It is important to keep a record of my analysis. I wrote an article for the Financial Times in 2007, titled “Boom times are here but cheap capital is not”, that looked similar to the analysis I wrote last year before tech stocks collapsed.
Corporate and consumer access to capital peaked when the long-term direction of interest rates turned. It is possible that the capital cycle could turn positive again. In the past couple of years, the strength of the US dollar relative to the developed world’s other centrally controlled currencies allowed the Fed to cut or raise rates as it wanted, depending on the domestic economy.
Don’t be greedy if you get levered up in the summer of 2007 because the credit cycle is working against you. Private equity deals, dotcom parties, and long waiting list for micro jets all sound like trumpets.
In February of 2021, I wrote an article called “Strategies for this blow-off top market”, when speculative stocks topped and started their crash.
There is too much speculation, euphoria and greed going on in the market and society. There is no fear in the air. The Blow-Off Top Phase of the Bubble-Blowing Bull Market that we have been very successfully riding for the past 11 years now is getting increasingly uncomfortable for me.
I asked in the midst of the crash and economic shutdown if tens of trillions of dollars in monetary and fiscal pumping from every major economy in the world would be enough to overcome the near-term collapse in earnings and economic. The answer was yes.
It’s not a good time to be investing for the long term. I believe that inflation could return to the economy for several years. Higher interest rates and commodity inflation are likely to kick in this year.
I saw long-term potential while remaining cautious when I read the August 2006 article called “Waiting for the noise pollution to die down.”
The US economy has cooled off from the rapid pace that surprised many economists in the first few months of the year. The economy is starting to surprise them after they all increased their estimates for the rest of the year. Because the economy is cooling and is weaker than most traders and economists expected, we can’t assume that Joe Coolness will return in the next few quarters.
Tech markets, especially the volatile and often leading semi-conductor sector, have tried to price in the inventory problems as the decline of more than 30 percent in the SOXX index indicates. The second half of the year has been warned by many former high-flyers and the fastest growers.
The central banks have continued to use the tools at their disposal, including interest rate increases, to reduce the amount of money in the world markets.
It isn’t as if the Fed and the markets will just stand still. The Fed and many other central banks will have to step in and work to reliquefy the world’s economies and markets at some point in the near future. We would be back at the races.
It sounds like I am anxious to get back to trading and investing and being my usual bullish self, but I keep saying that I am staying mostly defensive here. Until the noise dies down and we get another crash-ish leg down.
Some is not lost. I wrote in the Financial Times in 2007, “Invest in technology and live la dolce vita”, as I explained why Apple and Google were must-owns for that future:
The golden age of convergent communications will soon be ushered in by the iPhone and its competitors. We will all be able to call, as Apple rolls out new iPods and next-generation phones that connect you to the internet over 3G wireless, wi-fi and wiMax.
There were trillions of dollars in market valuation created when the Smart Revolution was just about the only way to get in front of it in 2007.
When I wrote that article back in 2007, it was at $180. Since then, its Class A shares are up 794%, and it has been renamed. There was a split-adjusted $4.71 for Apple. Since then, it’s up 3,093%. When the article was published in the Financial Times in 2007, they were down more than 30% from their recent highs.
We have been through cycles like this before and we were able to navigate them similarly, which turned out to be very successful. Back in 2007, the most obvious Revolution to get in front of phones was the revolution.
15 years from now, The Space Revolution, The Biotech Revolution, The Virtual Reality Revolution, and a few other Revolutions may become trillion-dollar marketplaces. It will be difficult and we will not buy great-sounding stories. I think we will have an equal amount of returns when we look back 15 years from now, if we stick with our strategy.
Getting in front of trillion dollar revolution is what we do. Let’s get going.
He is a columnist for MarketWatch and editor of the Revolution Investing newsletter The securities mentioned in this column may be owned or planned to be owned by Willard or his investment firm.