Weeks ago, the Bull wrote that our cash flow data was indicating increased volatility was likely, a possible volatility storm. Well guess what? Remember volatility is up too, not just down. In some cases, fundamental metrics have no meaning, earnings are irrelevant and company valuation is something to cheer rather than grounded in reality.

High earnings ratios are not automatically a warning signal. During a rapid growth phase in an enterprise, growth in other metrics may be far more important. The calculation is that earnings will catchup if the rapid growth in customers continues. Another time when fundamentals seem to lose their meaning is in manias. However, it is sometimes very difficult to distinguish outstanding prospects from a mania; it is usually a matter of analysis and degree.

Today we have clear manias and some excellent growth opportunities all coinciding, a truly messy time. It is the Bull’s job to separate the one from the other. Rather than simply withdraw, as some may be inclined to do, it is Riverplace Capital’s job to find ways to profit regardless of the backdrop of the current trading cycle. Remember, our investment horizon is longer than tomorrow!

Currently, earnings, so far reported, are showing that there has been good performance versus expectations. The trend in earnings is positive with good recovery from the lows of last Spring and Summer. Profits, in aggregate, are not yet back to 2019 levels but on the way. As investors know, stock prices have moved well in advance of this improvement. This is typical and is part of how much investors anticipate conditions six to nine months ahead. So, fundamentals are catching up to the price moves. They have more to go.

On the other hand, there are currently some manias in the marketplace. Some of these will blowup. Short squeezes will unravel, and volatility will at times be frightening. Hopefully, the unwinding will not take the entire market down. Some of this is already happening; expect more. We have targeted a few sales and buys during the next few weeks. Hopefully, the increased volatility will help us get good prices on both scores; stay steady my friends.

The Lonely Bull