Change perspective and keep buying tech stocks and cryptocurrencies

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Mikael Syding
09/08/2023 | 6 min read

Sometimes you need to change your perspective completely. According to the mathematician Jacobi, you should get into the habit of always doing it. "Immer umkehren" was his motto, i.e. "one should always invert"

When one's hypothesis is constantly postponed or revised, eventually the basic idea itself must be reconsidered. For example, I didn't think the Federal Reserve would raise interest rates more than a maximum of 3% rather than today's 5.25%. I also thought that the hikes would bring about a rapid economic slowdown that would prompt the Fed and other policymakers to turn to interest rate cuts and other stimulus. And in accordance with historical patterns, not least from 2001 and 2008, the rate cuts would coincide with sharply falling stock prices - not because of the cuts, but because corporate profits fell even faster. Now, just over a month into the second half of 2023, we have a year of historically rapid stock market growth behind us, while both the labor market and corporate profits look solid. Now may be the time to rethink, to change perspective, to turn the reasoning upside down.

Admittedly, I have not given up my analysis that the recession is coming. There are tons of signals that point to a sharp slowdown around the coming turn of the year. In July, in fact, also from the US labor market, just as expected 18 months after the interest rate hikes began. It is mainly the number of hours worked and downward revisions of the number of jobs created at 40,000 per month in 2023 that show the way. However, I have a different approach to how best to invest, because I have to admit to myself that the Fed, the economy and the stock market have fooled me a little too many times now for me to get away with saying "soon the bill will come, soon comes the decline”.

After the financial crash of 2008-2009, a lot changed. Since then, politicians have done "whatever", as the ECB's Mario Draghi said, to defend the system. The Fed lowered e.g. interest rate to zero and increased its balance sheet by trillions of dollars. At the same time, the entire financial market changed under the radar: the number of ETFs grew to more than the number of stocks they invest in, and the proportion of passive investments grew to outnumber active ones. Even the active money is now mainly controlled by algorithms. And then I haven't even mentioned how the Eurodollar system is cracking, that is, all the trillions of dollars that are created by non-American companies issuing dollar loans. All of these changes have occurred at an accelerating rate since the housing and financial crash. After the initial bounce until about 2010 from The Big Short bottom of 2008, the market has managed comeback after comeback: the European crisis in 2012, the China crisis in 2016, the corporate bond freeze in 2018, the pandemic crash in 2020, and now finally the historically steep H1 collapse 2022 as a rebound from the stimulant euphoria the year before.

Every single time, i.e. in practice quite precisely every two years, I have thought that the game was over for the politicians, that "this time it won't work; this time the profits or profit multiples will fall sharply”. And each time, the economy has held relatively tight, with no unemployment, declining profits or measured consumer price inflation out of control. Not least, the valuation level measured as Price/Sales has remained at its historical record level, 2-3 times its historical average, which is higher than, for example, 1929 and 2000. Every single time I have been ready to buy on decline, but every time I thought that the macro picture was so extra weak relative to history, and the valuations so extra high that I thought that "this time" the real downturn would come, one like those that ended in 2003 and 2009.

Of course, I have counted on stimulus, but I have assumed that history would repeat itself with parallel lowered interest rates and raging stock prices, before a new bull market could bet on a solid ten-year bottom that is really cheap. I have also assumed that it is mainly real assets (gold, oil, minerals, agricultural products) that would benefit most from stimulus and inflation, i.e. that 20 years of rotation from basic materials to technology would rotate back at least partially. Instead, it has gone exactly the opposite. Microsoft, Amazon, Nvidia, Apple, Meta and several technology giants have continued to grow much faster than other stocks.

I think this may continue. There is no logical reason why the dynamic should suddenly change right now, especially in the run-up to a presidential election. The ETF, algo, and indexing wave may thus probably not be over at all. It should be by no means the end of the stimulus packages (on the contrary, they have reloaded now with 5.25% reduction space). And there is no end to investors' interest in innovations, with everything from AI to biotechnology. In addition, it is easy to imagine that the LLM (large language model) technology will bring about other advances that are rewarded in the stock market.

No, where in the past I have stood in the way of the stock market train time after time, and each time become more and more convinced that the fall will only get bigger when the bill for 15 years of QE is due, I realize that it is time to think again completely. Yes, just like in 2016, 2018, 2020 and 2022, there may very well be a major decline in 2024. But just like those times, the fall will be followed by an even greater rise. And, yes, I still believe that gold and oil, money and energy, will still turn out to be very good investments, so I may buy Lundin Gold and EMX, Ether (and Bitcoin), ConocoPhillips and Africa Oil, not to mention about the uranium streamer URC.

Above all, however, I am thinking about the stock exchange and technology companies. The best way to play the actions of politicians is not to avoid expensive stocks, especially not the top ten. No, it is time to face the truth, that the game we have seen for the last fifteen years, or really all 30 years that have passed since I stepped out of Handels and into the Skandinavien Fondkommission, will continue with undiminished strength. This means that you have to turn a blind eye to high historical values and make sure that you enter at least with a small finger in the same jam jar as the politicians. You have to own your home and you have to own the border guards of the future: Alphabet, Amazon, Apple, Microsoft, Meta, Nvidia, Netflix and Tesla. Finlir doesn't pay, you have to do like everyone else, otherwise you fall behind. Maybe this means that you will see your stock market portfolio go down by 30%, maybe 60% in a year or two, but you are in any case on the train to the future. And one thing is certain, the rich, those with assets, politicians, multi-millionaires and businessmen, they own stocks and real estate and will continue to do so and ensure that the value of these over time rises faster than anything else.

I have long said that you have to time the market to achieve much higher returns than everyone else, that you should sell a little when it is unusually expensive and buy all the more when it is unusually cheap. In this way, you take part in volatility dividends. It was true and extremely profitable for most of my career as an analyst and hedge fund manager from 1994-2014. But that is no longer true. The market has changed. Just as according to the lessons from More Money Than God, one must realize that there are different "gaps" in the market now than then. The gap now is that there is no particular advantage or inefficiency to exploit. On the contrary, the "gap" is to do like everyone else, to run with the herd and momentum and not least the index-heavy giants at the top. Among other things, the indexation and the politicians' need to continue stimulating to avoid the mountain of debt collapsing under its own weight, means that the melt-up is accelerating. The movements are becoming increasingly violent, but above all in an upward direction measured in fiat money. We are not getting richer overall, just as little as it was with shares in Argentina or Venezuela in recent years, but if you do not own assets, including shares, not least "future" shares, you end up lagging behind. It's a crack-up boom as the Austrians would have said (economists who believe in a finance-led boom-bust cycle). It may seem stupid and late to turn around right now, and of course you don't have to buy in 100% on one and the same day. On the other hand, the reasoning can provide support for continuing to buy on weak days, not least to ensure that you gradually enter the ten largest companies, so you are there when the AI revolution really manifests itself in earnest.

To summarize: the recession is on its way, and probably also a stock market rebound in connection with it, followed by new stimulus packages. This means that real assets are likely to rise sharply in value in the coming years. This also applies to housing. But the new money is also likely to push up the prices even more of what has already been proven to work in the stock market: the leading Internet and AI companies. The big question one has to ask is whether it is more likely that the next downturn is just a prelude to more upside or whether there is a bigger reset in the works, both at the index and industry level. After 2016, 2018, 2020 and 2022, you probably have to state that there will be another repeat in 2024. However, this does not mean that gold and oil must do badly, just that cryptocurrencies and the Nasdaq may do even better.


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