“Foolish Consistency” In Today’s Markets

The American poet and writer Ralph Waldo Emerson once wrote, “Foolish consistency is the hobgoblin of small minds.” While the stock and risk mania has continued throughout 2020 and into 2021, as evidenced by sky-high valuations in much of the tech arena (i.e. FAANG stocks) and the record number of IPOs in 2020 (480 in the U.S. and during a pandemic no-less), we have certainly seen “foolish consistency” while investors continuously suffer from the “fear of missing out.” 

The evidence seems endless. Look no further than Tesla’s TSLA market value well-above $700 billion, which now exceeds “the world’s top ten automakers’ stock values combined, even though those companies produced 140 times the number of cars that Tesla did last year,” according to strategist Fred Hickey. Hickey also highlights the popular ARK Innovation ETF nearing $18 billion in size, which is double the size from the previous quarter! Naturally, its largest holding is Tesla. While reminiscent of the dot.com internet era of the late 1990s, the ultimate parabolic mania has been in the cryptocurrency darling Bitcoin, as the pervasive irrationality has seemed to hit a peak.   

While minimizing risk can be a lonely sport at times, we have often said that when investors are most greedy, many money managers prefer to avoid career risk. Any focus on fundamentals or defensiveness has taken a back seat to “concepts.” While much of this risk has been due to manipulated interest rates suppressed by the Fed for twelve years now, many wonder how or when does this all stop? With the former Fed chair Janet Yellen soon to be at the helm of the US Treasury department, we will see modern monetary theory (MMT) in full force. As more helicopter money arrives with additional fiscal stimulus, we expect to see increased consumer price inflation manifest through a much weaker US dollar, which would force import costs to move up. We could see more inflation driven by an economic input gap due to supply constraints of natural resources coupled with a demographically produced shrinking labor force, which will drive up the cost of labor in an increasing regulatory environment. In short, this cocktail of inflation won’t need to be shaken or stirred.

The weaker dollar would be most pronounced relative to the Chinese Yuan, as China’s response to the pandemic has been much more swift and far better orchestrated. As economist Stephanie Pomboy points out, the balance sheets of the ECB and the Fed since the inception of Covid “have increased by $2 trillion and $3 trillion respectively,” while the People’s Bank of China stands “exactly where it was 2 years ago.” She adds, “while the Fed, ECB and BOJ frantically endeavor to keep their credit markets from imploding… China is allowing a free-market cleansing of economic and credit excesses.” 

In essence, as Charles Gave states, “the US is moving from a deflationary boom cycle to an inflationary boom”. In this environment, one should focus on stores of value like gold, mining stocks and energy, along with cash-flowing value stocks in areas like healthcare, as well as income-producing real estate. Playing the speculative excesses will inevitably create significant pain for investors as it has done in previous cycles. As Orson Welles was once quoted, “If you want a happy ending, that depends, of course, on where you stop your story.”


The Rosenau Group is a team of investment professionals registered with Hightower Securities, LLC, member FINRA, SIPC & Hightower Advisors, LLC, a SEC registered investment advisor. This document was created for informational purposes only; the opinions expressed are solely those of the author, and do not represent those of Hightower or its affiliates. This is not an offer to buy or sell securities, and Hightower shall not in any way be liable for claims related to this writing, and makes no expressed or implied representations or warranties as to its accuracy or completeness. 

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