There is a speculative frenzy in virtually everything right now. Virtual pun intended – crypto currencies, digital tokens, even digital NBA collecting cards have exploded. Celebrities are underwriting SPAC’s. Yes – even Shaquille O’Neill is involved with a SPAC. Meme stocks like GameStop have come and gone and now maybe coming back again? When interest rates collapsed and the pandemic forced everyone inside, the result was an insatiable appetite for speculation. It begs the question – are we in an everything bubble?

Our short answer is no. Not everything. But certainly some things. Investing and even speculating are a relative trade. What can I buy or trade relative to what’s available? So when interest rates pay nothing, and cash is losing value to inflation, everything suddenly looks attractive relative to idle cash sitting in the bank. The newer and better story of the asset, the more prices have ballooned. And for some of these speculative assets, it is simply a greater fool theory. So long as I can sell this asset to the next person (i.e. the fool) in the future at a higher price, I’m good. What could end these speculative pockets may be an unwinding of that which created them – reopening the economy - and its consequence, rising long term interest rates.

So what’s not in a bubble? We believe high quality stocks with strong balance sheets and cash flows are not in a bubble. These businesses have rich but reasonable valuations with strong and growing cash flows that should benefit from a reopening of the economy. We also believe international equities, a place we have favored recently, look attractive relative to their US peers. Emerging markets like Asia still trade at appealing multiples. As more U.S. fiscal stimulus looks likely this year, that could lead to a weakening of the US dollar providing a tailwind for international equities priced in foreign currencies. 

Does all this mean the market rally that started around the election will continue unabated? Of course not. The last few weeks have seen rising inflation expectations coupled with rising long term interest rates. Most importantly, we believe you need to stay focused on your long term portfolio outcomes. As famed investor Peter Lynch said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

If you or someone you know has questions around current market events and how they impact your financial plan, please contact us to continue the conversation.

Andy Michael, CFA

Portfolio Manager

If a recommendation is included in the above, please contact me for additional investment information supporting the recommendation.