People have called me a "perma-bull" forever. Mish Shedlock called me a "wacko." Zerohedge has called me insane. Nouriel Roubini has laughed in my face. My daughters still quote Don Luskin when he was on CNBC shaking his head and saying, "James, James, James..." while laughing after I said the market was going to hit new highs.
Well, the market has hit new highs. That's ok for those guys. I'm sure they all do well on their newsletters. I have no newsletter. I only invest with my own money. I live and die in the markets and I don't depend on anyone else.
Is there a reason to change my mind? Not really. Eventually, the market will be higher than it is now.
But for the first time in a long time, I'm not a super bull on the overall market (although I like certain smaller stocks, see below).
The overall market (let's say, the S&P 500) price is a function of supply and demand. I know people know this from Economics 101 and they view this as a micro-economic principle but it's also macro-economic. It's not only the price of Oranges determined by supply and demand, the aggregated price of every company in the world is also determined by this.
So what is "Supply" in terms of the stock market? Answer: It's the total number of shares outstanding.
What is "Demand"? It's the appetite to buy shares.
Supply is going down. This is both a good thing and a bad thing.
The good: Companies have enormous profit margins and are using their excess cash to buy back shares. This, of course, reduces shares outstanding. When companies with $100 billion in cash like Apple buy back shares, this reduces supply for the big mutual funds, etc.
Also good: When supply goes down, price goes up. This is why the stock market right now is at all-time highs.
But then there is the BAD: I am seeing first hand within the private companies that I am invested in: nobody wants to go public. How come? Private markets are valuing companies higher than the public is.
And even the companies that want to go public: it's pretty damn hard. I can't quote you statistics. I only see this because I'm getting all the calls from brokers. If a broker is calling me to dump their little shitty IPO, it means they can't get institutions in.
Demand: Everyone is still pretty nervous.
Someone asked me the other day: when will this recession be over?
Guess what? It's been over for four years.
But people don't seem to know that?
How come? Because they feel like shit. Because people are getting jobs less than what their skillset suggests they should get. Because people are taking jobs for pay that doesn't match what they would've gotten ten years ago. Underemployment, as this is called, is supposedly around 20% but my guess is it's more like 30-40%.
Things feel like they suck.
Nobody feels like the stock market is back. Or that housing is starting to creep up. Or that America is starting to insource manufacturing again because globalization has crept up prices worldwide.
People look at their crappy jobs and salaries and say, "I don't feel so good". And so they get a scarcity mentality and don't want to buy shares.
I don't blame them.
Meanwhile, supply is going to flatten out. There's only so much stock that people can buy.
So Demand will probably remain the same, but now Supply will stop going down.
What happens then? Stocks go down. Or struggle to stay afloat.
My solution: I am buying smaller stocks where I am not competing for information against massive hedge funds and mutual funds that do everything they can to cheat the system (insider trading, manipulative trading, high frequency trading, special access to secondaries, etc).
I also invest in long-term demographic trends that I believe in. These companies will do well regardless of the overall stock market. It's why microcaps always outperform large caps in the long run.
So I'm invested in
Petro River (OTCQB:PTRC) - America is the new Middle East in terms of oil. All of the oil that we stopped drilling for in 1971 because the technology was not there, we are now drilling for. Fracking is here to stay and will drill up the several billion barrels of oil underneath the Mississippi Lime.
Corporate Resources (NASDAQ:CRRS) - I'm on the Board of Directors so can't say much. Needless to say, no company wants to deal with the red tape of Obamacare. It's a nightmare. Even Democrats now admit it. Google it. I'm not political. I haven't voted since 1991. But a total of zero companies want to deal with Obamacare. So what do they do? They fire everyone and outsource to temp staffing companies. That's why I like being on the board. So I can see first-hand what is happening in this industry.
- taxes are going up on medical devices. So this will be detrimental to the 77 million aging baby boomers who have just started retiring.
- "prevention is the cure." People have ignored this for the past century but they can't anymore. Lifespans have gone up. People need good diagnostics to prevent cancer and other diseases that are common killers. I can go into details on why these two are the best and I will at some point (I already have repeatedly on TROV when it was half the price it is now).
- Lifespans are going up. The average lifespan was 61 60 years ago. Now it's 79 and going higher. So people will need medical care. Since people can no longer afford medical care, they will need prevention. The FDA, drug companies, insurance companies, and the government, have made medical care too expensive. So diagnostics, which are easier to get approval for, are the answer.
And that's it. My wife owns a handful of other big cap stocks but in small amounts.
What I don't do: I never daytrade. I used to and I used to make a good living at it. But in the link above I describe why I don't.
And I will not own the broader market here. It's a criminal enterprise. That's a sucker's game at this point.
Additional disclosure: I have no intention of selling any of these stocks any time soon.