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Fear & Greed Trader
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INDEPENDENT Financial Advisor / Professional Investor- with over 30 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • Market Update 12/9 - No Surprise At All !! 10 comments
    Dec 9, 2013 5:41 PM | about stocks: CXO

    This past week we saw the start of the economic news that the market has predicted for quite some time now.. GDP comes in @ 3.6% , Jobless claims drops below 300k for only the second time in the current expansion. New Jobs created came in at 203k. Real growth since the recovery started has been an annualized 2.3%, and last quarter's growth was substantially better.

    Undoubtedly this current expansion has been weaker across all metrics than prior recoveries. The Fed can only do so much to counteract that problem. Real GDP growth has been weak because the growth in the number of people working has been weak. But as we'll see that is slowly improving. We can't ignore or underestimate how globalization and mechanization has impacted the slow jobs growth also . That is a secular change we are now going thru , in the long run it will be shown to be a positive for GDP . And I might just add, QE can't convince businesses to hire more if they are concerned about the future and burdened by onerous new regulations and the highest corporate income tax rate in the developed world. Wake up D.C !(ok, I had to throw in one political rant)

    Yes its only one week of data but it comes on the back of all of the other economic data that has been improving.. None of this should be a surprise if you have been in the "bullish" camp.. Those facts have been noted over & over..

    Digger deeper into this, we note that the private sector of the U.S. economy has created about 8 million jobs since early 2010. That is the number I want to be aware of because in my mind that is the number that counts.. Jobs growth has been relatively steady at about 2% per year for almost four years now. At the current pace, private sector employment will reach a new all-time high within the next 4-5 months. It would be nice to see even more improvement on this front . The economy is growing slowly, but it is definitely growing.

    From the BLS:

    Oh,wait a minute --what about the naysayer 'bear" argument that this jobs growth is all "part time" employment. Have a look at the chart below and note that part time employment is flat in this recovery and lower as a percentage of overall employment. In fact the percentage is trending downward !!

    Another doomsday argument that was "spinned" to make their case ... Now the new "spin" is that Obamacare will be our ruination , and make employers go more to this part time theme.. BUT, its the same crowd that told me that jobs growth had "no quality" due to their "part time ' story. -- I didn't buy their arguments then & I'm not buying it now..

    None of this should be taken as an endorsement for the present Gov. leaders nor some of their policies ( including Obamacare) . What it should be taken for is the nature of how things in a very large economy can be resolved in a positive way --despite some of the antics of DC.

    Its all about Company earnings and how they have rebounded and led the way to an improved economy & our present market highs.. In a nutshell leave politics and it's associated noise at the door when investing , a simple unbiased look at the facts tells the story..

    Corporate after tax profits are at an all time high. So it's no surprise why the S & P is at 1800. Corporate profits as a percent of GDP currently sits at 10% , above the 'average" range of 6-7% . Therefore many analysts contest that they must revert to the more normal 6-7% in the future. So might it just be that the market has very little confidence that profits will continue to increase, and is very worried that profits could suffer a significant decline, both nominally and relative to GDP in coming years. In my view that's why PE multiples are only average despite the fact that profits are at record levels. And certainly not in 'bubble" territory.

    One can make the argument that at these levels the market is priced to a significant deterioration in the profits outlook. However, profits continue to defy that logic and continue to increase. My thought --profits continue to rise & will indeed decline when we suffer the next recession , but that is possibly years away. So obsessing about an imminent recession is exactly what has so many 'doubters' in the position they are in today. But so far, it has proved to be a failed strategy and the pessimists have been missing out on a fabulous equity rally.

    I do see a continuation of these positive trends along with the other positive secular themes I see , continuing to feed what I believe is a strong secular bull market.. For the Fed bashers , maybe just maybe Bernanke had it right as he stated over & over that the Fed would remain on the scene until the economy could stand on it's own, now we finally have solid proof of that.. So when they start reducing their asset purchases , it is a positive for the LT prospects of the equity market..

    Keeping it all in perspective though , be reminded that these facts are already "history". While they have pushed the S & P to these levels they wont take us higher unless all continues to move in a positive direction.. The strong trend that December usually brings may now keep the markets lifted into the end of the year.. I am being selective and watching sector rotation.. (added EBAY last week ).

    Schaeffer research reports that the "short interest" on the S & P is at the highest level in 18 months .. So much for everyone being overly enthusiastic . This represents more fuel for the rally down the road.

    Note how the Oil names I have mentioned PXD,CXO & WLL have sold off (especially last Friday). They have had huge runs but they are now approaching my 'buy" range.

    Add those names to your watchlists.. For those with no exposure to this area, they can be slowly accumulated at these levels as it is always difficult to buy that exact bottom.. These stocks have great LT potential..

    More on these names and others next week.

    Best of Luck to all !

    Disclosure: I am long PXD, WLL.

    Additional disclosure: I am long numerous stock positions--- all can be seen here in this blog

    Themes: Market Update Stocks: CXO
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Comments (10)
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  • Interesting Times
    , contributor
    Comments (10165) | Send Message
     
    FEAR

     

    Then why did our Govt sell all their remaining shares of GM at a loss? Would have been better to wait ?

     

    Thanks !
    9 Dec 2013, 10:35 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4548) | Send Message
     
    Author’s reply » IT,
    im not sure what was involved with the Gov't and the GM bailout. maybe a mandated sale date ..

     

    I don't view it as commentary for the overall market but as perhaps another example when the gov't gets involved in anything it doens't turn out right ..
    10 Dec 2013, 09:16 AM Reply Like
  • Interesting Times
    , contributor
    Comments (10165) | Send Message
     
    FEAR

     

    So lets say it was a mandated sale date BUT the govt felt it would be more profitable to wait another year, could they postpone the sale?

     

    I have no clue..
    10 Dec 2013, 03:57 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4548) | Send Message
     
    Author’s reply » IT,

     

    I dont have a clue on that either, it surely would make sense , I have heard a lot of positives on the stock and expect it to go higher with a raise in the dividend !! - go figure..
    10 Dec 2013, 04:11 PM Reply Like
  • Interesting Times
    , contributor
    Comments (10165) | Send Message
     
    That is exactly why I am confused. I know it is the taxpayers money but why not wait. Oh well, hopefully someone with a better understanding will post something to educate me!

     

    Thanks ...
    10 Dec 2013, 06:34 PM Reply Like
  • Rico Kastilani
    , contributor
    Comments (161) | Send Message
     
    F&G,

     

    Could you provide us with the link to the short interest on the S&P?

     

    Rgds,
    Rico
    9 Dec 2013, 11:27 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4548) | Send Message
     
    Author’s reply » Rico ,

     

    the statement came for Schaeffer research , which also provided a chart -

     

    when i went back just now and looked to get the link , i cant find the article , let me see if i can get it from another source .. ( I knew i should have bookmarked it ) ..

     

    later....
    10 Dec 2013, 09:19 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4548) | Send Message
     
    Author’s reply » Rico,

     

    i was able to find this link , (its not the one that had the short interest chart) --it contains a statement in there about the increase in short interest and that its the highest since mid' 12 ..

     

    http://bit.ly/1cyuT56
    10 Dec 2013, 09:32 AM Reply Like
  • Rico Kastilani
    , contributor
    Comments (161) | Send Message
     
    Thanks F&G!
    10 Dec 2013, 10:31 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (4548) | Send Message
     
    Author’s reply » From Gluskin Sheff research :

     

    @GluskinSheffInc: Household survey shows that full-time jobs soared 612k in Nov to stand at 116.928 million – the highest level since Dec 08
    10 Dec 2013, 02:31 PM Reply Like
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