Can We Please Look Beyond the Headlines
Not much action in the markets this past week. Market participants watched as politicians in DC postured and jockeyed for more face time in an attempt to look as if they were actually accomplishing something. Watching this highly dysfunctional political process is definitely not good for investor confidence in stocks. I heard there was a Congressional committee being formed to find the best NFL kicker who, once the theatrics reached their conclusion, could be brought on to kick the can of debt ceiling and budget issues furthest down the road…
Bloomberg poll
A national poll conducted by Bloomberg released last Tuesday stated that fewer people anticipate improvement in the economy’s strength over the next year than in their last survey in June. 27 percent said the expansion will be more robust, down from 39 percent who expected improvement three months earlier. This is not a good trend. In spite of the lack of national political leadership we’re enduring right now, I remain solidly in the 27 percent group. So, for all you folks who read this, especially those who probably don’t get to see the economic data that helps support my thinking, let me give you some reasons to be optimistic and to take action accordingly.
Where we were
Since May, 2009, when I first made the case in this letter for why people should be in the markets in a big way, I’ve been having to deal with all kinds of negative push-back – a condition that continues even today…even after our 150% run up in the S&P500 from those lows. People say things like, “I don’t share your confidence; we have troubles everywhere.”
Troubles are always around somewhere – and always will be. I understand very well that the 2008 markets and recession were bad in some way for all of us. Then, to compound it, Europe and the rest of the world followed along into economic uncertainty soon after. However, the problem I have is that we, as a country, seem to be either unable or unwilling to get past the feelings of negativity and, in some cases, despair that came with those events. I can point to how the media and politicians seem to still go out of their respective ways to regularly spin an event or story to reflect its bad side.
So, I understand that when you’re continuously being blasted by pain, confusion and the like seemingly 24/7, it does start to wear at you. Consider this. Pessimism is seductive. The arguments always sound smart – especially if they just so happen to go along with your own worries. But, you know what? Perma-bears always have an excuse and never have a time horizon. And somehow, the calls they make that don’t happen or aren’t as near as bad as they had suggested, always find a way to magically to never be brought up again…
Where we are
Here’s some facts from just the past week to show you that the economy is doing very well, thank you, and is definitely not in need of ongoing easy money. These are the below the radar, not so sexy facts that are almost always ignored/missed in our daily newscasts and articles.
In no particular order, here’s a few for you. In July, cars and light trucks sold at the fastest rate since November, 2007. (1) Car sales have been rising at double-digit rates for the past four years, and, with this report, have returned to pre-recession levels. Car sales have caused manufacturers to ramp up production, hiring and purchases of materials and parts. There are major positive ripple effects from this that have benefited many sectors of the economy already. Orders for durable goods – big ticket items meant to last more than three years – had their fourth increase in the past five months and are up just about 14% from a year ago.(2)
Last week, the Commerce Department reported that new home sales are up over 12% from a year ago and that existing home sales rose more than 14% last month; the fastest appreciation since October, 2005. Also last week, according to Case-Shiller, home prices rose over 12% in the year ending July, reaching a post-recession high in both real and nominal terms. However, prices are still 23% below their early 2006 peak in nominal terms, and 32% below their peak in real terms. (Read that as no bubble…)
The Index of Leading Economic Indicators – a gauge for economic expectations out four to six months – rose in August to its best reading since April, 2008. And, according to the Department of Labor, the number of people receiving unemployment is down by 24% in the last year and the four week average of initial claims is at its lowest since June, 2007.
I’ve got lots more but I hope you get the idea. This is truly good stuff. We’ve got a lot of pent-up demand from the bad old days helping to drive the economy in many sectors. And then, as noted with the cars, there’s a major ripple effect from all that expansion.
Where (I think) we’re going
Things really can’t be too bad. Last Monday, a guy named Nouriel Roubini gave a positive speech about the US economy. What made that an unusual event is that, from 2008 until, basically, last year, he was proudly wearing the title given him by the media of “Dr. Doom”. The title was in reference to how he had constantly ridiculed and talked bad about the same economy he was now praising.
One comment he made was that, “when one examines the technologies that drive almost every major industry from energy to manufacturing to medicine to information and entertainment, the US is either the world leader or close behind.”(3) He added that multinational American companies are well-positioned to export these technologies to other nations. And he reminded those in the audience that the Federal budget deficit has fallen from the 10 percent area in 2009 and 2010 to just about 4 percent today. Pretty powerful stuff, don’t you think?
Dr. Scott Grannis, a highly regarded economist, had these general comments. “With labor market conditions tightening and with corporate profits at record levels, seems to me that the economy is getting set up for a run of hiring and stronger growth. That is, IF business confidence improves…a situation that is in the hands of the business owners, to a very great degree. Yes, there are many things wrong out there, but at the same time there’s been a whole lot of improvement. Those who have viewed the glass as half empty, and who have thus avoided taking on risk, have passed up tens of trillions of dollars of gains. Those optimists who have viewed the glass as half full have been richly rewarded.(4)”
Summary
I promise that I’m not the only one who can see or has access to these data. However, for some reason, according to the Bloomberg survey, almost 75 percent of investors are choosing to overlook these and other similar facts. Over the past 5 years, many (most?) market participants have consistently underestimated the ability of the US economy to grow and improve. Even though this is weakest recovery ever, the economy has still managed to exceed the public’s apparently dismal expectations. I am absolutely convinced that there has been – and continues to be – real, significant and fundamental improvement in our economy.
Please understand that stocks have risen in the face of all this global turmoil and despite four-plus years of Fed quantitative easing, not because of it.
Look past the current political confusion and think about what corporate America has accomplished, even with the Fed hitting the brakes. Look at the even brighter side. Think what we’ll do when they aren’t…
Cheers!
Mike
509-747-3323
- Ward’s Automotive Group, 25 Sep 2013
- FirstTrust Data Watch, 25 Sep 2013
- IndexUniverse Inside Commodities conference, 23 Sep 2013
- Calafia Beach Pundit, 26 Sep 2013
Securities and Investment Advisory Services offered through KMS Financial Services, Inc.
To get an overview of economic conditions, use this link. It’s updated monthly.
http://www.russell.com/Helping-Advisors/Markets/EconomicIndicatorsDashboard.aspx
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Investing in sectors may involve a greater degree of risk than investments with broader diversification. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Investing in emerging markets can accentuate these risks.
Michael J. Maehl, CWM®
Senior Vice President
Opus 111 Group LLC
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