Foreshadowing

Join Chris Perras for the 2/5/2021 edition of Stock Talk!

Chris Perras: Good morning. I’m Chris Perras, Chief Investment Officer at Oak Harvest Financial Group in Houston, Texas. Welcome to our Friday, February 5th, weekly Stock Talk Podcast: Keeping You Connected to Your Money. This week’s podcast is titled; Crystal Ball -Seeing the Future, Market Foreshadowing. For the past 9 to 12 months, we have repeatedly gotten the question, how come the stock market is doing so well when the economy is so bad? First, since about April of last year, the team here at Oak Harvest has tried to stress that the financial markets and stock markets move well in advance of the data hitting the tapes and on financial news TV.

The markets, as well as individual stocks, tend to move on incremental momentum. They ask themselves, are things getting better or worse? Believe it, or not many times less bad than being horrible or a disaster can actually be better in investors’ eyes than good but not excellent or great anymore. I bring this up because a few listeners have asked me the last two weeks, Chris, you mentioned two weeks ago that you were taking some chips off the table and paring back a number of semiconductor companies that have been great winners over the last 12 to 24 months.

The TV news channels are out in force with stories of demand exceeding capacity and that there are semiconductors shortages everywhere and that their business is great. The answer is, yes, business is great there. It’s so great the companies are most likely double ordering and pulling forward demand from the first quarter, 2021, and the second quarter. With this, semiconductor stocks have anticipated this and the valuations have skyrocketed the last nine months in the groups. The current upturn in semiconductors started around February 2nd to around February 10th in 2019. You go ahead and add two years to that and what do you get? Yes, you get this week.

While almost every semiconductor company has now smashed earnings and revenue guidance for the fourth quarter of 2020 reports, almost every semiconductor stock in the group has traded lower, not higher. Why? Well, maybe someone who manages a lot more money than we do here at Oak Harvest is just seeing the same things we are. They’re probably seeing better opportunities to deploy incremental capital for 2021, than deploying more capital in semiconductors. They are taking chips off the table and rotating into other areas of the economy with pent-up real demand due to the COVID slowdown of the past 12 months.

Here’s another example, last night, Peloton reported a monstrous revenue quarter and the stock did what? Well, as of this morning when I last looked, it was down 7%. Why? Well, probably because it’s a fitness bike company now trading at a market cap of about $50 billion with a B and with a revenue quarter in the fourth quarter of about 1 billion. That was during the holiday Christmas season and COVID lockdowns making it probably the fastest growth the company can ever achieve.

Listen, I love biking, I’ve been doing it for about 30 years, but regardless of free financing options from Peloton and its finance company, you aren’t going to find me with a new Peloton in my home gym. In fact, I’ve convinced my wife who’s wanted one for over six months that we can buy one come say, Labor Day of 2021, probably in the secondary market for slightly used Peloton in my opinion.

Because that market will probably be exploding. Why? Because every millennial and Gen Z that I talk to tells me, after going out to local restaurants, the number one variable dollar item that they want to spend locally when COVID slows down is, yes, joining or re-engaging in their gym. Why? Because it’s cheap. Planet Fitness is I think $10 per month. It’s both flexible in both types of workouts and human behavior seems to remain that getting out of the house to work out is more motivating to individuals. Most of all, a gym is social.

Listeners, at 55, which is my age, with a decked-out home gym, I don’t need or want to go to a crowded gym, but I’m not the economy. The economy is being driven by the average American and the average age of the average American is under 40, and people under 40 have different habits than I do. They want to date, eat out at restaurants, get married, have kids, buy pets, buy houses, buy cars, go on family vacations, save and invest money. Their normal isn’t my normal. However, as an investor, we are best served to recognize where the herd is going early, not late in the cycle.

Where might the investor herd be going the rest of the year? Which areas might they be gravitating to? How about healthcare and medical devices? We all know friends or family that have been postponed elective medical procedures because the hospitals are full of COVID patients. What happens as the COVID patient count declines at hospitals? Well, rooms open back up for elective medical procedures, which have been building a backlog now for 12 to 15 months.

How about travel and entertainment? Consumer discretionary items like a family trip to a local restaurant or getting some takeout food. How about rejoining a gym if you’re a millennial or gen Z age and can’t afford a $3,000 to $4,000 Peloton bike? That’s what the overall economy is looking at doing. How about getting on a plane and flying to Florida theme parks to enjoy a family vacation?

Even liberal California is finally reopening Disneyland, or maybe it’s a visit to a water park or animal park in San Antonio with the grandkids. You probably won’t be paying Bitcoin for that trip and most likely will be using one of those very old-fashioned credit cards that those old school transaction processors like visa and MasterCard are. While you might not be staying in an Airbnb, you also will find a great deal on a hotel at Hilton or maybe in Las Vegas at the Wynn. Listeners, at Oak Harvest, the investment team knows it’s much easier to compartmentalize our own individual situations on the economy or on the stock markets. Heck, I’ve done it many times.

Most recently when I was a semi-retired, stay-at-home investor and trader during the second Obama term in 2013/2014, as a political conservative, I was terrified. Terrified of what? I was terrified of everything, everything I saw and heard on TV, literally everything. Politics, debt, healthcare, our banking system, and what happened? Because I was focused so much on my own financial situation, my view of the world in the markets was clouded. It was obscured by the real data and what was going on in the overall economy and with companies that were growing.

I missed two years of the beginning of a new generation of consumers, millennials, and Gen Z, taking control of the markets and our economy. The blinders and biases that I put up not only cost me worry and stress and lost time, it cost me growth in not only my financial portfolio, but it cost growth in my character. Listeners, I beg you to remember, the average age of the American population is between 38 and 39-years-old. There are all most 170 million Gen Z and millennials in the US, and that segment of the population is growing. There are millions of bright and smart and hardworking younger Americans that will guide us through the future and all its changes and challenges.

As equity investors, we should be primarily focused on the growth areas of the economy for growth in our portfolios. We can also generate some relatively stable income and slower growth by investing in slower growth but stable companies that pay dividends. For about the last nine months, we’ve tried to stress that the data shows exactly opposite the TV narrative. The vast majority of the economy is doing better than expected and some areas are doing great. Look no further than housing demand, housing prices, and auto demand, which last April, the team at Oak Harvest talked about pent-up demand in that segment. It’s exploded in the last nine months.

Behind the scenes, the indicator that signaled us to be more cautious into month-end January and the first days of February looks to have been spot on with the markets having quickly sold off in the overnight futures markets to down 3,650, 3,660 last weekend, which was a little over 5%. However, come Monday, things were green and going straight up higher and now the markets are sitting once again at new all-time highs. This is precisely why the team at Oak Harvest does not make a practice of going all the cash or even trying to raise a gratuitous amount of cash when we are in a very favorable outlook for the markets for the entire year.

Tactically selling around sectors, like we recently did in semiconductors and individual stock fundamentals is the best way to re-allocate capital. The data hasn’t changed. As the year progresses, the economic clouds should continue to clear and volatility should eventually plummet to levels fewer predicting. We are in a bull market. We released our first half 2021 outlook about a month ago by way of a podcast which can be found on our website oakharvestfg.com, check it out.

A little foreshadowing of what I plan on talking about next week. We’ve had a lot of questions about inflation and interest rates. That’s the topic I’m going to address next week. Hopefully, I’ll help you alleviate some of your concerns. The things I see behind the scenes, inflation short term is actually peaking and real growth is picking up.

At Oak Harvest, we are a comprehensive long-term financial planner. What this means is that as our client, you and your financial advisor should have a financial plan that is independent of the volatility of the stock markets. Give us a call at 281-822-1350. We are here to help you on your financial journey in retirement through customized retirement planning. Many blessings. Stay safe. God bless you and your families, and God bless America. We are stronger together than we are divided.

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