The easiest way to take advantage of an investment opportunity is to simply take notice of the things that perhaps you and others are beginning to embrace. For example, I like movies. So, what's the big trend taking place there? Blockbuster, Hollywood Video—basically your "brick-and-mortar" rental stores—are going belly-up to be replaced by companies with more convenient models like Netflix and Redbox. If you were one of those people who took notice of this switch and, say, invested in Netflix a couple years ago...well...the chart speaks for itself!
In last week’s article, “Watching and Waiting,” I highlighted two key areas for investors to keep tabs on as they could easily have global ramifications. These were the Chinese property bubble and the continuing saga of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) debt crisis. I’m still watching those two areas as well as a third, the Euro/Yen currency exchange rate. All three have been in bearish trends since late 2009 and short-term bullish trends are now butting heads against long-term bearish trends.
Up until Friday, October 15th, the market has largely ignored those two words. Instead, all we’ve been hearing is, “I’ve gotta have more cowbell…I’ve gotta have more quantitative easing”. Now, investors are tired of hearing speeches for the need for QE 2.0; rather, they want specifics. In Bernanke’s speech last Friday titled, “Monetary Policy Objectives and Tools in a Low-Inflation Environment”, no new information was given about any real specifics or timing for the new policy and we were again reminded, “if necessary”.
I am sure if I asked you what has performed the best over the past year from the following list (Apple, Gold, Union Pacific Railroad, Deere, Kraft or McDonald’s), you would immediately answer Apple. It is clearly an amazing company and a great stock. You would then, especially based on the recent headlines, say Gold. The other names are a bunch of little old lady stocks so why are they on the list, right?
Starting off this year I had a pretty good feeling that it would be a good year for the economy and a mediocre year for the stock market. Part of this stemmed from the observation that the M2 money supply growth rate was decelerating and the leading economic indicators were stalling, similar to what occurred late in 2003, which preceded the 2004 correction and consolidation. Now that 2010 is nearing its final innings...
As I look at my neighborhood, the shopping malls, and other locations, I’m reminded about how many 30-somethings are all having babies. I thought, hmm, maybe it’s just because I’ve had two children in the last two years that I’m more aware, but no, the statistics show the U.S. has broken the baby-boom-barrier.
There were several pieces of economic data released last week. Factory order data was released and met with a big yawn. Nothing released drastically altered prevailing perceptions of the manufacturing sector, which is seen as working its way through a period of slower growth.
One of the developments that caused me to take a defensive view earlier in the year and recommend shunning the high beta cyclical sectors in favor of defensive sectors like telecommunication and utilities (“Contary Investing,” and “The Dual-Edged Sword of Investing: Risk Vs. Reward”) was a sharp deceleration in the leading economic indicators (LEI) which peaked late in 2009.
One of the more memorable skits in many years of SNL comedy was a recording studio skit in which a music producer, Bruce Dickinson (played by Christopher Walken), requests from the band, more cowbell (played by Will Farrell). The skit was so funny that Jimmy Fallon had to bite down on his drumstick to keep from laughing while playing his part. The best line was near the end when Bruce Dickinson said this line, “Guess what? I got a fever! And the only prescription…is more cowbell”
Investors entered September feeling uneasy, to say the least. Several noted the typical seasonal weakness seen in the month. Many talked of fears of a double dip in the economy. The market, as it typically does, worked hard in September to make as many as possible look foolish. The market roared ahead recording its best September in decades.