Calm is coming back into the credit markets just as we enter the earnings season. Add in short squeezes from the recent bull run and you have the ingredients for a nice long rally.
What could spike the rally is nervousness over interest rates or clear signs of a rapidly deteriorating economy. I think most folks have accepted the reality of a terrible housing disaster, although I believe that there are still horrible surprises waiting.
Overall,
most nightmares are still a month or more away and therefore less likely to affect the very near term trends.
* Housing market disaster – This is just growing worse and worse. Foreclosures have yet to peak and Banks have yet to dump their fast growing stock of re-possessed houses, and when they do – panic will strike the markets. They can contain the reality another 3 months at least, largely because of the self-deluded myth of a healthy rebound in the Spring 2008.
*
Consumer spending disaster – This will be a terrible Christmas. Consumer spending will not be very healthy, retailers will offer very aggressive terms (aka margin erosion), and capital spending will slow.
* Recessionary fears – A recent article in THE ECONOMIST echoed something I wrote a year or so ago about the business cycle. Essentially, today’s business logistics enables much leaner inventory investment. Recessions are marked by a drop in investment in capital goods. In a sense the business cycle is driven by trying to align supply and demand.
When demand outstrips supply, companies invest in increasing production: more demand for machinery, raw materials, labor and so forth. Eventually supply exceeds demand because companies don’t read signals that they are over investing in production. Causes for supply exceeding demand can be over-supply or falling demand. In any event, the rapid build-ups followed by sudden braking on spending signals a volatility in the business cycle. A boom followed by a bust.
Thanks to the internet and better information flow, producers are better able to track real demand and avoid over investment in production. Also, logistical improvements allow companies to keep supplies lean because they can ship quickly and accurately. These keep over-supply down.
Also, thanks to globalization, more markets are available to suppliers.
The first point here is that recessions don’t have to be as sudden or as sharp.
The second point is that multinational companies can thrive despite a US recession.
The third point is that
the most successful companies will be the ones that can tap into near-universal needs in order to achieve near-record volume demand: oil, raw materials, energy, water, communication (cell phones), medicines, entertainment, consumer goods, clothing, and so on.
I think our stocks target these areas although we can do better. For example, we don’t have anything in the logistical end of this global trend (I keep coming up empty on a shipping company). But infrastructure spending continues to move apace, and we are well positioned (PWR no longer amongst our shares, to my regret). Many of our stocks were up on down days this week – and I like those signs.
I also expect more splits among our stocks (PCP, MICC, FWLT).
INFRASTRUCTURE: COMMUNICATIONSThis is a good article to read.
http://online.wsj.com/article/SB119093409520141865.html?mod=hpp_us_whats_newsBasically, it talks about cell phone overseas acquisitions by ATT and AMX. AMX already tried to buy Telecom Italia.
True or not, expect some excitement around AMX and MICC.
AMX – Flat. No news. My concern is that after great growth, this company may be heading to a more moderate stock price growth rate.
MICC – Up 6.6%. Up every day, too. We got in at $83 and again at $74 - $100 being the 3 month high and $70 the low. I am following my theory that they got pounded by the NASDAQ issue and they could recover to $100 shortly.
NUAN – Up 3%. They brushed $20 before pulling back.
INFRASTRUCTURE: TRANSPORTATIONPCP – Up 1%.
RAW MATERIALS including oil services/equipment
TIE – Flat but the signs are for some positive upwards movement.
ATW – Down 5%. This is out of synch with other drillers, so I can only wonder why. There is a great deal of resistance at the $80 level – they’ve approached it 3 times the last month. There is no news, so I recommend patience.
CLB – Up 3% and hit a new 52 week high.
FWLT – Flat.
NOV – Flat after hitting a new 52 week high. The pending split could cause a pullback, but we’ll see.
HEALTHCARE
HOLX – Up 6% and up every day. Strong (~4x) average volume on Friday. News might be getting out about solid earnings.
IMA – Up 8.4% and up every day. Hit a 52 week high. Also strong volume.
