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With the Nasdaq hitting 5000 last week and all the talk about whether we’re in a new dotcom bubble or not, it’s been easy to overlook something: most stocks are having a ho-hum 2015, at best. After Friday’s steep selloff, the Dow is virtually flat since January 1st and the S&P 500 is up a grand total of 13 points, or .6 percent, over that same period. The Russell 2000 has fared slightly better. It’s gained about one percent. That’s not bad. But it’s not exactly the stuff that bubbles are made of.
So, is the bull market stampede finally starting to slow? I’m always hesitant to make predictions. For all I know (or anyone else), the markets could rally again this week and shoot up double digits yet again by year’s end. But I will say that the same negative effects that have dampened stocks so far in 2015 will almost certainly get worse in the coming months.
I apologize for my recent lack of posts. I’ve been travelling a lot this past month. I just got back from ten days in China, where I visited with the chief financial officers of eight companies in Beijing, Shanghai, and Hong Kong. Their businesses ranged from solar panel manufacturing to construction to internet retailing. Aside from some minor language barriers, the meetings were all more or less identical to the thousands I’ve participated in here in United States–that is, they were straightforward, rather sleep-inducing discussions of things like cash flows, production capacities, and earnings forecasts. You can talk all you want about free trade and laissez faire government policies. In my opinion, the true indicator of a country’s commitment to a market economy is how professionally boring its corporate CFO’s are. By that metric, China might be even more capitalist than we are by now.
My last trip to China was six years ago, and its economic vitality hasn’t abated at all since then. Construction cranes still fill the horizon in every city, and traffic in Beijing and Shanghai made rush hour in Manhattan look like a Sunday drive. I think every American should go over there at least once to see what true growth looks like–both the good and the bad of it. I’d like to say I worked in some time to see the sights, but that would have been impossible, not just because my schedule was so busy, but because my eyes were burning from all the smog. The only “sight” you see most days is a thick brown haze that hangs over China’s cities like something straight out of a Dickens novel.
Two weeks ago, I had lunch with the legendary Dallas money manager Shad Rowe. Shad recounted an enlightening conversation about global economic trends he’d had with Sir Martin Sorrell, CEO of the British ad agency WPP. Sorrell told Shad that he believes the term ‘globalization’ is misleading.
Way back when I started managing money in the 1980’s, technology company stocks were revered by institutional and retail investors. The perception was that tech had a much better growth outlook than the overall market. Not surprisingly, tech stocks sold at premium valuations, often twice the price-earnings ratio of the overall market. Back then, and into the 90s, technology companies rarely paid quarterly dividends, and only a handful had stock buyback programs. Investors were content to let them reinvest cash in their businesses. But after the dotcom bubble went supernova, tech valuations crashed and stayed depressed for a long time, even as the strongest survivors of the meltdown grew fantastically and consolidated their holds on their respective sectors.
Despite this trend, I stayed away from big tech stocks like Apple and Cisco and Oracle. After the collapse, I was gun shy, and I’ve historically been suspect of famous stocks with massive market caps. They’re just too heavily covered for comfort. Every analyst and trader from Berlin to Beijing pores over every syllable of every statement they issue. And as the old saying goes, “When the microscopes come out, returns get microscopic.”
But I think it might be time for me to join the herd.