SFM Observer - September 2021

Issued: October 5, 2021

The Dow closed the month of September at 33,843 for a loss of 1,518 points or -4.3%. The volatility that we predicted last month during September and October is here and is moving the averages on a daily basis in an amplified way.  Do not fret over the daily news coverage of market drops.  Thus far, it has been typical market activity.  Congress is not helping the situation by sparring over the debt ceiling.  After all the unnecessary political posturing is over, they will vote to raise it.

Some interesting events from the month just passed:

•               Semiconductor companies are all ramping up manufacturing to deal with the global chip shortage.  Auto makers have all had to cut production due to a lack of the low tech chips used in producing a car.  Intel is committing $95 billion, Taiwan Semiconductor is spending $100 billion and Samsung is targeting $205 billion for new plants and capacity.  This will be a big growth area in the tech sector for the next few years.

•               Microsoft, one of our larger holdings at SFM, announced a $60 billion stock repurchase program.  Stock repurchase plans reduce the number of shares outstanding and increase the earnings per share that the remaining shareholders receive.  It is a very predictable source of earnings growth for a company that generates more cash than it needs to run the business.

•               Google is putting some cash to work buying a Manhattan office building for $2.1 billion.  Many strategists have predicted a collapse in office building prices as work from home becomes a permanent part of the economy.  This transaction at $1500 per square foot shows the value of prime properties is intact.

•               The Fed has indicated that the stimulus programs currently in force will start to taper as soon as next month.  Fed stimulus is responsible for much of the increased demand for all kinds of assets and the removal of this stimulus from the economy is going to be a challenge.  If they go too fast, they could cause downward spiral in the economy.  If they go too slow, inflation could get out of control and become difficult to harness.

•               If you are frustrated by the hot housing market, try moving to Monessen, PA.  The mayor is pushing a program where you can get a house for free if you agree to fix it and bring it back to life.  Monesson is a former steel industry town south of Pittsburgh that has a vacant housing problem.  Many homes have back taxes and the city will clear the lien if you improve the home.

Thank you for reading this issue of the SFM OBSERVER. 

Until next month,

Glenn Sweeney CFA