Inflation Or Deflation, Crypto Boom Or Bust?

I am sure I am not alone in my recently erratic trading behavior.

I bought and sold and bought and sold Ethereum ETH/USD and Doge DOGE/USD, only to buy and sell and buy them back—just like I sold and bought copper just to buy and sell it again. Indeed, the Nasdaq falls and the Dow rises; the Dow falls and the Nasdaq creeps up—in the interim, billions of dollars are won and lost and won in the cryptocurrency markets by the power of an Elon Musk Tweet. Inflationary concerns push down stocks as celebrated CEO of Ark Invest Cathie Wood fears the opposite: A period of deflation over the next five years.

So, what gives?

The truth is, we are in an odd moment for the American economy and the equity markets. This shouldn’t be a surprise, considering we experienced a different kind of recession last year, a self-induced one based on protecting the public from a raging health crisis. No wonder the recovery is going to be unlike any we have ever seen. (The disappointing and unexpected jobs report in April is such an example of this unique recovery).

But we can appeal to dispassionate reason to help us navigate this strange time and come up with five obvious conclusions and trends:

1) People are not going back to their terrible jobs for less or the same amount of money as they are getting paid by the government.

Now, there are those of you who believe that deep down people want to work because in work they find their salvation, their purpose. However, chances are you don’t work at a CVS under those fluorescent lights donning a mask for 10 hours.

No, people really do not want to work for the sake of work—if that was ever true, it is no longer. This means that so long as the checks are coming, don’t expect the worker shortage to cease: Companies are closing around the country because they cannot find workers to fill the positions, making reopening impossible. That is just a fact.

Just as it is a fact that the more debt and the more money in circulation through government stimulus checks, the greater the chances of inflation, particularly in areas where production has been slow to recover. (The chip shortage has caused a drop in new car manufacturing, pushing used car prices up 10% in a month—a massive increase).

Of the used car stocks, I like Autonation AN. As for deflation stocks, stick to agriculture and utilities and dividend stocks. I like Boeing BA and John Deere DE. The sector irrespective of broader market movements I like that I have been pushing since last year is the cybersecurity sector, recently given a further boost by the ransomware attack on Colonial Pipeline. I like Zscaler ZS the most in this space.

2) Cryptocurrency is here to stay, just as the casino-like social media-driven slice of the market is here to stay.

New traders, particularly younger ones, have been on a mission consciously or unconsciously to rip the rug out from under the old way of investing: They pumped up AMC AMC, a stock worth maybe $1 based on fundamentals, and we all remember the GameStop saga GME, which at around $175 per share seems weirdly stable at such insane prices. Doge and Ethereum and Safemoon and other cryptos and meme stocks are the favorite plays in this new casino, turning regular Joes into crypto-millionaires overnight.

This is not a fad—but rather a new element of the markets that isn’t going anywhere. However, it is just a slice, and the idea that rampant irrationality will turn every stock into a boom or bust volatile play is a fear without basis.

3) The markets are actually acting pretty rationally.

True, the markets have been chaotic, as I mentioned earlier. One week tech is up and the Dow down, the other week the opposite occurs, However, year-to-date, the Dow Jones is up 11%. So far, overall, the big theme of 2021 is playing out as expected. And while Nasdaq stocks have beaten out their industrial counterparts in earnings growth, they did not beat out their counterparts in terms of expectations. As Barron’s pointed out this week: “Some 86% of Dow companies topped Wall Street projections, while only 61% of Nasdaq companies beat theirs.”

The market is about expectations and, through this lens, these moves make sense. Currently, the Dow trades at 20 times earnings, while the Nasdaq trades at 32 times.

4) Buy the Dow for the second quarter.

Already trading at a discount compared to the Nasdaq, the Dow’s companies are going to shatter the hideous second quarter results they posted in 2020. So, if you have to make a simple choice amid all this supposed chaos over the summer, look to the Dow.

As for Doge and Ethereum and Bitcoin BTC/USD and all that jazz, buy and sell and buy and sell with abandon: They will keep rising and falling and rising and falling over the next few months. Just make sure to keep your Twitter feed on and your finger on your Robinhood app. (I like Ethereum the most long-term and will hold current position averaged at a price of $2,800 despite the recent dips).

5) No one really knows what’s next.