One Quarter Down, Three To Go
What can you say about the first quarter of 2024? I know from my perspective, I can’t say much. I did not expect to see the rally we saw and while I think this year will be a positive, things keep going like this I may have to up my year end forecast.
As I have said a few times, the economy has weathered whatever the World has given it and shrugged it off. Money has continued to flow into Tech and it also has started flowing into the broader market as well.
This is a very good sign for the year to come.
The rage is still AI and I have yet to wrap my arms around the overall impact AI will have for the investing future. Will it affect energy, commodities, media, industrials? One thing is for certain, investors have been pumping a lot of money into the core of this AI investment, the manufacturer of the chips and infrastructure of the coming revolution.
That is a good thing. A very good thing as a matter of fact.
The last thing investors should invest in is a whisper. The “Idea” of something. That idea may be an abstraction and never amount to anything (Dot.com bubble 1999) or it could be Facebook.
In practice, I will guess for every Meta there are 50 to 75 Pets.com or Web-van. Not a spectacular record. Yet, people will still rush into things they think or are being told is the next big thing. It is human nature and no matter how many smart people tell you to stay away, they still jump in.
An investment in NVidia is different though. They produce some of the most sophisticated chips ever made and charge some of the highest prices for these 2 lb’s of silicon and technology. They produce something.
That is the key. Producing something that is usable and performs as it is designed to perform is what separates an NVidia from a World of hype.
Is NVidia fairly priced? How the Hell should I know. Value is what people put on something and because I think the value of a stock is X it doesn’t mean I am right or wrong. It is just the value I have assigned to that stock. Some people think NVidia is worth $1,250 a share so buying it at $915 is still cheap. They still see a 27% return from here. That’s what investing is, assigning valuations in the future and deciding if the risk is worth the reward.
Since the Magnificent Seven seem to have approached what many investors feel is full valuation presently, they have started looking elsewhere. Not necessarily for the next Magnificent Seven type stock but for stocks that have some appreciation left in their stock price.
This is what happens when an economy is working. Investors feel good about investing in the near and long term future. The positives outweigh the negatives and money moves into different sectors.
We are now seeing a move into other sectors and watching as the pieces of the S&P align and follow each other. This is all well and good.
Until it’s not.
This would not be my Monday morning business column without some cold water in the face (for those of you that don’t get that, it’s a line from The Clash’s “Magnificent Seven”).
The economy is doing very well by many measures. I can’t deny that as much as I would like to. Part of this is the free flow of capital coming out of the Capitol but that’s not the whole story.
The United States has reached a record point of oil exports. This is a balance of payments thing and while few will mention it, it is a very big deal. Having US Dollars return to the US via exports is an unheralded inflation fighter. Keeps the dollar as the main flow of currency around the World no matter what any administration past or present says.
Because President Joe Biden completely and utterly screwed up our oil and natural gas exports by closing LNG shipments in Louisiana and the Keystone Pipeline shutdown, it is amazing that we have got to this place. Yet, this sector of the economy is doing very very well despite the administration’s attempts at crippling the energy industry. Nice try Joe.
Bringing back manufacturing to this country will be a little harder but there are signs of increased manufacturing activity in spots around the US. This is a bit more of the Biden effect. The administration is dolling out subsidies and “loans” all over the place and states are jumping on the bandwagon. The emphasis is on high end chips and other high value manufacturing. New York, Ohio, Arizona seem to be the key recipients of this government largess but that money will flow through the state economies and surely help as we try and compete around the World.
There is just one little problem and the administration says it will address it but the fact is, they aren’t and probably never will.
These factories require skilled labor. Very specific tasks that need to be done and trained technicians to do them. We don’t have enough of them.
Sure, we can build these buildings and load them up with billion dollar technologies but do we have the skilled people to operate what needs to be operated? No. We won’t ever because there are not enough people with the skills to make sure these incredibly complex systems work at 100% utilization. So where does that leave us.
AI and robotics.
So, Intel is build a 500,000 square foot factory in Ohio. Probably 3 billion all in and it will employ less than 1,000 people. Sure, we keep up with the Jone’s as far as technology but are we advancing as a society with a highly skilled, well trained work force? No, we are not.
I am not against what the administration is trying to do. The best motivation for any company to expand is doing it with someone else’s money. Most times though, these inducements fail and the states get left on the hook for billions. You would think that states would learn, most of these opportunities are done by flim flam men and women. I just dated myself, sorry.
Anyway, a perfect example of this sleight of hand is the Fox-com deal that Wisconsin got sucked into. Wisconsin’s package was roughly around 3 billion dollars and Fox-com would build a huge factory in Souther Wisconsin, hire thousands and build large screen TV’s and some other electronic equipment. Well, Fox-com knows from experience that 1. Large screen TV’s are a commodity and the value is in price and manufacturing at the lowest possible cost. How is a plant in Wisconsin ever going to beat what it cost them to manufacture in China or Malaysia? It won’t. They knew this. I don’t think Wisconsin is going to get stiffed on the whole package because Fox-com had to meet much loftier employment goals. Point is, subsidies rarely work yet, every state does it. That’s why you have to watch how the Federal subsidies work out.
My gut tells me the Fed money will be some sort of success. The Feds operate on a different level and they look at thing at a Macro level where states look at things on a Micro level.
Yes, these are absolutely political moves but let’s just be thankful that the Biden Administration hasn’t started increasing incentives in production of clean energy.
Oh wait.