Economic Outlook

Seth Klarman: ‘Little Evidence Of Thought’ Behind Stock Market Rebound

Billionaire hedge fund value investor Seth Klarman is extremely skeptical of the stock market rebound off the March lows.

In his recent second-quarter letter to investors Klarman, who manages the $30 billion hedge fund Baupost, said a combination of faulty investor psychology and an enabling Federal Reserve are driving stock prices higher while the real economy sputters.

The SPDR S&P 500 ETF Trust is now up 48.6% since March 23, yet the economy has lost more than 1 million jobs per week for 20 straight weeks. S&P 500 earnings are down 35.7% so far in the second quarter, while revenue is down 9.6%.

Psychology And Economics: In his letter, Klarman said investing is a combination of psychology and economics, and the two factors have diverged significantly in the past few months. He said investors seem to be relying on some vague idea that the US economy is “opening up” as a green light to buy stocks without even considering valuations.

“There is little evidence of thought as to whether the price of a security already reflects current and projected future news flow, or whether the opening up of the economy might be premature, a sign not of strength, but of impatience, lack of resolve, and poor judgment,” Klarman said.

Since 1982, Klarman has been one of the most consistent investors in the market, delivering gains in 31 of his fund’s first 34 years.

Fed To Blame: Klarman is known for his long-term, value-oriented investment style. Because he rarely comments publicly or grants interviews, followers must piece together his philosophy based on tidbits of insight he has provided throughout the years…CLICK for complete article

Tesla Prepares Massive Retail Expansion Worldwide

Tesla looks to significantly expand its retail and sales presence in North America, China, and other countries, as it is gearing up for increased sales over the next years, Electrek reports, citing job listings and sources.

Tesla, which has backtracked on its idea from last year to sell cars only online, is now looking to open retail locations in Tucson, Arizona, El Paso, Texas, Milwaukee, Wisconsin, and Smithtown, New York…Click for full article.

Where did the planes go?

Boeing’s miserable results and outlook yesterday will be reinforced by similar dire numbers from Airbus.  The US plane maker delivered a mere 20 aircraft in Q2.  Revenues from passenger plane sales tumbled 68% while income from service and maintenance nose-dived. It’s cutting production as orders are delayed or cancelled.  It doesn’t expect aviation to return to normal for 3 years, and plans to lay off…Click to read full article.

The Odds Are Stacked Against Investors In A Post-Covid Economy

Since the March 23rd lows, retail investors have jumped into the equity market with little concern about the potential risk. The “Pavlovian” response to the Fed’s massive monetary interventions has pushed “risk-taking” to extremes. Unfortunately, the odds are stacked against investors in a post-COVID economy.

In a recent newsletter, we discussed our process of “taking profits” in positions that had reached more extreme overbought conditions. As is usual in a market where “momentum” is in vogue, we received numerous emails about the “folly” of selling our technology holdings.

It Isn’t Folly.

It is a usual practice of mitigating risk to protect capital for our long-term investment cycle. Interestingly, while there is little doubt that patience is a virtue for investors, exercising prudence is equally important. Despite the basic math, and historical evidence proving its usefulness, investors typically ignore prudence, especially when it is required most. The “siren’s song” of a momentum-driven market fueled by a “speculative greed” is inevitably too compelling for many investors…CLICK for complete article

The Investment Sector Defying A Global Pandemic

Amid a global pandemic that has collapsed more than 100,000 businesses and decimated entire sectors, one industry has ballooned to be bigger than Twitter, Facebook, WhatsApp, Instagram and SnapChat combined.

It’s thought to be  10x bigger than the marijuana industry.

Some people think its total legal and illegal spending worldwide is approaching  $2 trillion, and it’s still growing strong in complete defiance of the pandemic.

Welcome to the global sports betting industry, where merger mania is creating crisis-resistant powerhouses.

And as sportsbooks are still pulling in tens of millions of dollars every month during the pandemic, one off-the-radar consolidation play offers some real opportunities:

The first phase of the growing online gaming and sports betting industry was all about getting the tech right. The second phase is about bringing it all together.

A pioneer early entrant leader in sports betting technology is hitting Phase II hard, with major acquisitions…CLICK for complete article

BlackRock Makes A Run On Asian Stocks

Now that BlackRock has largely taken over Wall Street, whispers from its corridors are heavily weighted, and the latest two are troubling: It’s downgrading U.S. stocks and prefers the Asian market.

In other words, the king of Wall Street says it’s time to diversify.

After major market movement that has seen U.S. equities bounce back from a dismal March, BlackRock sees a new surge in COVID-19 cases as likely to put a dent in this trend.

On Monday, BlackRock–which oversees nearly $6.5 trillion in global assets–downgraded U.S. stocks from neutral to overweight, and advised clients to start shopping internationally for diversification.

Why? Because the amazing performance of the U.S. equities market this summer has largely been propped up by trillions of dollars in government stimulus and the Federal Reserve’s effort to save the corporate bond market by buying the bonds.

Now, unemployment checks will dry up. More stimulus remains in question, and COVID-19 is no longer flattening–it’s reviving itself with a vengeance as Americans in large numbers decide they simply don’t care or are impervious to the virus.

What investors will be watching carefully is the next policy decision to come out of Congress and the White House about stimulus. If they announce there will be no more unemployment benefits when they end in three weeks, there could easily be an equities sell-off…CLICK for complete article