Seeking Alpha
Long/short equity, registered investment advisor, portfolio strategy
Profile| Send Message|
( followers)  

Good morning. As I may have mentioned a time or two hundred, I don't make "market calls." I just don't believe in investing according to what I expect or suspect is going to happen next. Perhaps this is why, despite my more than 25 years in the investment management business and being the founder of a respected market website, I have yet to be interviewed on CNBC or Bloomberg. The problem is my answer to just about every question relating to the market would be the same. "You see, Maria, while I may think this or that about the economy, Europe, earnings, the election, or the price action, the bottom line is that I base my investing decisions on my market models." Not exactly the stuff that grabs ratings.

This does not mean that I do not have opinions. I often talk about my view of the market and I actually offer up ideas on what may be driving the action on almost a daily basis. (And on that note, the current market drivers appear to be earnings and economic expectations.) But in terms of investing strategy, I believe that having a time-tested system designed to keep you on the correct side of the market's important trends wins out in the long run over trying to make the big "call" every time the market turns. As Marty Zweig so famously said in the late 1980s, those that depend on a crystal ball will wind up with an awful lot of crushed glass in their portfolios."

So, while I do admit to being a card-carrying member of the economic optimist club (the bottom line is that it hasn't paid to bet against the good 'ol USofA for very long) and I try to stay agnostic in terms of what I think is going to happen next in the market and/or the economy, I have made a call or two over the years. And one of those calls - which was correct, by the way - is front and center right now.

Before I continue, let me offer up one more caveat. From a political standpoint, I was not against Barack Obama when he was elected in 2008. To me, he seemed like an intelligent guy who wanted to make a difference. And at the time, it looked like he was putting together a strong economic team and it appeared that he was eager to receive input from all circles.

However, after taking a peek at the President's stimulus plan back in early 2009, I made a "call" that I wish I had been wrong on. Almost immediately, I began terming the President's $787 billion package the "Not-so Stimulative stimulus Plan." My point at the time was simple. Many times in the past, the government had "spent its way out of recession." Through wars or various stimulus programs, an increase in government spending had generally been a successful way to get the economy back on track.

The problem was the President's plan simply wasn't very stimulative from an economic standpoint - it was mostly government spending. And while just going out and spending a bunch of money had traditionally worked, I opined that this time might be different. I suggested that the amount of money being spent on economically stimulative measures was miniscule and wouldn't amount to much in the way of growth. And given that the latest read on GDP growth was 1.3% and that the growth rate has been falling for the past three quarters, it is fairly obvious that the package was indeed not-so stimulative.

To be fair, it wasn't completely the plan's fault. Again, in the past all a President had to do was spend the money and the economy would recover. But this time around, the world turned out to be different. The crises just didn't stop coming. And the damage from the credit crisis was so severe that corporate executives and private citizens alike dove into their fox holes and stopped spending. Suddenly, debt became a four-letter word. So, instead of people returning to their free spending ways after the crisis ended, a period of deleveraging ensued.

It is also a safe to assume that the administration figured it could always throw out another stimulus package if things didn't work out. But given that our government has been running $1 trillion deficits and that the national debt has ballooned to the point that the U.S.'s credit rating was downgraded for the first time in history, this just isn't an option. No, nowadays there is no political will to borrow any more money for stimulus plans.

So, I guess someone needs to alert the media that I was right. But the bottom line is I wish I hadn't been, because this was a disappointing call to have gotten correct.

Turning to this morning... U.S. stock futures are following Europe lower this morning and point to a decline of more than 1% at the open. There does not appear to be an obvious catalyst to the decline. However the downgrade of 5 Spanish regions, the view that Obama did well in last night's debate (which prompts worries about the Fiscal Cliff), and the slew of weak earnings reports all appear to be weighing this morning.

On the Economic front... We will get the report on the Richmond Fed index this morning.

Thought for the day... Remember to think positive today :-)

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Shanghai: -0.88%
    • Hong Kong: +0.68%
    • Japan: +0.04%
    • France: -1.16%
    • Germany: -1.37%
    • Italy: -1.07%
    • Spain: -1.13%
    • London: -1.10%
  • Crude Oil Futures: -$1.37 to $87.28
  • Gold: -$16.20 to $1710.10
  • Dollar: higher against the yen, euro, and pound
  • 10-Year Bond Yield: Currently trading at 1.777%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -14.66
    • Dow Jones Industrial Average: -126
    • NASDAQ Composite: -26.21

Disclosure: No positions

Source: Daily State Of The Markets: My Best (And Most Disappointing) Call