I spent Sunday resting from my long Palomar climb.
Momentum Monday will go out tomorrow.
I read a lot, but I really focus on listening to very few people as you know from reading this blog. Andy Kessler is one of those people. I have been reading his thoughts on tech since the 1990’s when he was running his hedge fund and writing I think for TheStreet.com. Everyone was writing for them back in the day.
Andy’s first book is a classic titled ‘Running Money‘ and as history repeats itself for tech stocks in 2022, think about how few people if any..sold the top and walked away. We know that most in ‘growth’ tech and momentum tripled down (hello Tiger, Softbank). Andy did that in 1999 and chronicled the sentiment and how and why he did. I am going to go back and read it again and I probably would have saved a lot of money if I had read it again in 2021.
As per his latest thoughts from the article this weekend, I loved this part:
As a wet-behind-the-ears engineer designing chips, I was hired by Paine Webber to track semiconductor companies soon after the bull’s birth. The industry was a roller coaster—shortages followed by gluts. Still is. Not wanting gray hair and ulcers, I searched for Silicon Valley’s fountain of growth. It was pretty simple: the elasticity of ever-declining costs for chips, per bit, per gate, per function drove demand. These magic beans fed the stampeding stock-market bull as cheaper laser printers, servers and eventually smartphones were delivered to the masses.
Forty-seven times in 40 years is a heck of a run. A lot of folks made a lot of money. But as the adage goes, don’t confuse a bull market with brains. Especially with technology—don’t just buy a name and stick with it. Digital Equipment and its minicomputers peaked in 1987. IBM began a long stretch of mediocrity. Apple was practically dead until the iPhone. Intel had a good run but lost its formula. Meanwhile, cloud and e-commerce and social-media companies became earnings machines and trillion-dollar babies.
But now what? Like it or not, we’re in a new era. Capital, as always, sloshes around the globe searching for its highest return. Inflation usually means money is attracted to real assets rather than ideas. Energy? Real estate? Commodities? Fixed income will be attractive again. Corporate earnings, meanwhile, have started to decline as input costs—material, labor, regulatory overhead—spiral upward, red meat for bears.
Of course, a new bull market could start anytime, but don’t even think about another big one driven by interest-rate declines until, well, interest rates go up enough. Instead, the next bull will be fueled by earnings growth from whatever drives productivity next. Forget last cycle’s winners, find new ones—next-generation machine intelligence, geothermal energy, gene therapy, insta-vaccines, nuclear fusion or, more likely, something completely out of left field that starts out expensive, is dismissed by skeptics and then gets relentlessly cheaper over decades, creating wealth for society.
This is why we should always nurture the supply side, with capital-forming low tax rates and regulations that allow productivity to increase. The bull is dead, long live the bull.
I need to reach out to Andy again and get him on the ‘Panic’ podcast. Back in 2013 he came to keynote at my Stocktoberfest on Coronado and his presentation was titled ‘Into The Cloud’. It was a moneymaker for anyone that listened and luckily I did.