Market Commentary for the Week of August 24, 2009

Inertia.
Worriers, and machines, ruled the markets last week. After flirting with record-breaking new momentum for the past 5 months, the cash spigot was turned off dramatically. Indicators stagnated, then fell, as profit-taking and fear crept back into investing. As if to substantiate the markets’ volatility, consumer confidence and capital expenditures dropped for the week. It’s all so “predatory.”

The most troubling part of this behavior is that the markets become seized by a paralytic horde, first buying then selling everything. Nobody invests with any real conviction, so the whole thing becomes a series of “program trades,” replete with upside sell barriers and downside loss-limits.

It’s no wonder that current reality is on hold for the time being.

But are the markets “out of control,” or merely acting out an orderly progression of accumulation prior to any mark-up phase?

Science, not fiction.
My research indicates that this stop/start progression is more reflective of an end-of-cycle context than random and, somehow, devious plot. After all, doesn’t the end of a secular bull cycle look something similar? Recall that the mania that gripped the final throes of our last (or any, for that matter) bull wave also acted on impulse, greed, and a never-ending belief that equity price increases were inevitable.

Well, here (at or near the bottom of the bear leg) the staccato-like reaction of share prices looks as if no one believes in the upside anymore, and that downside catastrophe is immutably prescribed.

Being foolish is definitionally part of either end of a secular cycle.

In the end, fundamentals always win out. Not just for investing, but for most things, as well.

Which side are you on?
The case for optimism is not rooted in the day-to-day gyrations of equity and bond prices, but in the longer-term demographics which serve both a moral and capitalistic incentive.

My work is laying out the foundation of new paradigms for investing in biopharmaceuticals, alternative (and traditional) energy sources, agriculture, technology and infrastructure, and water purification and distribution.

Your disappointment in equity prices today is shortsighted relative to the magnitude of opportunity, solutions, and potential the globe faces in the next 50 years.

It is important, too, to fight through the week-to-week negativity in order to develop a long-term strategic risk/reward paradigm for investing. Focusing on the excesses and the little things puts you squarely at odds with methodological science, and places you, instead, on the periphery of good judgment.

This missive is not intended as an optimistic misstatement of the facts, but rather a careful observation about the potential for capitalism and morality to coexist profitably. Others may think about throwing in the towel. Our objective data proves otherwise.

Mr. Spock?
As technology becomes obsolete think back to rotary phones, VCR’s, propeller aircraft, analog television. Think also about the future potential in medicine, irrespective of the political context, to solve and cure “incurable” diseases.

Think, also, about the role of the markets in providing long-term capital and speculation for progress in education, life sciences, healthcare, agriculture, and environmental studies.

Worriers will always find justification for their point of view. Let them tiptoe into the future.