Karl BergerA Comment -- General Comments From an ExpertA CommentaryCOMMENTJul 15, 2024

No show today.

Regarding the SpaceX IPO he is interested but not a buyer since IPO's tend to fall from their IPO price. Historically they are down 20 to 25% in their first year of trading. He is not interested in buying on concept alone - there is lots of work to be done on a valuation basis. It is incredibly over-valued. For the same reasons he is not buying into two other big IPO's later in the year. He did buy Alphabet and Facebook, but after their IPO's, waiting for much more visibility of the valuation and fundamentals. As far as sectors go, Healthcare is at a 22 year low and there have been incredible advancements in healthcare. Industrials are also at a great valuation. Money flow is slow, even glacial, but it does flow into sectors with low valuations. Consumer Staples are over-valued.

The question was on the semi-conductor space. You need good quality companies and the right timing. You have to be careful in this and the memory space which have had a great run, some moving parabolically. Keep your involvement balanced through the percentage it takes up of your portfolio. You can use these stocks as trading vehicles and trim as they get too high.

It remains a bifurcated market. Most consumers will still dig themselves out of a hole, living paycheque to paycheque. The other consumers are driving the market and spending.

What they do and services they provide are fascinating to watch. Valuation is extremely rich. Price is up a bit from IPO price. His firm isn't participating quite yet. It will eventually trickle into ETFs, it's been fast-tracked into the NASDAQ 100, not yet in the S&P 500.

The more it goes into ETFs and indices, the more those have to buy it. And that supports the stock. Part of the attraction is Musk, and part of it is FOMO. Money will be made, and money will be lost. The initial over-subscription will push up the price, but where does it go in the longer run? It's wait and see for him.

He's been on the trading floor and around IPOs. That's where the sharks are, so you really have to have a solid system in place to deal with the whipsawing. You really have to know what you're doing.

These are big numbers, and it's just mind-boggling. He just hopes that investors don't get caught up in it too much. Keep an eye on how it trades and how everything trickles out.

We had such a big recovery from the March lows, a fantastic April and May, and now we're running into some volatility. Geopolitics is certainly coming into the formula. There's obviously some profit-taking, and we've seen a lot of great moves in the tech space. A healthy and normal consolidation is in play at this point.

The risks are still there. We still have relatively high energy prices, sticky inflation, a geopolitical situation, elevated yields, and midterm elections coming. When you look back at the history of midterm elections since 1957, the S&P 500 has seen a drawdown of ~17.5%. We saw a bit of a drawdown back in March of ~9%, but multiple and/or heavier drawdowns are possible.

It's amazing that earnings growth estimates have moved from high teens to 25% or so for the year. That's what's really driven much of this market move for the past couple of months.

Really hard to say where energy prices will be. If you look at the futures curve, there's an expectation of oil being at least in the $70s for later this year. That's what the market's working with at this point. But geopolitical events are very hard to predict, so who knows where we'll be in a few months?

It's a bit of a K-shaped economy. Accumulated inflation over the years has had an impact on the consumer. The consumer discretionary sector is relatively weak compared to others such as technology (which involves more enterprise spending). If you're invested in the consumer discretionary space, be careful.

Classic climb the wall of worry, and then take the elevator down. It'll probably last a little bit longer. We'll see what happens on Friday with SpaceX. There are so many moving parts and there's so much uncertainty out there, people are rebalancing. Doesn't think the drawdown will have legs. 

He has about a 52% hedge across most portfolios, and built up some cash to ~15%. When the rubber hits the road is when they take off that hedge.

Yesterday saw a pretty dramatic fall, as the futures got down to 28,200. It's sitting right now around 28,600. That 28,200 will be really important to find support. If it goes through there, we're probably going down close to another 1,000 points. The market's always right, so you have to respect it and pay attention. It never plays out the way you think.

S&P: Resistance is 7650 and support at 6250, a huge difference. Bulls need it to hold above 7250, old resistance that the S&P broke last month, or else it falls to support. The RSI has now made a massive bearish turn down, which happened when the S&P recently made a new high--this shouldn't happen. Bad. Nasdaq 100: the RSI shows a double topping patterns and overbought. This happened when tech peaked in late 2021, leading to a 30% pullback. Garner expects the Nasdaq to be 50% lower than today's level. 50. This moment recalls the eve of the 2008 recession when the economy was strong, but fell apart in mere month. Signals point to the market cooling off after months of mania. He has raised his cash position to the highest level in years.

Is not surprised that the Nasdaq is falling 2% today. It's a carry-over from Friday. There's a lot of hype and craziness in some chip stocks. People are getting ahead of themselves. True, numbers are staggering with a trillion spent on AI in 2027, but at some point you're overpaying for the future and all the good news is priced in. Also, big IPOs are coming like openAI and SpaceX--no profits but will be priced for perfection. Meanwhile, many profitable names making tons of money are ignored, like Visa and Microsoft. We're still using all their products, but they don't have AI hype. If you accept this FOMO, accept that it's volatile--it's gambling and silliness. Not every AI stock will make money. Look at past busts. The future is happening, but not every company will participate. Invest in companies that make predictable profits.

It's random, these price movements in silver and gold. He doesn't buy them and won't overpay now for high commodity prices that may not last. Buy a streamer in silver rather than in copper, gold or oil.

It's risky to bet on derivatives of growth of other industries. If you think the AI boom will continue, it doesn't mean you need to invest in copper and power, because you may not got a pure play on that theme. Copper is used for many other products which could go bad or if there's a recession. Demand has been pulled forward for years, so the valuation is pricing in all the good news.