Broker Check
My Gut Feeling For Today, April 28, 2022:  What’s Really Going On

My Gut Feeling For Today, April 28, 2022: What’s Really Going On

April 28, 2022
Share |

Successful professional Investors, whether on the sell-side (brokers and analysts) or buy-side (portfolio or fund managers) all have a keen sense of market and investment history. They are also quantitatively astute. It is for those reasons that professionals have long careers in this business, living through the tough times along the way.

Did you know that (until the waning years of his career), Mickey Mantle’s worst season was 1960, when he hit 0.275, the year before the M&M boys led the Yankees to the 1961 season which many consider the best team of all-time. The Yankees went on the win the World Series in 1961 and 1962.

When you are in the middle of a lousy season or streak, it seems awful, the end of the world perhaps, as most are feeling (or fearing) right now.

Take a look at this chart of the Standard & Poor’s 500 (SPX) going back 40 years:

 

The 1987 stock market crash is barely perceptible. As is the invasion of Kuwait in August 1990. Neither foreshadowed bear markets, nor the end of long-term investment opportunities.

As you can see in the next chart, less than two years after the 1987 low, the pre-crash level for the SPX was eclipsed and the market rose more than 50%. That is unless you panicked and sold in October 1987.

 

 

The current market is more representative of the Invasion of Kuwait. After an approximate 31% decline in the SPX, the market regained all lost ground and then some, within a year. Crude oil prices surged dramatically after the invasion to only fall back to pre-invasion levels within a few months.

Need I remind you how ugly the 4th quarter of 2018 was (see the first chart). You had to have the intestinal fortitude to hold on as the Federal Reserve Chairman Powell made several lousy mistakes. If you did, then you would have reaped the benefits of growth stocks in the following three years

Then of course, there is the Pandemic of 2020. We were all supposed to be dead by April of 2020. So was the stock market. Neither turned out to be the outcome.Some of the best opportunities of my career occurred during the Pandemic of 2020.

 

So now we are in the midst of another decline in the SPX, which began in late December of 2021, as Vladmir Putin began to send troops toward Ukraine. That created a concurrent surge in crude oil prices, over and beyond the surge which began with poor decisions to stop drilling and pipeline construction in 2021 by the Biden Administration. This all too will come to a conclusion and the current decline will look like the others depicted above in the fullness of time.

We run multiple portfolios at LakeView Asset Management, the most aggressive Growth Portfolio suffers the most in downturns and benefits the most in upturns. The time to switch from Growth to the more conservative Dividend Value Portfolio was the end of 2020, when I suggested – no, urged; nearly begged, for clients to do so. Now is not the time to make the switch. Unless that is if you want to sell at the bottom. Now we wait patiently for the inevitable future upturn.

But you may be thinking that we are in the middle of a recession. To which I ask, what is the empirical evidence to justify that conclusion? Recessions are borne out of a condition of gluts. Globally we are dealing with scarcities. GDP (Gross Domestic Product) is still rising as of last year’s 4th quarter but is expected to slow down in 1q22, something we need to keep an eye on. [ Editorial note: this was written prior to the GDP report was issued. GDP did decline in 1q22 after writing this commentary but before compliance approval was granted to publish ]  Job creation is still positive. Corporate earnings are strong. The housing market is extraordinarily strong due to a lack of inventory. Remember the last housing boom? It was a victim of housing gluts. That is not the case right now. Consumer sentiment is still positive and appears to have bottomed in March. This is the one economic gauge that could be the first to signal recession.

The economy is suffering from a serious case of inflation. For the most part, this is a self-inflicted wound because of excessive government spending and poor energy policy. As a result, monetary authorities, such as the Federal Reserve will be raising interest rates. I promise you; they will overshoot and tighten too much. I still believe the Fed will raise rates three times in 2022.

In the credit markets, bond issuance is at all-time highs. Unlike 1999 when technology stocks crumbled due to a lack of earnings and liquidity, now technology companies are flush with cash and are generating record profits. This will result in a huge round of buybacks and takeovers. The takeover of Twitter (TWTR) by Tesla’s (TSLA) Elon Musk with his own pocket change is only the beginning.

So, the bottom line is that Growth investors do not want to panic and should look forward to new highs in the future. I believe that the lows are already in for the major market indexes. Lastly, history tells us that the best two quarters in the sixteen-quarter election cycle are the 4th quarter of the mid-term election year and the 1st quarter of the following year. We are getting awfully close to those quarters, and I plan on turning up the portfolio beta as we get closer.

Finally, calling market tops and bottoms is a fools errand and I am no fool.

P.S. Yesterday I put six figures of my own money to work. That's putting money where my mouth is.

 

______________________________________________________________________________________________________________

 

 

Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long SPY, SSO, SPXL and TSLA -  although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high net worth private wealth management. LVAM is affiliated with Kingswood Wealth Advisors Services, a registered investment advisor. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ

© 2022 LakeView Asset Management, LLC. All rights reserved.