Friday Finish – A Wasted Week in the Markets

We’re not off to a good start:

The Futures are, in fact, opening lower as the Yen continues to collapse, which has caused the Dollar to rise (1.5% off yesterday’s low), which reprices stocks and commodities lower.  This is a critical break for the Yen, below 0.666, which means it’s 150 Yen to the Dollar so a good time to go on vacation in Japan but also a very good time to prepare to leave the planet Earth – as this could be the beginning of the end for Fiat Currency. 

It also means that, right this minute, spreadsheets are burning out co-processors trying to keep up with how fast this is affecting overseas earnings in foreign currency.  McDonald’s, for example, may have made 1,330Bn Yen in August, which was $10Bn but, now that they are reporting it, it’s only $8.86Bn – they lost $1.14Bn in the currency translation alone.

And it’s not just Japan, the strong Dollar is affecting the earnings of most foreign entities, which is why we’ve been avoiding companies with too much foreign exposure in our last two months of stock picks (see our recent Portfolio Reviews).  

Unfortunately, our wise caution won’t stop other market participants from panicking.  AXP, for example, just disappointed on earnings but, in reality, they did very well but took a big loan loss provision out of concern for a FUTURE Recession.  If you actually read past that headline, they have INCREASED guidance to $9.45 and, with the stock trading at $142 – that’s just 15 times earnings.  

Well, now it’s $135 as people are panicking because your “analyst” who is writing an article on Yahoo Finance for $12, doesn’t understand what Loan Loss Provisions and Currency Conversions are – nor do the Bots that write half the articles these days.  They may have the definition of these things, but that does not mean they understand the mechanisms – much like you shouldn’t get surgery from someone who only read in a book how to do it.  

Unfortunately, that’s also true for investing houses, who are relying on young traders and young analysts who only read about inflation in books and have NO CLUE how it actually works.  So many people are deluded into believing that this will all be over soon but that is just not how inflations works.

Even if that’s true, however, you are better off in the market than out because out it’s hard for your money to keep up with inflation but in and your companies will keep raising prices, AND profits, along with inflation over time and sometimes they will be ahead and sometimes they will be behind but Ford (F), for example, sold cars for $3,500 in 1982 and the stock was 0.68 and now they sell cars for $35,000 and the stock is $11.60 (it began the year at $25!).  

Of course there were many ups and downs along the way but, over time, companies that survive will rise as fast and often faster than inflation but it’s a PROCESS, not a procedure.  And it is not a process that resolves itself in a month or two – that’s for sure.  No matter what the Fed tries to do about it.

Part of the problem is we now have an instant gratification culture we didn’t have in the 80s, when the stocks were only reported on Sundays in the fatter newspaper.  People didn’t stare at their portfolios every day and hang on every change in the “ticker” (remember those?).  

In 1961, Kennedy said we would put a man on the moon by the end of the decade and people were excited it would happen so soon – these days, the President better be fixing problems IMMEDIATELY or they scream for new leadership (look at poor Truss in the UK). 

Be patient – and have a great weekend, 

• • Phil