Well he is very optimistic from Friday's action. His guest (Brenda B) also dismissed the idea of a recession showing growth in income. Smart people. Here's the but.....financial services industry and housing led our last business turnaround and are suffering deeply. So, I'd ask this, "Where is the employment leadership going to come from after the housing/financial services leadership?"
So, a glib answer of growth in income was glib and rear view mirror.
17 comments:
Leisa, great comments from you. I'm happy you've recently increased your postings. I went into 95% cash in July and I'll stay at that level for some time. I would rather be out wishing I were in, than in wishing i were out.
I remember 2000 all too well. I was lucky enough then to have moved mostly in cash during April 2000, but rode CSCO, AOL, and a few other techs into the abyss. Keep up the good work, you make a lot of sense to me.
Mark, good luck with your model and thanks so much for your comments.
Mrmockbird
Mrmockbird--thanks. Life is settling down a bit, plus I've been busy with my own account managing some day positions. Due to their short term nature, I have to be rather vigilant.
"Where is the employment leadership going to come from after the housing/financial services leadership?"
Simple answer: Manufacturing.
Current FCB data is indicating that the next leg of the economic cycle is going to be upward and propelled by volumetric increases in American productivity.
Expect the S&P to rise 10-15% over the next 12 months as a result of this and other forward looking data.
Regarding growth in income: There has only been one month in the last 24 where growth in income was negative (April 2007) and this was seen, at the time, as an aberration of the Fed calculation method. Past 6 months average growth has been $61 billion, and $52 billion over the past 12 months.
Income growth is considered one of the "more significant" forward looking data points tracked by economists. You would be well-advised to follow this number each month as a barometer of the intermediate term future.
Leisa,
The last poster on this topic may be on to something as far as mfg is going. I have been in that world as
a job shop owner (machine work) for nearly 40 years. I have seen the cycle favor us & hate us several times over the years. To put it as simply as I know how, every time construction goes in the tank we get insanely busy. At the present time we are gearing up for a lot of work in the Nuclear Power world. The US has 102 reactors & they are old, new ones will be build & the old ones are currently being updated. Kaiser Alum in Richmond who took over the old Reynolds Extrusion plant down at Bellwood is spending money on automation like no tomorrow. We are right in the middle of that also. I have a friend in Cincinnati who rebuilds mfg equipment for Caterpillar & they too are booked. This scenario that I am laying out here is a major departure from the last 7 or 8 years in my world & that of my friend.
Both of us are past retirement age
(65) but are having too much fun now to quit. My second hobby has been real estate which I was lucky to exit in 2006. Right now I dabble a little in the markets but most of my powder is dry. 85% treasuries which makes me feel as if I am on a slow bleed.(Inflation)\This is getting too long of a post!
Vavoline6
For whatever reason, by 2000 before the crash, I was completely out of techs. I knew it had gone too far.
That said, I went substantially into cash -- over a third -- starting by the end of December 2005 ending in early 2006. I've been waiting for this big correction that a lot of us are waiting for. I left tech a year or so early, so I decided I didn't mind being early again.
The truth? I would been far better off if I had not sold my positions in starting in 2005. Even if the market corrects 25%, I sold off positions that have soared. Two of my previously held companies' stock prices have doubled since I sold them.
Recently I started nibbling. I've bought some companies that I thought were at good values and pay good dividends. BAC and GE are two examples. Maybe I'll be telling myself very soon that I should have waited longer.
As for the other good companies that I sold? I keep hoping that we'll have that correction many of us expect so that I can buy them back. But guess what? I''ll be buying at a higher price than I sold them for. Much higher if one adds in the taxes I paid in my taxable account.
I've decided that if one is dealing with solid companies with long histories of reliable earnings and steadily rising dividends and stock prices, it's better to be a buy-and-hold investor. Endure the downdrafts; smile during the good times.
And keep collecting those dividends!
G/S-
And hopefully you have learned something about TRUE DIVERSIFICATION since we last chatted. The SP500 can tank by 20%; G/S' Portfolio can increase by 10%.
People really REALLY need to get beyond this Index thing. It's an intellectual trap.
M
M,
I'm still trying to get good at the notion of owning non-correlated asset classes. You're the one who opened my eyes on that point. I'm very grateful for that you took the time to do that. It is a point that NO one -- except you -- makes.
Thank you for the reminder.
G/S
Great comments.
M/others, perhaps you could speak to this: Aren't non-correlated assets part of broad diversification? Cash, stocks, bonds, real estates and precious metals are part of a diversified portfolio that would be "non correlated". Within stocks, underweighting/overweighting among different sectors favored/not favored also smacks of non-correlation, unless I misunderstand.
Income/growth: agree that it is important, however isn't it a lagging indicator? Personal income growth for the 2nd quarter is below trend.Other data suggests that the growth in personal debt has done more to fuel consumption than the growth income/wages. Perhaps the real tell will be how that dynamic continues to function.
Manufacturing: (Ignorant question? Who/what is FCB?). The ISM index has declined for the last three months.
Gemmastar says : "I've decided that if one is dealing with solid companies with long histories of reliable earnings and steadily rising dividends and stock prices, it's better to be a buy-and-hold investor. Endure the downdrafts; smile during the good times." This is where I think periodic portfolio re-balancing makes sense--taking profits out of stocks in favored sectors and ploughing them into lagging sectors that are offered at good prices. GE went from $60 to $22.5 @ it's nadir in 2000. That's a hell of a downdraft! I like John Hussman's hedged approach--the real tell of a money manager is their returns over a full cycle. BC also advocates put and call selling. Selling puts when market goes up; selling calls when market goes down to enhance returns and buy good stocks out of favor at a good price.
FCB stands for Federal Census Bureau. The numbers are actually released by the Bureau of Economic Advisors before the census bureau gets a hold of them.
ISM indices are staying above 50 which is indicative of expansion. Until they fall below 50 for at least two months, they are considered a positive sign. Income growth was lower in the most recent reporting quarter due to the April aberration. May personal income increase was 50.5 billion, June was 51.7 billion. July numbers are due on August 31.
Favored/Non-favored as non-correlation? That hints of reversion to the mean to me. Yes, you can have weak correlations in the same asset class, though. Utilities often have ZERO correlation to the SP500, for example. Health care very low correlations. Energy too. REITs (because of the part equity/part bond qualities) have low correlation. Unfortunately the Great Search For Yield has driven up the price and correlation of many of these, as per a previous post.
M
M, reversion to the mean? Kinda/sort of. Isn't reversion to the mean in a derivative sense? Economic cycles revert to the mean--as it moves up or down it will take the sectors that typically go up/down with it. Calling it just reversion to the mean, IMV, would be inaccurate.
Asset classes become overvalued and undervalued as do sectors. They then revert to FMV or the mean. IMHO, it has little to do with the concept of correlation and non-correlation. Can you give me a concrete example of what you are thinking of? If everything was as simple as Cara and Dagnino postulate about cycles, they wouldn't be writing blogs and struggling for commercial sponsorship.
M
"If everything was as simple as Cara and Dagnino postulate about cycles" It never appeared to me that either of them considered it simple.
We all have our biases and mental blinders. Did you think of a concrete example or did you just settle for the retort?
Next Tuesday begins live testing blackout period.
Thanks to your readers for listening.
MarkM
MarkM: I did just what I meant to do: address a cheap shot. I suppose that everyone has to talk their book. Good luck on your endeavor.
MarkM,
Tell us more! We're interested -- we newbies in particular.
G/S
MarkM:
I second G/S. I remember the original exchange, but I couldn't find it again.
Penny Shilling
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