Today I posted my two-hundred-and-third YouTube video.
Today’s topic: Capital Cycles and Recession – they are not the same thing. When we talk about a recession, we’re largely talking about a consumer demand recession. Separately, there is a recessionary part of the normal capital cycle. We’re coming out of a long period of “cheap money,” where companies have easily borrowed and have had a lot of cash to invest. During this period of time, some companies have gotten sloppy and overextended their capital into investments they’re now realizing may not provide the best ROIC. Wall Street has responded to these decisions, resulting in lower capital coming from stocks. This is especially evident in the tech sector. Meta Platforms (NASDAQ: META) saw stocks plunge from 137 on October 25, to 96 on November 7, and Amazon (NASDAQ: AMZN) went from 120 on October 25 to 90 on November 7. Expect a shift in capital investments as companies begin layoffs, close warehouses, and move their money to things like AWS (in Amazon’s case) with a greater guarantee of return. Look at companies that have learned this lesson previously, like Microsoft (NASDAQ: MSFT), and have a responsible plan for capital, like Cummins (NYSE: CMI). Cummins is not in the tech sector, of course, but they are a great example of having a smart, near-future plan for capital investments.
Here’s the link:
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