May 6

Facebook is a private company.  Facebook has property rights protected under the United States Constitution.  Donald J Trump is not a protected person under civil rights legislation, or under the Constitution.  He is a private citizen and if Facebook chooses to ban him, that is Facebook’s prerogative. 

I believe even Trump’s most ardent supporters would agree that he is the archetypal bull in a china shop.  If Facebook wants to ban ‘human bulls’ from its platforms it has the constitutional right to do so. 

America’s policy elites live in an Alice in Wonderland world. For Democrats, the bottom is the top. Democrats argue that low corporate tax rates lead to lower investment, and lower overall economic prosperity.  Treasury Secretary Yellen says low corporate tax rates are a race to the bottom. What is her thought process?  Is she suffering from early-stage dementia?  I still don’t understand why Democrats expect business to invest more when they have less. 

Republicans are really no different.  Republicans continue to pursue the big lie that Trump won.  Republicans are following the path of Joe Stalin and purging from the Party anyone who will not follow the mantra that Trump is a winner.  In fact, everyone knows he’s a loser.  The man has small hands, that says it all.  All of this nonsense by our policy elites begs the question, what Kool Aid are they drinking in Washington DC?  Has James Jones risen from the dead?

MARKETS AND STOCKS

Abacus Research is out with a great new call.  It is recommending Signature Bank SBNY.  Signature Bank, a New York focused commercial bank, is also a leading bank for the crypto economy.  It provides exposure to blockchain technology.  Abacus sees large EPS upside as well as multiple expansion.  Crypto lending is a very large opportunity and is the critical bet.  Abacus is well above the Street on projected earnings.  Abacus sees upside potential of 60 percent to $420 a share. I think Abacus is right.  As soon as I read their note I bought the stock. I personally do not believe in Bitcoin, but major institutions are playing that game.  I believe in blockchain technology, and I believe that Signature Bank will be a market leader in the fintech industry. 

Over time, companies that grow faster and that have higher returns on capital will make more money for shareholders.  I am not going to play the rotation game.  I am not going to be flushed down the toilet by believing that the best companies in the world are overvalued when they are selling at respectable and sustainable 25 to 30 times current earnings. As long as Treasury yields are below 4 percent, and I doubt if we will see the 10 year at 3 percent or higher any time soon, big technology is very attractive. 

I like Eaton. I like Caterpillar.  I like Deere. But all of these companies are selling with P/E ratios in the low to mid 20s.  Their valuations are similar to big technology.  Yet, over time, big technology will grow faster, and generate higher returns than my favourite cyclicals.  To repeat, I like cyclicals, but to argue that cyclicals offer better value than big tech is to occupy an Alice in Wonderland investment world.

The semiconductors have underperformed for about two months.  I am perplexed.  Because we are just entering the digital world the long term growth rates for chip companies have accelerated.  Chip companies’ valuations should be higher today than they were 15 months ago. Chips are the oil for the 21st century.  In addition, a day does not pass without news reports on the chip shortage.  Independent observers say the chip shortage should last for a couple more quarters, if not longer.  So semiconductor companies are underperforming even though short term and long term fundamentals are very strong.  In the short term there is a shortage.  In the long term, semiconductors are the essential input for a digital economy. 

I am sticking with the space.  With a six month view I think you can make money in the chip space by throwing darts. I am focusing on Analog Devices, the company which is at the nexus of the physical and digital world, I am focussing on Nvidia, the company that develops the best high end chips for data centres and gaming, and I am touting Qualcomm, which has a dominant position in wireless and 5G technology. 

Apparently, a research note by Citi Bank semiconductor analyst Chris Danely sparked the Tuesday sell-off in the semiconductor space.  About 20 years I worked with Chris Danely.  It makes me happy to see old colleagues still plugging away.  Wall Street pays well but man, it is a damn grind.  I watched Chris speak on CNBC.  He confused me.  He says the shortage continues.  He continues to recommend his stocks, but he is worried that we are at a cyclical peak.  I don’t see it. 

I am watching the share price action of the semiconductor names.  They are bouncing from Tuesdays lows.  I like the space. 

I want to reiterate my positive views on the steel sector.  My top pick is Cleveland Cliffs, followed by US Steel and Nucor.  We are in the early stages of a super cycle for domestic steel manufacturers.  Trade protectionism is bad policy.  It is bad for the nation, it is bad for almost all Americans, but politicians love trade barriers because trade barriers buy pockets of votes.  Politicians from both parties are more interested in winning elections than in national prosperity.  I will continue to pound the table on the steel stocks.  They are enjoying the benefits of a cyclical economic recovery and they are protected from overseas competition by the high wall of tariff barriers. 

I like GM, I own it, I think it’s a $100 stock.  GM reported a great first quarter, it crushed Street estimates.  It earned $2.25, the Street was at $1.05.  GM reaffirmed its earnings expectations for the year.  It is guiding the Street towards $5.25 a share.  I think GM will earn more than $5.25, I think the semiconductor shortage will dissipate over the balance of the year, and I think GM will ride the wave of record vehicle sales and the transition to an EV economy. I like the stock. 

Last week Dow Chemical reported.  The stock closed 2 points lower on the news.  But this week Dow is forging ahead.  The share price is near a 52 week high, which would also be an all time high.  The stock is ready to break out, I think the share price is on its way to $100.  I foresee stable input costs.  I predict that DOW has great pricing power.  The US is sold out.  It is supply constrained.  DOW sells a variety of products to consumer and infrastructure markets.  Dow is going to surf on the booming US economy. 

POLITICS

Even the New York Times is starting to acknowledge that Republicans have a good chance of winning the House in the 2022 midterms.  Over the past few days, three Democratic members of the House have announced they are retiring.  They will not run for re-election.  All three represent swing districts, they know the political history of America.  The party which occupies the White House, loses seats in the Midterms.  In addition, the NYT is recognizing that Republicans are winning the culture wars. Gun violence is out of control.  Gun violence is surging in the neighbourhood of Washington DC where my children live.  I will write about that for tomorrow. 

Republicans are also winning the culture wars because the people know that critical race theory is Marxist bullshit, and that the 1619 project is a monstrous lie.  And in the short run, Republicans are winning the culture wars because damning evidence has emerged that Randi Weingarten, head of the American Federation of Teachers, is writing CDC guidelines for school openings. Weingarten is a politician.  She is not a medical doctor.  Today however she is the de facto head of the CDC on the matter of opening schools.  Emails show that Randi Weingarten reviewed a CDC draft on school reopening and recommended changes.   The CDC adopted nearly verbatim Weingarten’s recommendations. 

President Biden is sweating.  He knows that in September, many schools in blue states will not reopen for in-person teaching.  Republicans are going to hammer home the message that Biden and Democrats don’t care about children, they don’t care about parents, all they care about is political power.  Biden and Democrats pander to public sector teacher unions.  Biden and Democrats don’t care about America’s future.  The facts speak for themselves. 

SOCIOLOGY

For the human species, nothing is stronger than the bond between parent and child.  Over the last 9.5 years of my sobriety journey, I have heard over and over again men and women say that love for their children keeps them clean and sober.  Obviously there is more to sobriety than the bonds of family love but the innate love that has a parent has for a child and a child for the parent is a major tool to staying sober. 

On Tuesday, while listening to Judge Martin’s drug court, tears again came to my eyes.  A man who is doing well in the program said that over the past weekend he experienced one of the great joys in his life.  He got to hold his three month old baby for the first time.  The mother remains incarcerated.  The child is in the care of social welfare services.  Because the father is participating in the Drug Court program and is not incarcerated, he got to hold his baby.  He said he is going to do everything in his power to get custody of that child.  And he said the first step to achieving that goal, custody, is to stay clean and sober.

Some segments of society believe you can change human behaviour by throwing stones.  That is not true. It is not true for dogs, it is not true for human beings.  When you beat a dog, it will cower.  But if given an opportunity, that dog will bite.  If you treat a human being harshly, that human being will toe the line until an opportunity for revenge presents itself.  Change is achieved through positive reinforcement, not through beating with a cane or harsh sentences. 

America has a long way to go on the path to criminal justice reform.