Markets Ignore Harvey As Hope For Tax Plan Lifts Stocks

One of the tougher things around is learning the art of surfing.  I can recall the phrase, “Getting Up,” as being the hardest part for surfers, that of pushing yourself to stand up on the board while the wave is forming in order to find “the tube.”  I never was able to get up, but I tried, and really made a big effort one year in Mexico, but alas, it was never meant to be.  Still, having participated a bit in trying to catch a wave, in many ways, today’s investing is very much like surfing.  Why you may ask?

Both institutional and individual investors are trying to find areas in the business world which are undergoing a huge growth opportunity, and combine this with owning those companies which will participate in the massive expansion ‘wave’.  These crests might last decades and reward owners with many multiples of their capital, think 10X or plenty more.  

Many of these rapidly ‘forming’ industries, call them waves if you want, peter out and only reward owners with disappointment.  Perhaps you can recall Palm Pilot, or rare earth minerals, the joy that was Crocs, Krispy Kreme, the silver craze, the gold craze, the internet bubble, the housing boom and bust? It is rare to find something which actually has a long sustainable move over many years, like say, the Windows-Intel monopoly, or now with smartphones and Apple (AAPL).  Instead, what you find is these temporary spurts in industries where investors catch on, get very excited about the potential, and then reality leads the stocks and their investors back to earth.  

If one looks at the current environment, with Amazon (AMZN), Facebook (FB), Netflix (NFLX), and those cryptocurrencies in never-never land, it is not hard to be a bit skeptical of the sustainability of 100X earnings company or a ‘currency’ that goes up 200% in a few months or years. Riding waves as a surfer is quite difficult, at least it was for me, and investing over the long term typically involves patience and perseverance, which are not necessarily easy characteristics for most people either, especially in today’s digital dream.  

In the markets this week, it was quiet on the earnings front, but the big story revolved around Hurricane Harvey and what impact the incredible rains will have on the Houston area, which is the capital of the energy world. Nearly 30% of the refining capacity on the Gulf coast region has been shut in, which is causing havoc for gas prices and the ability to transport oil from the Permian and Eagle Ford fields. Large disruptions like this bring plenty of predictions about what will transpire for prices, production, and refining output, but they are all speculation. Insurance companies and auto dealers will be dealing with Harvey’s consequences for many months, and individuals typically don’t have flood insurance, but the car policies typically cover these kinds of situations. The used car and car rental markets should see major improvement in demand, and the insurers are well reserved to handle the hit to their bottom line. Above all, I think we can agree that Houston and the Gulf Area citizens need plenty of help, so please consider a donation to those worthy causes.

Elsewhere, the August jobs report came in a bit soft, which is not unusual for this time of the year, registering 156k versus an expectation of 180k. Markets didn’t seem to mind, as investors see Hurricane Harvey helping to eliminate potential problems like the debt ceiling and budget negotiation, and maybe help bring a tax deal.  Real compassionate of the boys and girls on Wall Street, right?  With the summer winding down, the quest for finding the right wave to ride never ends.