From Billionaire to Trillionaire

The stock market looks to finish a little higher this week, although not without some dramatic flair.  As was expected, earnings season has injected a new source of volatility which was demonstrated quite well this week.  As might be expected, those companies that both beat analysts’ expectations AND raised future guidance did quite well.  All others, not so much.  There were some doozies this week that I’ll briefly hit on below.  I’d expect more of the same over the next few weeks as earnings season goes into full swing.

For the most part, we discount the microcap space which often has very big moves both up and down and is usually very thinly traded.  We also tend to ignore the meme stocks that are driven more by speculators than investors.  And for the most part, we tend to avoid the big pitfalls that sometimes lead to large moves down in any given week.  This week, however, we noticed the volatility is not confined to just the ultra-small cap nor the meme stocks.  Some rather large companies such as IBM, Intel, Baker Hughes, Ulta Beauty, and Facebook all are facing adversity in one form or another.  For some it boiled down to supply chain issues, while for others it was a steep increase in input costs, i.e. materials and labor.  Still others did fine in the third quarter but put out statements suggesting the coming quarter is going to be difficult, or that profit margins are going to shrink considerably.  I point this out because unlike in the past, large growth companies with the size, scale, and resources are not immune to the current issues.  We should expect the next couple of weeks to remain more volatile than usual.

Perhaps a bit more positive are developments regarding the supply chain issues.  No, they are far from being resolved and still pose a very serious headwind at the moment.  However, the Port of Los Angeles has decided to operate 24/7 (which surprisingly it had not been doing), and Union Pacific announced it will also operate around the clock at its freight facility near the port.  While this will help alleviate the backlog given enough time, the Wall Street Journal reported today that warehouse facilities in and around Los Angeles are near capacity because of the lack of truck drivers to move the goods.  As I said before, plan your Christmas shopping accordingly, and begin soon.  Some analysts now believe the hot gifts this year will be gift cards and subscriptions.  Time will tell.

In other news, I present a conundrum.  Exxon Mobil announced this week that it plans a $400 million expansion of its Wyoming carbon capture facility.  However, due to climate change and the environmental challenges facing us, the company is debating abandoning some of its biggest oil and gas projects.  Presumably projects that would create significant revenue, but would likely exacerbate issues like pollution.  At the same time, it’s expansion of this carbon capture facility, which it claims has captured more carbon than any other facility in the world, helps with pollution but has little to no potential to earn the company a dime.  As an investor I am conflicted, as I guess you are too.  At a time when the demand for oil is skyrocketing and the price of crude is solidly above $80 per barrel, how do we reconcile the very real needs of today versus the potential impact on tomorrow?   I wish I had an answer.

In closing, I heard this week that Elon Musk, the founder of Tesla, is now the richest man in the world.  After a little digging, I discovered there are reportedly 2,755 billionaires spread across the globe with an estimated net worth totaling $13.1 trillion.  Jeff Bezos used to hold the title of world’s richest man, that is before he got divorced.  Now Mr. Musk has claimed the title with a net worth of $220 billion.  But what really caught my attention is that he may be on path to becoming the world’s first trillionaire.  At the moment, SpaceX is only valued at $100 billion, but if the company’s plans are realized, it could propel Elon into the atmosphere, financial speaking of course.  At a recent company lunch, we had a brief discussion about this.  Among the many things discussed were the idea that with great success comes great responsibility, whether philanthropy should be a part of such wealth, and the merits of jobs creation being the real benefit to society.  I don’t think we reached a consensus and it really is all hypothetical right now anyway.  But what if?  Let me know your thoughts.

Bruce J. Mason, MBA