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Everything Old is New Again

The markets continued to drift this week as news out of Afghanistan temporarily pushed COVID out of the spotlight if not for just a few days.  The Dow Jones Industrial Average is hanging on to 35,000 as investors try and figure out what comes next.  Inflation?  Receding economic growth?  Rising interest rates?  The oft discussed “taper?”  Not to mention the mess that is quickly unraveling in Kabul.  For now, neither the bulls nor the bears have the upper hand.  Stay tuned.

Let’s start with Afghanistan as many are probably wondering if the chaos will influence the U.S. stock market.  The collapse of the Afghan government has been both stunning and dismaying in both its speed and scope.  The sweep by the Taliban comes after the U.S. spent nearly 2,500 American lives, 150,000 Afghan lives, and more than $2,250,000,000 to prevent the area from becoming a terrorist haven.  By all accounts it now looks like an abject failure.  However, military conflict or attacks generally don’t have much impact on stocks, and even if they do, the sentiment is usually short-lived.  That’s especially the case here, where the war lasted two decades and the pullout was highly publicized.  While this is certainly a failure on so many levels, it is unlikely to move the markets by much or for long.

In other news, companies have taken to more creative balance sheet measures this year.  In graduate school we learned excess cash on a corporate balance sheet is not desirable.  Some believe cash should be employed for capital spending to increase production or efficiencies.  Others believe it should be used for mergers and acquisitions to reduce competition or buy competencies.  While others are adamant that cash should be paid back to shareholders in the form of dividends or share buybacks.  These ideas have been hotly debated over the decades and depending on which decade you graduated, determines which was viewed as the “best” use.  What caught my attention recently is that companies have taken to another use of cash.  Some are buying Bitcoin or even gold.  Palantir announced this week it had bought almost $51 million of gold bars in August.  Coinbase, which recently had an IPO, announced it bought $500 million of cryptocurrencies this week.  Tesla owns approximately $2 billion worth of Bitcoin while Square owns roughly $375 million.  I can’t imagine corporations using alternative investments, i.e. speculating with corporate balance sheets, would have gone over well with my professors.  Granted they were “old school” by today’s standards, and yet, here we are.

In company news, we learned Amazon is working on a large store format which we might colloquially call a “department store.” Shares of Kohls and Macy’s took a dip on the news.  What next?  Amazon decides to sell books in a retail location, i.e. a “bookstore?”  I guess the adage what’s old is new again remains true.  Also, this week we learned Chipotle has done an end run around Beyond Meat and Impossible Foods by creating its own meatless chorizo.  What seemed like a fad just a year or two ago appears to have not only gone mainstream but become a commodity.  In a jab at the companies, Chipotle said, “They’re too processed for us, and they contain a lot of ingredients we would never have in our restaurants.”  So the healthy alternative may not be as healthy after all?

In closing, I turn to a type of insurance that I hadn’t come across before.  In recent years, and especially given the pandemic, the rise of tuition insurance has become a thing.  Apparently, it pays out if you need to leave school for certain qualifying reasons, i.e. read the fine print.  According to the article I read, fees are generally between 1% and 2% of college costs and typically cover health-related reasons including injury and illness, ongoing or chronic illness, and mental health conditions.  However, be advised that a school going remote due to something like a pandemic, does not qualify for reimbursement nor does dropping out of school for “reasons.”  This is not an endorsement of these types of policies, but I wanted to bring it to your attention because I wasn’t even aware they existed and perhaps you didn’t either.  Now you know.

Bruce J. Mason, MBA