What’s up with this foursome? Treasuries and gold maybe, but Nasdaq and Bitcoin do not compute.

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Historically gold is not a glistening investment

We have seen the infatuation with tech before and it has not ended well.

Bad recollections of the demises of the ‘Nifty Fifty’ or the COVID Playbook … SELL ECONOMICALLY SENSITIVE, BUY GROWTH.

Bitcoin the flight-to-safety trade, huh?

Why I’m writing this article

With the onset of the mini-banking crisis back in early March and the continuous Sturm und Drang on on or a soon-to-materialize (maybe) recession many investors decided to head for the hills of safe haven investments … flights to safety. Except for treasuries most of the alternatives above seem to be anything but safe havens. I thought it might be helpful to offer you a few counterpoints on the non-treasuries listed above.

Gold … not glittering

When the Silicon Valley Bank crisis emerged in March gold was trading at about the same price it was trading 11 years ago, $1818.00 per ounce (March 7, 2023). By April 12, as flight-to-safety buyers poured in and the COMEX price hit $2055.00. It was trading around $2000.00 as I wrote this post. If you had moved money into gold as a safe haven in early March you’d be up about five percent. if you had been persuaded to buy gold in 2012, when things were much scarier after the financial crisis and Great Recession, and held on because you believed the gloom and doomer’s daily preaching that gold was the best investment for hard times my bet is you would be mighty unhappy as the S&P 500 had, at its peak, quadrupled over the same time period. you may say that I am cherry-picking my data. This  is but one decade in may decades. I will answer that assertion with academic work done by Jeremy Siegel in his book, Stocks For Long Run. Siegel’s work indicated that one dollar invested gold back in 1812 would be worth on an inflation adjusted basis 2012, $4.52. (jeremysiegel.com) Over the same 200 years one dollar invested in stocks would have been worth $704,999.00.

Market infatuation with tech problematic

I thought we had pretty well broken that fever in last year’s technology rout that saw the Nasdaq composite drop 38% from its all-time high (16212) in November 2021. It closed at 10089 October 12, 2022. Today’s close at 12142 gets back 20% but is still dow 25% from the 2021 high. Since the banking scare the index has rallied from 11138 back 12142 all, I believe, in reaction to the recession that is now really (maybe really) coming due to an SVB-induced tightening of credit. The rationale: tech companies are so profitable they don’t need to borrow to grow. They are bullet proof. Set ’em and forget ’em. What you pay is of no concern … buy ’em! Ask Cathie Wood how that approach has worked out.

The demise of the ‘nifty fifty’ and the COVID playbook

The terms ‘nifty fifty’ and COVID playbook essentially describe the tactics designed to give investors outperformance during difficult economic times. Everybody knows bad times are ahead (right?) but they need to be in the market, so they jettison their economically sensitive names and beef up their holdings of high quality dependable growth stocks. The jettisoning includes small cap, companies with leverage and companies in need of financing. This happened in the early 70s with the ‘nifties’ and hit again when COVID hit. Our current mini bank crisis has brought another wave. Since March 9, the Nasdaq composite index has risen from 11138 to 12142, up 9%. During the same period the Russell 2000 small cap index has declined over 13% from its peak March 2, 2023.

An example 

META ($238.56),the stock formerly know as Facebook (META), reported the following results as analyzed in  this excerpt from CNBC’s website:

KEY POINTS

• Revenue at Facebook’s parent shrank for three straight quarters before increasing slightly in the latest period, but the stock is soaring.
• Investors have been mostly focused on the company’s dramatic cost-cutting efforts after years of unbridled expansion.
• Meta finance chief Susan Li said on Wednesday’s earnings call that the company’s Reels product is “on track to becoming neutral to revenue by end of year, early next year.”

With results largely achieved by “dramatic cost-cutting efforts after years of unbridled expansion”, the stock closed up 15%.

On the other hand Caterpillar (CAT-closed Apr, 27–$214.33, – $1.86), crushes earnings, real earnings and revenue growth, but the stock does not budge (actually it went down). According to Barron’s … “Economic angst too high.”

I just shake my head.

To put the cherry on this market sundae, Bitcoin … flight-to-safety champ!

Let me start by saying I don’t now and never have understood bitcoin. The only reasons I can think of for anyone to buy bitcoin is because they believe that someone else will take it off their hands at a later date at a higher price (greater fool theory) or they need to do something nefarious with their cash. However in these uncertain times, because bitcoin is so secretive and so supposedly secure, it seems some folks may be moving their not-so-secure FDIC insured bank deposits to the safety of a bitcoin or coins. Since March 9, near  the beginning of the bank mini crisis Bitcoin has risen in value from       $19,985.00 to over $30,000, up over 50%. Early Friday morning March 28, it is trading around $29,500.00. That would be down from an all-time high of $65,000.00 in November of 2021.

Again, I just shake my head.

Parting Thoughts

While we wait for the recession that never seems to come it can be pretty frustrating watching the craziness we addressed above. Buying and owning today’s also-rans in small cap, value and economically sensitive names will pay off handsomely. Don’t let ’em scare you out of of your stocks.

What’s your take?

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