If You Haven't Owned M-E-I-T This Year, You're Likely Not Doing Too Well

Tom McManus, Chief Investment Strategist for Bank of America, recently published a very interesting graph. It compares the performance of the S&P 1500 Materials-Energy-Industrials-Tech sectors vs. everything else. M-E-I-T is up over 10% year to date, while the rest of the market is DOWN 7% ytd!

This is reminiscent of the 1999 tech boom, when the overall indices were up big, but the S&P500 sans tech was actually down slightly. Certainly this has to do with the bet on global growth at the expense of US consumer.

The question here is whether such a divergence is sustainable. It wasn't in 2000 with tech. Clearly this isn't directly comparable but as a "reversion to the mean" proponent it raises a red flag in my opinion. (Thanks to Whitney Tilson for forwarding this data).

Comments

[Sr. Pessimist:]

I could work in a tech outsourcing firm and write software for India with their strong rupee. Tech may last, but that's because it's a form of engineering that can be outsourced and done from abroad. Intellectual capital, as Hemingway put it. Sites like guru.com make sense to me. My mother herself has always thought there should be something like that. I've found that when something clicks correctly in her head, it really clicks hard and true.

Materials are not easy to outsource. Nor are industrials. Engineering for the industrials, but Caterpillar ain't exporting bulldozers for cheap. Energy, well, unless you have a way of licensing the Tesla coils internationally, which you don't, then even if America finds a retro-neuvo way to get electricity such as a Tesla coil, nobody's exporting energy for cheap.

Watch alternative energies improve within the US. Tech is a global market, and has been for some time. It's about irrelevant, considering a handfull of elite tech minds are about all any country might have, and so can easily be anybody's sugardaddies in the world. Industrial only in wartime, and I don't know one way or another. Materials again in wartime or building, but building capital is out in China right now because they show the promise of a sustained construction boom. Capital in material stocks makes more sense in or near China than in the US.

Businesses that go global will be able to maintain the disparity. The rest of the US will correct become as poor as their foreign counterparts in any other part of the first world as the US Dollar continues to decline and oil continues to become scarcer to the US.

2007 Oct 30 05:24 PM