As we said in the Navy, there are always 10% who don't get it, no matter how well you explain it. By now there is now no credible medical scientist or doctor anywhere who thinks the vaccines are not safe. But it shows how misinformation can get spread on the internet and cause people to do stupid things. Normality will return in 2022 as it already has here in FL. School closures are proven to be very damaging to kids, but there are still a few districts where they closed again. Some school administrators are not caring about the kids, or are just misinformed.
Demographics really matter. The US had no population growth due to no immigration and minimal births. All we have is illiterate and poor illegals flooding in across the border bringing no skills and just needs for welfare. Population growth matters a lot. No growth, and over time, the economy suffers. Labor shortages get worse, and tax revenue gets strained as older people retire, and become takers of government funds instead of payers into government coffers, and there are not enough young people to fund all the social security and medical care needs of the older people. We are now in a long term trend that is not going to be good in a few years. The US birth rate has declined to a low number for several years, so it is just worse now due to Covid, and the shutting of immigration. Germany is in even worse demographic situation, and that is why they are in favor of letting in migrants from the Mideast. Japan is in a population decline for several years and now China is starting to be in decline. None of this is good for economic growth in the world long term, nor for governments to be able to pay for the aging generations who now live longer. The world needs people to work longer years or there will be real problems in a decade or more. The US is not the only major country now in a serious labor shortage. In Germany the tax laws and entitlements are a prime example of what not to do as they incent people not to work. Their labor participation is well below ours. You would think the Dems would look at that and see how stupid their ideas are for BBB.
China is now in trouble. Their population is declining, and will not grow much since the one child policy is now coming home to become a real constraint on population growth as there are a real paucity of couples. Many young couples are choosing to have no, or just one kid, and to enjoy their new found middle class city life. The population is aging and that is becoming a drag on the government budget. The provinces used land sales and development and infrastructure construction to grow their economic strength. That is over for now. The developers are all now in survival mode, and not buying land. The massive number of condos have created a glut, and prices are down and declining, so little new development is happening causing development fees to provinces to drop materially. That is a real financial issue for provinces. Real estate was 25%-30% of the Chinese economy, and now it is in contraction, and will remain so for maybe a few years. Xi has also shut down the top entrepreneurs who were driving the private sector growth. He does not want any wealthy powerful threats to the party, nor himself. He has gone after most of the really smart successful business leaders, and put limits on some of their companies. And lastly Covid has caused shut downs and further constraint on economic growth. The big state owned companies that Xi is pushing are very inefficient as they always are when government tries to run anything. Taken all together, China has some serious problems that are not going away anytime soon. Chinese economic growth is likely to be slower for a while, and maybe permanently.
Biden claims his cabinet generated 6 million jobs, ended the supply chain problems, and is solving the Covid crisis. Total BS as usual. The jobs were simply due to the reopening of the economy which was well underway before inauguration. The supply chain issues are far from solved as there are still ships backed up, and the end of Christmas shipping rush has relieved some of the pressure. The major retailers chartered their own ships and used their own trucks and warehouses, and alternate ports. Biden had zero to do with any of it. The administration completely blew it on Covid testing, and now the country is not able to detect some cases fast enough to know who needs the new Pfizer pills to prevent serious illness. After Biden said Trump handling of testing was a travesty, he has now failed to fund and make testing widely available. For Biden to say the supply chain problems are non-existent is absurd. He just reads whatever the teleprompter says.
Putin has understood how weak Biden really is, and how easy it is to push the EU on foreign policy, and has made ridiculous demands and threats expecting Biden to partly fold on some of it. When the west only made verbal threats of retaliation, and did not yet ship arms to Ukraine, and did not move thousands of NATO troops and heavy weapons to Poland, Putin knew he had the upper hand, and so he made even more threats. Instead of saying we will have to see, Biden said we will not defend Ukraine. It was highly unlikely the US would commit troops, but the, "we will see", is always a door left open and a possibility. Trump used that often, and nobody was ever sure what he might do. Always a good position to have in geopolitics, as Putin is demonstrating. We will see in January if Biden folds or tells Putin to go stuff it, and follows with more sanctions, big arms shipments to Ukraine and NATO troop movements. Biden should be doing those things now before any talks begin. That way he could agree to move the troops back as a concession and give up nothing. It will not happen. It also looks like the Iran talks are dead. We will see if the US and EU go crawling and begging again. The next month or two will be critical in geopolitics as the world waits to see just how weak Biden is with Russia and Iran. I have little hope of a strong showing, or a good outcome. Putin is making his big play now. One side or the other will look weak and back down. China is watching all of this. 2022 is when the whole Iran situation will come to a head. Israel is already waging cyberwar and will step it up this year. Real war is possible as Iran moves closer to a bomb.
Trump is likely to run, and if he does he would get the nomination right now despite millions of Republicans who do not want him as the candidate. I have had an overwhelming series of emails from many of you saying you could not vote for Trump even if you are a Republican. Trump cannot win an election unless they put up Harris, which is not happening. Someone who has the connections and access to large cash, needs to get behind an alternate candidate like DeSantis or Pompeo or Haley, and push that person forward with loads of cash backing to influence other senior party players. Trump controls a lot of cash now, and so a challenger has to have a similar pile of cash to have influence. Republicans have a historic opportunity in 2024, and Trump is the wrong person to lead as it will end in the Dems holding the White House.
Chile just elected a far left 35 year old activist as president. Chile has been a big success story to date with a good economy. If you want to watch what would happen if the left took over the US, just watch Chile over the next year. It is about to become the next Venezuela.
Happy New Year
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I still help some former clients by managing their portfolios and this is what I am sending to them at year end (somewhat edited.)
It has been around 3 years since my style of value and dividend investing has been in favor. Consequently 2021 turned out to be a generally favorable year.
As for the coming year outlook, those who receive and read my memos know I am not positive on the Biden Administration. Inflation and diplomatic weakness are of deep concern and the prospect of war(s) cannot be dismissed in terms of Taiwan, The Middle East , Ukraine.
Continuing explosion in government debt cannot be ignored and the associated decline in the value (purchasing power) of the dollar is of particular concern. The supply chain issue will eventually resolve itself and began mostly because corporations sought to save money by reducing inventories, employing on-time delivery and then were hit with Covid.
Stock valuations in technology are stretched and the immediate rise in the price of new issues historically signals we are approaching, if not already in, a period of speculative excess.
That said, there are positives as well. Many stocks are reasonably priced, have decent balance sheets and offer some direct return of capital by way of dividends and buy backs.
The world’s economies have yet to link and that is a positive. American family balance sheets are also solid and job opportunities are plentiful.
The impact of The Covid pandemic has lessened but this administration’s desire for power and growth in government cannot be dismissed and remains an unknown negative while spreading uncertainty.
Finally, our historical quantitative and qualitative military edge has diminished and infiltration of our borders presents a serious terrorist, criminal and health threat.
The political and social discord gripping America is disheartening and one cannot dismiss the possibility America’s star is fading as China’s star ascends. We are nearing our 3rd century and most nations peak within their 2d if not before. Have we outlived our dominance because we allowed radicalization to penetrate while we were asleep? As has been written are we guilty of: “getting and spending we lay waste our power.”
Positive sectors of investment focus remain in health care, energy, telecommunications, financials, selected technology and utilities and perhaps some infrastructure cyclicals.
Stocks of particular interest remain: BMY, MRK, GILD, a range of Biotechs, , SU, VZ, AFL, QCOM, INTC, VIAC, IBM and WBA
I wish you the happiest and healthiest of New Years and will be happy to discuss anything on your mind.
Sincerely,
Me
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When you think about it our planet is insignificant in size..
Maybe this magician can make our problems disappear?
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