The opposite of tech is ...
January 14th, 2020
1 minute read
Tech
Technology has been probably the most famous equity success story of 2020. The idea has been that people staying at home meant more online activity. It’s played out through the strong performance of the Nasdaq which was at 9,000 at end 2019 & is now over 13,000, with several stocks reaching over one & AAPL reaching over two trillion dollars.
Cashflow
The growth of the technology business in the last decade has attracted all of the cashflow. That’s firstly cashflow to finance the growth of the businesses, then the cashflow from customers who have bought the products in such large volumes & then especially recently the cashflow from equity market investors who have bought up the shares to such record levels.
Peak
Notice the cashflow order, the stock market cashflow into the shares is the last thing to happen in 2020. If we look at the cashflow of the companies themselves by adding together the free cashflow (operating & investment) of AAPL, MSFT, AMZN & FB, the peak was the third quarter 2019, USD 191 billion. Since then, the cashflow has halved....
Commodity
If technology is the most advanced sector, then perhaps the polar opposite is the basic materials, commodity sector. The last decade has been a difficult time for commodities. Cashflow has been going out. Investors have taken money out of the shares & the combined cashflow of AALI, TINS, INCO & MDKA was a peak negative in the third quarter 2019.
Valuations
But as commodity prices have started to rise in 2020, the commodity company’s cashflow has turned sharply positive in the exact opposite direction of technology. We always say that stocks lag & this is again what has happened. In 2020 tech stocks reacted to historical cashflow while the real growth story is commodity. This is a great arbitrage for you.
1 minute read
Tech
Technology has been probably the most famous equity success story of 2020. The idea has been that people staying at home meant more online activity. It’s played out through the strong performance of the Nasdaq which was at 9,000 at end 2019 & is now over 13,000, with several stocks reaching over one & AAPL reaching over two trillion dollars.
Cashflow
The growth of the technology business in the last decade has attracted all of the cashflow. That’s firstly cashflow to finance the growth of the businesses, then the cashflow from customers who have bought the products in such large volumes & then especially recently the cashflow from equity market investors who have bought up the shares to such record levels.
Peak
Notice the cashflow order, the stock market cashflow into the shares is the last thing to happen in 2020. If we look at the cashflow of the companies themselves by adding together the free cashflow (operating & investment) of AAPL, MSFT, AMZN & FB, the peak was the third quarter 2019, USD 191 billion. Since then, the cashflow has halved....
Commodity
If technology is the most advanced sector, then perhaps the polar opposite is the basic materials, commodity sector. The last decade has been a difficult time for commodities. Cashflow has been going out. Investors have taken money out of the shares & the combined cashflow of AALI, TINS, INCO & MDKA was a peak negative in the third quarter 2019.
Valuations
But as commodity prices have started to rise in 2020, the commodity company’s cashflow has turned sharply positive in the exact opposite direction of technology. We always say that stocks lag & this is again what has happened. In 2020 tech stocks reacted to historical cashflow while the real growth story is commodity. This is a great arbitrage for you.
