Author: Bill Smead

A mania associated with electric production companies providing electricity to technology enterprises pursuing Artificial Intelligence (AI) agendas looks familiar. An announcement this week by Meta that they signed a deal with Constellation Energy (CEG) and the corresponding surge in the share price of CEG rang a big bell in our minds. Our regular readers will be reminded that a few weeks after the 2024 US presidential election, we made the case that we were in the stock market at the polar opposite of the late-1980 euphoria over President Ronald Reagan’s victory. Stocks were massively under-owned in 1980, interest rates were sky high, and inflation had run rampant. […]

[…] Thanks to pressure from the new Trump administration, the pharmaceutical stocks look somewhat as deeply out of favor relative to the S&P 500 Index as they were in 1994. For political reasons, the new administration is looking to bring inflation down. The persistent inflation from the massive $12 trillion of U.S. Treasury borrowing done to get us through COVID-19 seemed to doom any reelection possibilities for President Biden. Therefore, President Trump wants to get Republican candidates elected in the midterm elections. To him, driving down drug prices (and oil prices) is the way to gain favor with voters. […]

[…] The Trump administration believes that it must act swiftly and take a wrecking ball to the way international trade has been organized. What they are attacking is David Ricardo’s economic theory that everyone benefits by making what each country makes better than the other countries. Under normal circumstances, the U.S. has been happy to let numerous other countries prosper under very generous trading rules. Post-COVID-19, the current presidential administration believes that the prior system is unsustainable because it has been massively subsidized by U.S. deficit spending. The interest expense and future principal payments look ominous. […]

Over the last 15 years, the United States economy and financial system have been built on the back of a stock market ownership society. The premise is that average to above-average income households will prosper in the stock market and that prosperity would benefit those who don’t own common stocks themselves. This was a similar premise to the one used by President Reagan to produce prosperity in the 1980s, which was called “trickle-down economics.” In theory, President Trump’s tariffs are intended to benefit average to below-average income American households by onshoring jobs and factories. Someone might call this “trickle-up economics.” […]

[…] This is truly a Noah stock market. Everything we have studied about common stocks, including “The Intelligent Investor” by Ben Graham, “A Short History of Financial Euphoria” by John Kenneth Galbraith, and from listening to the wise words of Charlie Munger and Warren Buffett for decades leads us to believe that we must build a common stock portfolio which will float when the multi-year bear market creates a waterfall of selling among magnificent growth stocks and passive S&P 500 Index owners. […]

[…]. The great Vanguard Windsor manager John Neff used to say, “When you want to brag about a stock, you ought to sell it.” What has been happening lately in our interactions with our current and potential investors all around the world is startling. Asset allocators are repeatedly telling us that if they sell any of their core position in the S&P 500 Index, they would get fired by their customers. In other words, the S&P 500 Index is “on top of the world!” […]

All portfolio managers practice a stock-picking discipline in which they make choices. Growth stock investors attempt to predict which companies will grow the most in the future and compare the growth they expect to what they have to pay to participate. Value managers try to buy companies that are available at a discount to the average stock in hopes of getting average to above-average company performance. We know people we admire in both camps and like to think about how an investor might try to draw from both investment styles. […]

The Federal Trade Commission (FTC) recently blocked the merger of Albertson’s and Kroger, which are the two largest stand-alone grocery chains. Their theory is that the merger would be anti-competitive and cause higher grocery prices. We find this to be another epic failure on their part to understand the purpose of the Sherman Antitrust Act as overseen by the Justice Department and the Federal Trade Commission. […]

Yogi Berra was a beloved, successful baseball athlete, manager, and cultural celebrity. An entire book was written about his verbal amorphisms. One of my favorites was when he said, “It’s déjà vu all over again!” For us as investors, we can say that this is déjà vu all over again as we practice our stock picking discipline. […]

How does the euphoria for stocks in the days after the 1980 election contrast with today’s Trump election euphoria? What were the fundamentals of the 1980 stock market compared to today’s fundamentals? What interest rates were paid to borrowers of money? We will make the case for very useful contrarianism in the aftermath of the current stock market euphoria. […]