Weekly Market Comment: Friday, February 19th

Without fans, there are no rock stars

Being a professional rock star is one of the rarest jobs in America - especially with live music all but shuttered -  while working at Wal-Mart is the most common job. The retailer was fueled by an 8.6% rise in fourth quarter sales, led by a 69% increase in online grocery sales.

Wal-Mart said it would increase wages for its 425,000 workers. Starting wages will remain at US$11 per hour in the U.S. but the average hourly wage will rise from an average $14 per hour last year to $15. The raise will be akin to a private-sector stimulus check. However, the added expense, plus the warning that sales growth would slow this year sent the stock down 6.5% on Thursday.

Wal-Mart is an economic bellwether illustrating an improving economic picture, as the Atlanta Fed now predicts a sharp 9.5% annualized seasonally adjusted rate of growth for this quarter:

Nevertheless, U.S. Treasury Secretary, Janet Yellen, is still pushing for a “big package” to help stimulate the economy to a full recovery, including $1,400 checks.

“I think the price of doing too little is much higher than the price of doing something big,” she told CNBC yesterday.

Let’s hope they focus on the unemployed and others in need, not the vast majority of the workforce that is doing just fine or better.

Loony Tunes

Keith Moon “the Loon”, the late drummer for The Who, once drove his car through the glass doors of a hotel, driving all the way up the reception desk. He then got out and asked for the key to his room. That “you can’t be serious” feeling the receptionist no doubt felt reminds us of the melt-up in small-cap stocks this year.

The enthusiasm for venture is wonderful to see. As with all things in life, “nothing ventured, nothing gained,” and small-caps are where all big-caps originate from. The TSX venture exchange is up 24% year-to-date.

But valuations matter and keeping emotions in check is the only way an investor can spot silly euphoria for what it is. All small-cap investors need to remember the volatility of these cycles and their bubble-prone tendencies, and implementing stop-losses is a great way to not get destroyed when the music stops. And yes, the music will stop again.

Keith Moon became addicted to Champagne and overdosed on a sedative. A lot of venture investors will be doing the same financially, neglecting to take profits or cut losses before things get worse. For every GameStop winner, there were many more losers.

When investing in higher-risk “penny” stocks, it’s important to keep sober and watch for warning signs of euphoric tops. Depending on one’s time horizon, it can be useful to set stop losses and upside targets to help protect capital and harvest gains, regardless of how bullish the future looks. Investors should force upon themselves those quiet, contemplative moments and recall not just one’s success but failings, too (especially the dot.com bubble).

Lest we never learn from our mistakes.

In case you didn’t know…

Noteworthy links:

• How to buy a real N95 mask online
• Uber drivers are workers, UK supreme court rules
• U.S. charges three North Korean hackers over $1.3 billion cryptocurrency attacks
• Rush Limbaugh dead at 70
• Can a pocket translator beat a real translator?
• Our 17 coziest vegetarian soups
• KitKat chocolate bar is going vegan
• Chocolate pudding is the answer
• Video of a 1981 protest in Vancouver against the film Caligula (remember the Capital 6?)
• The forgotten story of America’s first black superstars
• A Life of Illusion, by Joe Walsh

Musing Beyond The Markets

After the band broke up in 1980, The Eagles vowed they won’t reunite “until Hell Freezes over.”  Fans in Texas could be excused for believing the band was back on tour, as 4.5 million Texan households lost power after a record snowfall and the coldest temperatures in 30 years knocked out an overly tired and inadequate infrastructure system. What were expected to be some brief rolling blackouts continue, causing motor vehicle deaths, C02 poisoning from cars being used for heat, and vaccine delivery interruptions. The spike in electricity prices has knocked out a few providers into bankruptcy.

While some pointed to wind turbines freezing as the main cause of the outages (Texas harbors 30% of America’s wind turbines), natural gas fired power (half the state’s market share) was even heavier hit, according to The Economist. Pipes froze, parts broke, supply lines were interrupted.

It has long been a bi-partisan view that infrastructure spending is among the best ways to stimulate the economy. Interesting to note - Texas and California are not allowed to import power from other states; they need to have extra capacity, not less.

More investment in infrastructure is needed, especially when extreme weather events have become more common.

Word of the Week

rhapsody (n.) – a one-movement piece of music that explores multiple free-flowing sections that don’t necessarily relate to one another. “I saw Brahms’s Hungarian Rhapsody on television when I was two. Tom and Jerry were playing it together. I thought, ‘Hey, if a cat can play like that, why can’t I?’ “ – Lang Lang.