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Monday, April 4, 2022
“Cash is trash,” billionaire Ray Dalio told me in a chat recently (more on that below). And he may be right as it pertains to the current investing backdrop.
Cash allocations are almost two times more than last year’s levels, according to new data out of Bank of America. The data looks at the average recommended allocation to stocks and cash by sell-side strategists.
After recommended cash allocations hit a low of 2.5% last August, they have jumped to 4.1% today. BofA says this is a “big” move.
At the same time, sentiment on stocks has declined for three straight months as investors digest worrisome headlines on inflation, the war between Russia and Ukraine, and weakening corporate profit margins.
While investors holding more cash appears like a negative for stocks at first blush, it’s actually not historically, points out BofA strategist Savita Subramanian.
“What we have found is that consensus Wall Street strategists are a very reliable contrarian indicator. When they are telling you to dial down your equity exposure and increase your allocation to cash, that’s actually net bullish. What we found is that when the bulk of evidence is telling you to be more cautious and defensive, probably all of that information is priced into the market and the market is more likely to surprise in the opposite direction,” Subramanian said on Yahoo Finance Live.
So on that score, trash cash and maybe put $1,000 into GameStop and another $1,000 into a boring as all hell dividend-paying company (note: this is NOT investment advice). YOLO!
Odds and ends
One-on-one with Ray Dalio: I had the chance to catch up with Bridgewater Associates founder and co-chief investment officer Ray Dalio. So be on the lookout for a lot of “stuff” hitting Yahoo Finance today from that lengthy chat, which comes as a new post on YouTube from Dalio titled “Principles for Dealing with the Changing World Order” nears an eye-popping 10 million views. But here is one quote from Dalio that left me thinking — and perhaps should leave you thinking as well. “I think that most likely what we’re going to have is a period of stagflation. And then you have to understand how to build a portfolio that’s balanced for that kind of an environment.”
Tweet of the morning: Ark Invest’s Cathie Wood isn’t keen on more interest rate hikes from the Federal Reserve, as seen in a new tweet. It makes sense, as the last thing any exec at Tesla, Coinbase, Teladoc, Roku, and Zoom (the top five holdings in Wood’s Ark Innovation ETF) wants to see is a higher cost of capital as they continue to try to take over the world. Speaking of Wood’s long-time favorite, Tesla, the company posted first quarter deliveries of 310,000 versus Street estimates for 312,000. The miss may not derail the stock, as Wedbush analyst Dan Ives notes: “The bears will point to Tesla missing headline Street estimates although we believe the supply/logistics issues for Tesla in the goodbye last week of the quarter were piling up and most investors will look through the slight official headline miss on deliveries. We remain steadfastly bullish on the Tesla story and believe when factoring in all the manufacturing headwind dynamics this was a modestly bullish print.”
Starbucks: Starbucks CEO Kevin Johnson officially steps down today, handing the coffee ship off to the company’s iconic founder and failed presidential candidate Howard Schultz. Here’s a list of a few key moments from Johnson’s tenure: 1) launching sous vide egg bites in 2017 — these things are great on the go; 2) launching the unicorn frappe in 2017 — this drink was Instagram pic gold; 3) tweaking the Starbucks rewards program in 2019 that caused a social media uproar; 4) announcing in 2020 a plan to close 400 company operated stores — this was long overdue; 5) debuting a decision in mid-March to rid the company of single-use cups — get ready to bring your $75 Yeti bottle to Starbucks; 6) unionizing at Starbucks was born under Johnson’s tenure (expert reporting by Yahoo Finance’s Dani Romero on this); 7) lifting of hourly pay at Starbucks to more than $15 an hour; 8) halting Schultz’s expensive pet project of opening up giant Roastery stores in major cities.
The keys to Starbucks are now back in Schultz’s pocket. He loves writing blog posts (and internal memos as seen today, in which he announced Starbucks is halting stock buybacks), and I suspect we will get a few of them (likely targeted at cooling the union movement) before he heads back off into retirement before the end of 2022 (assuming he doesn’t decide to stay on as CEO). I will offer this dose of advice to Howard. The most important thing you could do for the future of Starbucks is to spend the next three months on the road visiting Starbucks stores across the world and listening to what employees are going through right now. This in many respects is a different company than when you left in 2017, in large part because of the aftershocks of the pandemic but also due to missteps by Starbucks. So you must actually hear the workers and then implement a plan for the next decade from there — and it’s not just giving them a few extra dollars an hour, it’s also about total quality of life.
Secondarily, Starbucks has lost a lot of great executive talent in the last decade (see Walgreens new CEO Roz Brewer, a former top Starbucks exec). I wish you well Howard, you know how to reach me (just don’t cancel my free birthday drink for writing this please — I intend to use it today).
Miscellaneous: One part personally therapeutic, one part fun and informative for investors. That’s my hot takeaway from hopping on “The Business Essential” podcast hosted by Kartik Raghuram. Give it a listen on Spotify. (Yes, we talk about gas prices).
What pandemic? The WSJ reports that as of today, JPMorgan “planned to discontinue other measures such as mandatory testing for the unvaccinated or asking employees to report COVID-19 infections. It added that it would discontinue its policy of hiring only vaccinated individuals.”
OK then. As Julie Hyman and I talked about after the jobs report on Friday, it’s likely the strong upward revisions and 5.6% increase in wages puts the Fed in play for a 50 basis point rate hike at its May 3-4 meeting. “The case for 50, barring any negative surprise between now and the next meeting, has grown,” San Francisco Fed president Mary Daly told the FT.
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