Moneybeat - Returning to normalcy

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: Time now for our regular conversation on business, markets, and the economy. Financial analyst and adviser David Bahnsen is here. Morning, David.

DAVID BAHNSEN, GUEST: Good morning, Nick, good to be with you.

EICHER: Well, what launched these regular conversations, David, and I hear from listeners and I know you are reading the same emails, that they’re glad for these conversations, but what launched them was an event no one’s glad for, and that’s Covid-19.

So, to remind the listener: What has become your “DC Today” or “Dividend Cafe Today” started as a “Covid and Markets” daily email (actually still have the first one in the archives). And we decided to bring this conversation to The World and Everything in It.

Parenthetically—I should say—we’re not ending this. Economics is massively important and there’s a theological component around human action and how humans use scarce resources. So we’ll keep talking, because there’s always something to talk about.

But relative to Covid, a huge milestone from last week. A milestone pointing to an endpoint for Covid as an ongoing economic story. So David, your thoughts on what appears to be the end of a bleak time period.

BAHNSEN: Yeah, after Omicron, it was very apparent that it was a brutally low severity and high infectiousness, the politics of this whole thing changed. The social relationship to COVID policy substantially shifted. So this kind of symbolic thing, holding on to the remnants of COVID restriction was an airplane mask mandate. And finally, this week a federal judge in Florida booted that, and so I decided to bid farewell to all public mention of COVID. Now, people are brought up to me, by the way, since then, that the Department of Justice has appealed the decision.

But it would be very difficult to find a more halfhearted appeal than one that says, “we have to appeal because it's a public health emergency, but we're not going to ask for a public health emergency,” meaning a stay on the on the judge's order. They're saying, Okay, well, we'll let the thing just go now. But we're still appealing, and it may not get to the courts for months. And by then the CDC may not be very likely will not have the restriction. So the politics of it are forcing the DOJ to pretend like they're doing something but they're not really doing something. I think it's gone. I think that people will not be wearing masks again on planes.

The federal judge made the law and with that, symbolically, this normalization, which is profoundly important economically, but also, I think, very important to the harmony of the society, because it did prove over the last couple of years to be incredibly divisive. The notion that various extrinsic COVID compliances became a social and cultural and political marker has been really damaging. And I'm very much excited for the rest of society to now be able to be normal. Quite frankly, things have been incredibly normal in my home, and in my business for almost two years. But now the rest of the country is catching up.

EICHER: It’s also interesting last week a milestone in the stock markets—so-called “innovation technology." Companies that really helped us through Covid, the financial gains those companies enjoyed during the pandemic—and I’m thinking Netflix in particular—they gave back those gains. Big story from last week.

BAHNSEN: Well, yeah. So first, let's start with just a broad category of what we call innovation technology. There's an ETF—an ETF is sort of a basket of a lot of different stocks that is meant to be representative of a certain sector or index or what have you. And there's a very, very well known ETF called Ark, the ticker is ARKK. And it went up from about $50 to $160, by the end of COVID. And they were buying a lot of these hot, cool new tech companies and various aspects of what they call innovation technology. And this week, it officially came back down to where it had been at the beginning of COVID. So a 300% gain became a 0% gain from basically two years ago till now - a round trip. It's interesting Netflix, obviously, people could understand why their revenue noose went way higher during COVID, as everyone was locked into their homes for a period of time, some people for six to eight weeks like in my family, but other people for many, many, many months. So Netflix saw a big pickup in subscribers.

Well, Netflix did not give back its COVID gain, Netflix has given back five years of gains, it reached its 2017 level. So there's two different things going on here. One is that a lot of the boost from COVID circumstances that people for some reason thought would be permanent, has come down, and that's brought some of the business fundamentals down.

But the far bigger issue, Nick, is that these brutally overvalued companies have had to give back so much of this excess valuation. And that always happens always, the only question is when - excessive valuation does go away. Now there have been companies in history that grew into their excessive valuation. Google is famously one of them. But we're talking about one in a million. And so to see some of these excessive, frothy valuations fall to pieces, is of no surprise to us. It's been a huge theme of what we've been talking about and forecasting for a long time. I did believe it would happen sooner than it did. And but that's always the way things go too. They're not really time-able. But it's a profoundly important story in markets right now.

EICHER: All right, David Bahnsen, financial analyst and advisor, head of the financial planning firm The Bahnsen Group. You can receive the aforementioned daily writing at DividendCafe.com. David, thank you. Let’s talk again next week! Have a good one.

BAHNSEN: Thanks so much, Nick.

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