(San Francisco)

The market has become very worried about tech valuations. Even with recent selloffs, tech stock prices are very rich. However, despite the broad fears, some fund managers are ditching the concerns, as they think the obsession with P/E ratios is short-sighted for tech. In particular, one manager says that he likes to think about how tech companies will look as mature businesses, and thus judging them by their current P/E ratios is unfair.

FINSUM: We agree that it is hard to assess tech stocks according to standard P/E ratios. They are growing much faster, have much higher margins, and have a brighter future than stocks in any other sector of their size. Accordingly, it is hard to contextualize their P/E ratios because there is no benchmark.

(Washington)

Late last week President Trump announced a new idea that would be a major change for US markets. Trump requested that the SEC look into whether the US should abolish the quarterly earnings reporting requirement. The president says he is hoping the US can move to twice-a-year reporting instead of the current model of reporting four times. He says he got guidance from top business leaders before his request and that he thinks it would improve the US’ business environment.

FINSUM: The big hope here is that by reporting earnings half-yearly, companies would be able to be more strategic in their focus and less obsessed with short-termism. We would welcome the change, but it would have some risks, and we hardly think a six-month focus is “long-term”.

(New York)

Pimco has just gone on the record warning that indicators of a recession are flashing worrying signs. Based on trends in the economy and markets, including inflation, Pimco says it is time for investors to adjust their portfolios. In order to play the looming recession, Pimco suggested five trades. These include: short-term corporate bonds, a basket of EM currencies (Finsum comment: ??), gold, large cap stocks over small, and alternative investments.

FINSUM: Wow, most of these are deeply contrarian (i.e. EM currencies, gold, and large caps). All three of those picks have major headwinds against them. The case against EM currencies is clear but why pick gold when rates are rising, the Dollar is strengthening, and investors have shown zero appetite despite all the volatility?

(New York)

The US real estate market has seen a string of bad news over the last few months, but many were hoping July housing starts would see a rebound. New data out shows that such a boost did not materialize, with housing starts underperforming expectations. The previous month’s reading was also downgraded by 13%. “Housing is the sole weak spot in the economy right now, and that’s probably not going to change”, according to one economist.

FINSUM: There is no near-term recovery in sight. We wonder if housing might be a leading indicator of a looming recession.

(Washington)

Some very interesting news about Tesla emerged yesterday. While it was already known that the SEC had subpoenaed Tesla over Elon Musk’s recent tweet about taking the company private, it emerged yesterday that the company was already the subject of an SEC investigation into whether it had misled investors. In particular, the SEC is probing whether Tesla misled the market with its Model 3 production forecasts. The actual production of vehicles last year was woefully short of the company’s forecasts.

FINSUM: Musk’s actual delivery of vehicles was just 10% or so of his initial forecast, which is likely what sparked the investigation. However, this is apparently a very difficult case for the SEC to prove, so it seems unlikely to amount to much.