Earlier, I posted a "Stock Talk" raising the notion that yesterday might have been the first day in which markets started to seriously question the stimulative value of QE2.
Concurrent with that, there appeared to be far more articles in all kinds of media sources around the globe talking about the US Congressional elections and not only how the Republicans are likely to win the House, but how they are already jockeying for key committee seats and leadership positions so as to push through an agenda built around three things: jobs, jobs and jobs!
I heard and read the term "shovel-ready" more times yesterday than in the past several months, with reference to the kind of job-building targeting fiscal stimulus that we need in the US in order to get the un- and under-employed (close to 20mm) back to meaningful work....and away from "hysteresis", that now overused (by me) term referring to the transition of "long term Unemployed" people into "long term Unemployable" people!
If in fact, the scales are shifting towards a view that compromise post-election is possible and can result in substantive job-creating work programs, that would seriously alter the "cautious" side of my current market view which is "cautious optimism" and change it, at a minimum, to "not so cautious optimism".
As I've mentioned in almost all of my recent articles, I remain quite long equities, though I've yet to fully reinvest the cash that I accumulated in the Spring before the Flash Crash. I've been slowly putting the money to work (buying on big down days) in stocks and ETF's that reflect my global macro view whose underlying theme is one of global infrastructure buildup especially in emerging countries, driving demand for machinery, farm equipment, resources, materials, IT and other business services.
That said, I've raised several red flags in the past few weeks about the markets' seeming euphoria over the prospects of a QE2 in the size of anywhere from $500Bn to $1Tr, and have stated repeatedly that the formula of
QE2=>lower rates=>economic growth=>job creation
seemed flawed, primarily in the causal effect of lower rates leading to final demand. Lower rates alone, in my view, will not create the velocity of money needed to stir up the supply that already exists, let alone another $1Tr of it. So if yesterday really was, in fact, a step in the direction of assets being priced to reflect a more sober assessment of the impact of QE2 coupled with the improving chances for job-creating fiscal stimulus, we might then be at levels where dusting off the "shopping list" of stocks that lie in wait on the "I wish I owned" or "I wish I owned more of" lists might make some sense.
As always, these views are meant to provoke thought, not to be taken as personalized investment advice. Each investor is required to decide for his/herself as to the appropriateness and soundness of anything written in these articles as it relates to his/her own unique financial profile, risk tolerances and portfolio goals. In my specific case, I've noted recently that my lists include companies such as AMR, GE, PKX, MMM, CMI and others that reflect a play on the global emerging growth theme. While I'm not convinced, yet, that it's time to open the floodgates of cash and pour it fully into equities, I am carefully evaluating my entry and re-entry points, because if "shovel-ready" is in fact the new "QE2", it'll be time to get the key out and open those gates.
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Disclosure: Long SPX and MMM directly. Client portfolios may be long all stocks mentioned. Positions could change at any time without notice.