The Media Has Mistaken a Major Re-allocation for a Recession

Includes: SPY, XLK
by: Jason Schwarz

Lone Peak Asset Management has issued a call to buy the S&P 500 for the second time this year. The first buy call on April 18th resulted in a 5% gain as the index rose from 1365 to 1426 in one month. LPAM is forecasting a similar rally to bring the S&P 500 over 1300. The catalyst's for a move upward include:

1. The enforcement of SEC rules against naked short selling will provide stability for the financials.

2. Non-financial earnings results to exceed lowered expectations.

3. Probable 2% GDP growth announced for 2nd quarter.

4. Evidence of a significant decline in oil demand.

5. Booming exports.

6. Low stock valuation.

7. Low interest rates, low taxes, and an additional stimulus package on the way.

Market negativity has been blown out of proportion. Former John McCain economic advisor, Senator Phil Gramm, raised an interesting point with his comments concerning the US economy. He inferred that we are in the midst of a mental recession and that we have become a nation of whiners. While we recognize that Gramm's statement was politically incorrect ,we do agree that this is a 'phantom' recession based on sentimental fear rather than real data. Instead of calling this a recession, it should be referred to as a period of major re-allocation.

Evidence that Americans are throwing out the old and replacing it with the new are abundant. Ironically, investors still crying over the bust are missing out on the real Internet revolution that's happening before our eyes.

Gartner just reported that worldwide PC sales rose 16% in the second quarter. Apple (NASDAQ:AAPL) was able to sell one million iPhones in its opening weekend. The Gannett (NYSE:GCI) earnings release showed us how much advertising Google is taking from the newspaper industry. We buy our books from Amazon (NASDAQ:AMZN) instead of Borders (NYSE:BGB). eBay (NASDAQ:EBAY) revenue was just reported up 20%, Research In Motion (RIMM) revenue was up more than 100%, Intel (NASDAQ:INTC) net income surged up 25%. Since consumers have stopped buying Ford (NYSE:F) Trucks and Chevy Tahoe's should we assume that American's no longer buy anything? How should the weakness at JC Penny's (NYSE:JCP) and Macy's (NYSE:M) be interpreted? Out with the old, in with the new. Goodbye Dell (NASDAQ:DELL), hello Mac. Goodbye corn, hello peas. You get the point. Those subprime homeowners who were in over their heads are now paying more manageable rents.

The media has mistaken re-allocation for a recession. Earnings season is a time when we can focus on the data that describes this shift. That's why the market rallied during earnings season in April and why it will rally again this time. Re-allocation creates new opportunities, it's time to take advantage.

Disclosure: Long AAPL

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