Do you find yourself reading the morning paper, and checking on business headlines discussing the latest economic statistics and market-related activity? The news is sometimes confusing and disjointed. And many times misleading. My most recent data analysis concludes that the “improved” earnings reports upon which most stock speculation is currently occurring is mostly driven by cost cutting, low employment, and accounting gymnastics that enable corporations to move cash onto the favorable side of the ledger. This is in stark contrast to an economy that needs innovation, enthusiasm, exports, and a host of “better mousetraps” to entice capital investment and consumer confidence.
To be sure, there is a lot
more good economic news than bad. And
the market’s euphoric rally makes everyone a little more comfortable with their
portfolio performance, while buying some time for real systemic changes to be made.
But don’t confuse the absence
of downside selling pressure with the upside sustainability of near-linear
gains.
In contrast to U.S. Asia as a blanket.
Their impact upon U.S.
In such a climate, my equity analysis turns not so much
on accounting and statistics, as on the viability of a company’s underlying
mission statement, their core products, and any pent-up demand in the
marketplace for future revenue and sales expansion.
Portfolios should be careful
now at least to get back a dollar for every dollar invested. There’s no sense in buying losers for losers’
sake.
The default side of this
delicate economic ballet is to diversify one’s risk, widen one’s aperture of
analysis and methodology, and to lengthen one’s timeline of expectations for
portfolio capital gains to occur. After
such a protracted period of gains, it’s unlikely to maintain such lofty
expectations going forward.
Misplaced.
A key driver of today’s financial data is the
insistence by the Federal Reserve to keep interest rates low enough to
stimulate capital investment and not to snuff out any economic expansion at the
same time.
These actions were necessary,
although questionable, at the time the policy was developed at the height of
this generation’s most dire economic recession.
The question as to how long to maintain this bias is riddled with
dissension. While the Fed’s work might
have indeed saved us from a worse fate, one might argue that imposing man-made
machinations upon the capital markets might be hazardous in the long run, at
best.
I am, and was, in favor of
government intervention. But I question, as a market scientist, the
duration and magnitude of bailing out the wealthy (banks, autos,
pharmaceuticals, energy companies) while allowing the least fortunate and less
well-off to fall through a social and moral safety net. After all, losing a caste of our citizenry by
default affects the stock market in a more profound way by eliminating a source
of capital and a generation of their
expectations about becoming wealthy through stock speculation. So, by investing in one group our treasuries
are sacrificing another, at least and hopefully only, for the short-term.
When, and how, can we ever
“earn back” this aggregate of potential depositors?
Interestingly, the calendar is
working in our favor. Typically,
outperformance occurs during the holiday and year-end seasons. Focusing on what’s right with our lives, and
the euphoria of turning the page on one year and into the next really does
produce a Santa Claus effect upon the equity markets. Let’s hope, though, that we remain cognizant
of the tribulations of others, the punishment we sometimes inflict
unintentionally, and the assets we need to deploy to complete a recovery for
the benefit of all who wish to participate.
Happy Holidays, thanks for reading and participating.
(My next publication will be
the Investment Quarterly, January 2014)
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