September 30
Covid is waning as a risk to society and the economy. Yesterday, Dr Scott Gottlieb spoke on CNBC. He said that in the US the population immunity level-vaccinations plus prior infections -is over 80 percent against Covid. Moreover, by year end, two or more anti viral oral therapeutics will be available. The therapeutics would not prevent Covid, but they would act effectively against the virus when a person contracted Covid or when a person is at very high risk of contracting Covid because of close proximity with an infected person. Gottlieb said both Merck and also Pfizer would soon bring therapeutics to the market.
Thank heavens for free market capitalism. What is the thought process for supporting socialism or dirigiste economics?
The public is aware that the Covid risk is fading. The airlines are reporting an uptick in bookings. Advance airline bookings for Europeans to travel to the US are surging.
Markets and Stocks
The selling in big technology is overdone. Yes, as Treasury yields rise, portfolio theory says the discount rate on future earnings also increases, causing current valuations to moderate. But as long as the yield on the 10 year Treasury remains below 2 percent, the yield is currently around 1.5 percent, big technology-Alphabet, Apple, Facebook and Microsoft can sell at price earnings multiples of 25 times or a little higher. Currently, only Microsoft carries a price earnings multiple of over 25 times on forward earnings.
In portfolio theory, the “required excess return” for owning equities is 2 percent more than the return on the risk free asset, the 10 year Treasury. An excess return is required because equities are more volatile. So, when the yield on the 10 year Treasury is 2 percent, the required earnings yield is 4 percent, 2 percent Treasury yield plus 2 percent “excess return.” The reciprocal of the “required return” is the theoretical price earnings multiple, in this case 25 times current year earnings.
Portfolio theory says big technology is cheap. I say “fill your boots” with the best companies in the world. Yesterday, I added to my positions in my big four, Alphabet-Google, Apple, Facebook and Microsoft.
I acknowledge that Nvidia at 60 times forward earnings is expensive. But a few months ago when I obtained a 50 percent return on my Nvidia investment, I trimmed my position by one third. Now I am happy to run my Nvidia position for the next few years or longer. Analog Devices is also a little expensive. It sells at about 30 times forward earnings. But ADI dominates the semiconductor space for converting real world information-analog- into digital form, 0s and 1s. Humans are analog. The world is going digital at an accelerating pace. ADI in my opinion is a must own name.
I love the reopening trade. The airlines are seeing increased bookings. Europeans are booking seats to fly to the US when the Administration removes its unscientific ban on travel to the US from the highly vaccinated EU and UK.
The airline stocks and the cruise line stocks are up 25 percent over the past few weeks. I want another 10 percent before I take profits.
I am again pounding the table on Boeing. As airline travel improves, the airline companies will respond with new orders. Boeing and Airbus are a duopoly. And at some point soon, China will resume ordering Boeing aircraft. China does not have a choice. Over the next five years, in a normal market-which is fast approaching-Boeing and Airbus are sold out.
I am also pounding the table on Disney. Yes, the streaming business has slowed. But Disney will dominate the global streaming business. It has the dominant global brand as well as the best content. On content see Disney’s dominant share at the world’s cinemas. By 2030, there will be one billion streaming customers. Disney will have at least a 50 percent share of that addressable market.
Disney is a play on the parks, travel, movies, streaming, sports gambling, broadcast television and consumer spending. In a few years, 2024, Disney should earn $10 a share. I think Disney will sell with a 35 price earnings multiple. My two year target on Disney is $350, up 85 percent from current levels.
I love the US steel sector. US steel manufacturers will soon be the low cost producers because they will have the lowest cost supply of energy. Energy accounts for 15 percent of the cost of producing steel. US energy costs are 50 percent or more lower than energy costs in Europe or Asia.
The tariffs against EU steel and Chinese steel will remain. I see 50 percent upside in CLF, X and NUE.
Economists are lowering Q3 GDP forecasts. The Atlanta Fed forecasts Q3 GDP at just 3.3 percent. But economists are raising Q4 and 2022 GDP forecasts. The Wall Street Journal reports: The Delta variant of Covid-19 appeared to temper economic growth this summer, but economists expect the recovery from the pandemic to reaccelerate as the virus’s toll eases. In recent weeks, many economists lowered their forecasts for third-quarter economic growth in large part because consumers slowed spending on meals out, hotels and airline tickets amid the spread of the highly contagious Delta variant. The Covid-19 surge also complicated office and school re-openings, turning what had been expected to be a September boom into a downturn. Supply constraints—including product and worker shortages—were also more severe than many analysts earlier anticipated, contributing to downgrades in growth expectations.
As Covid fades economic growth will reaccelerate.
The consumer has money and wealth. The consumer has significant excess savings. The consumer has record levels of net equity in stocks and real estate. Jobs are being created. Wages are rising. Consumer confidence is turning up as Covid recedes. I am betting on a surge in consumer spending. Yesterday, I added to my position in Nordstrom. Either current management fixes the business or shareholder activism will fix the company. My twelve month target is $45, 50 percent higher than the current share price.
Economics
Professor Tyler Cowen writes: if the biggest news is what’s not being talked about, then my candidate for the most neglected story would be President Joe Biden’s plan for $3.5 trillion in new government spending. Crazy as my hypothesis may seem, given all the stuff about Biden’s agenda on the internet, there has been remarkably little policy debate about it, and remarkably little attempt to persuade the American public that this spending is a good idea.
It’s not just that no one knows yet what exactly will be in the bill(s), which seem to be a combined effort of the White House and congressional Democrats. It’s that America’s intellectual and pundit class isn’t paying full attention. There was more passionate debate about AOC’s “Tax the Rich” dress.
What is in the bill? Are the proposed policies good or bad ? What are the proposals on tax policy? On the proposed social welfare bill, the public are the children of the pied piper folk tale and Biden is the piper. That thought unnerves me. How do you feel?
Politics
The Washington Post writes a must-read article. It asks what will happen if Trump runs in 2024 and wins, which could happen given the performance of Joe Biden and the progressive take over of the Democratic Party. The Post says: The challenges for American democracy were on stark display almost exactly two months after Election Day, on Jan. 6, when a violent mob of Trump supporters mounted a deadly insurrection on the U.S. Capitol. And the challenges have been clear in the eight months since the riot, as Trump and his allies have intensified false claims of election fraud and the former president has remained the Republican Party’s most popular leader.
Now, as Trump looks and sounds increasingly like he intends to mount a presidential campaign rerun, Democrats and democracy experts are grappling with what such a campaign — and a potential second Trump presidency — would mean for the country.
Though I remain unable to vote, my politics are conservative. I am a George Will, Mitt Romney, Bob Portman Republican. And the thought of Trump winning in 2024 scares the sh.. out of me.
In spite of Biden’s failures, I don’t think America would vote for Trump. He would be a megalomaniac if he were re-elected. But a win by Trump is not out of the question. So, the hypothetical begs the question of why is the Democratic Party being hijacked by its progressive wing, when fewer than 25 percent of voters are progressive? When will the moderate elites of the Democratic Party say “no” to the progressive caucus? When will Senate Majority Leader Schumer tell Congresswoman AOC, to take “a hike?”
Rightly, Democrats criticize the adults of the Republican Party for not saying “no” to Trump. Now it is time for responsible Democrats to say “no way Jose” to progressives.
Sociology
On page 240 of his new book, “American Happiness and Discontents,” George Will writes: “The spontaneous emergence of social cooperation – the emergence of a system vastly more complex, responsive and efficient than any government could organize – is not universally acknowledged or appreciated. It discomforts a certain political sensibility, the one that exaggerates the importance of government and the competence of the political class.”
Humans naturally cooperate. That is an innate trait. Infants cooperate. Cooperation is not a learned behavior. But lack of cooperation is a learned behavior. Bolshy (Bolshevik) behavior To use a British expression, is environmental.
The dominant culture of America is one of cooperation. The wings of the two major political parties do not value cooperation. Cooperation is not a characteristic of cultures of poverty. Without prison officers, cooperation would not have existed at Calhoun Prison. Even the men at The Transition House found it difficult to cooperate.
Cooperation characterizes the traditional American household of two parents and children. Cooperation is not the norm in broken families. See Divorce Courts.
Where is the data that more welfare will lead to more cooperation?
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