An important decision: The return to prudent investing and protecting capital

Pat asked me today if everything is ok. She noted that for three days I have almost not touched the computer. In fact, on Sunday I didn’t. That is an all-time record, and she knew that something important was on my mind.

After spending the past three days in deep thought, I came to the conclusion that I now recognize the need today to protect assets from the Big Lie that I see being accepted, big lies not much different than the whoppers that Trump has repeated so many times to convince tens of millions of Americans to buy his rhetoric.

My important decision, however, has nothing to do with the politics of the nation. My decision is about capital markets only.

Let me start by saying that too many writers are speaking out of their hats when they predict a monster bear market because prices are far too high. Based on traditional measures, they are too high, but that is no reason to sell everything. Maybe the Bear Market of 2021 starts tomorrow, and maybe there isn’t a Bear Market for another year or two. In fact, nobody knows, not even the Fed.

Let me end by saying that too many prices today are the result of a Ponzi scheme, abetted by several factors such as:

  • A massive increase in the US government debt is being monetized by the Fed because raising interest rates would probably lead to a depression
  • The US Dollar Index has become a fiction because inflation indexes are a fiction
  • To keep the US economy afloat, the Fed has supported the need of the government to put money into the hands of millions of companies and tens of millions of individuals who are at full employment and do not need that money so they circulate it back into equity prices
  • Investors have basically ceased buying stocks based mostly on sound financial statements backed up by solid corporate earnings, cash flow, and dividends, and have turned to what is called disruptive technologies that sometime in the future may result in financially sound companies or may not, which is to say, it’s a crap-shoot
  • In acknowledging the heightened risk they now take in buying the shares of companies that may have earnings in 3 or 4 years, investors have turned to day trading, all of them thinking they can buy a piece of crap that will earn them 10-20% weekly as long as they can hit the sell button the way they play a computer game

There are many companies on the market today worthy of your investment if, in fact, you are investing. But of the Russell 2000, truly maybe one-third are garbage. Unless you are an investor, you won’t recognize this. You will adapt your thinking to the big lies that are coming from the sell-side and from financial entertainment TV and you will be dominated by a deadly FOMO mind-set.

The huge majority of you believe that bitcoin is a currency. No matter what I say will convince you otherwise because you have bought into the Big Lie. You will not believe the SEC that clearly stated in the past month that bitcoin is not a currency. You will not believe the heads of the world’s largest central banks, Jay Powell of the Fed and Christine Lagarde of the ECB, that bitcoin is not as currency. You will not believe the world’s most successful investor Warren Buffett who calls bitcoin a worthless delusion and “rat poison squared”. Yes, you will certainly not believe me.

One small decision I made this weekend is to pull RIOT and MARA out of the Cara 100. I hope for some of your sakes that they soar to 10x gains, but for sure it will not be with assets that I control.

However, Bitcoin is only a part of the problem. The Big Lie is the problem. To your regret — and I include institutional investors when I refer to ‘you’ — this nonsense will continue until it ends with a thundering crash.

How many of you realize that the sixty (60) largest market cap companies listed on NYSE/Nasdaq are trading at a forward P/E of 33 today. Half that would be reasonable for companies that have market caps from $155 billion to over $2 trillion. But that is only part of the problem because many of these mega-cap companies really do have solid fundamentals if somewhat inflated. I will be buying some of them because I don’t think that a Bear Market is starting this week.

The most serious problem as I see it today, however, is reflected in the small- and mid-cap stocks of companies that are future-oriented. I mean way out in the future. Almost every company that IPOs today is in this group. There are so many of these stocks that have no earnings, and have in fact told the investors there will be no earnings for years. Their stock price is being pumped by news releases and carefully scripted narratives. In other words, they end up with your money, and you end up with their stories. As Warren Buffett has said, many are worthless delusions.

I will conclude by saying that I cannot participate in terms of pushing the Big Lie. Just as every politician today should be talking about Protecting Democracy, you have to be thinking about Protecting Your Capital. Prudent Investment and Protecting Your Capital will become my main theme, which is the important decision I made.

That is not to say that Biotech stocks will be pulled from the Cara 100. As before, I will remind you that health is our first wealth and so we will continue to chase down the leaders in their medical fields.


Like to give your opinion? Join our Community Discussion