Positive trends and under-told stories

A great jazz or ballet dancer requires strength, flexibility and grace. She or he also possesses a special mindset. My daughter returned from an out of town dance workshop totally jazzed. She learned a lesson she’s heard in different ways. This time it clicked. Her dance instructor said “You’ll see it when you believe it.”

Too many times investors do the wrong thing at the wrong time. Today, it’s “I don’t feel comfortable. I’m going to stay in cash until things look better.” Life is rich with uncertainty and volatility. Some folks are waiting that magical ‘all clear’ signal to ring before they get back on track with their financial and investment plans. Human behavior can interfere with success.

The wall of worry stands tall. Some problems have yet to be resolved, and others are at a turning point. It’s interesting how two people can look at the same situation (problem) and arrive at opposite conclusions (solutions). Often it’s due to different perspectives, biases, or information.

Plenty of ink has been spilled on bearish outlooks. Pay attention to data and trends that gets little air time. That way you’ll continue to be prudent investors – protected on the downside and poised for upside surprises. I’ll share four under-told stories.

Lots of Dry Powder – ‘Safe money’ eventually finds a more profitable place. Significant liquidity sits on the sideline including $2.1 trillion in US corporate cash, money supply bolstered by QE, bond holdings (e.g. a $1.2 trillion spread of US bond mutual funds as stock fund investors bailed), and foreign cash.

Deleveraging – Private sector debt is declining. Household debt service ratio has declined from a ’07 high of about 14% to about 11%. Lower debt service fosters economic growth. Ned Davis Research estimates (April ’80 to Sept. ’11) during periods of a high debt ratio (over 13.3%), nominal GDP grew at about 3.4% per year, and nonfarm payroll gain was flat. For the 11% -13.3% range (you are here), GDP grew about 5.4% and n/f payroll gains were about 1.2%. State and local governments have made lots of headway. The Feds… hmmm.

Watch What Consumers Do, Not Say – Consumer Confidence is low but rising (now in the 60’s) yet we’re spending money (yr-over-yr retail sales is 7%-ish, a huge spread). CC is a contrarian indicator (tendency to buy high, sell low). From 1968 to 2011, during periods of ‘pessimism’ (CC under 66), DJIA gained 13.7% annually, and when ‘optimistic’ (CC over 110), the market lost 0.2%. And, the stock market is historically a leading indicator (markets rise before the economy).

US Manufacturing Renaissance? The demise of America might be largely exaggerated. We’re a leader in innovation. Analysts expect 4-9% growth in auto sales for the year. And the US PMI (Manufacturing Purchasing Managers Index) continues to grow and accelerate (about 53 for past 2 mos.), emerging markets grow (from contracting or slower), and Eurozone contracts.

There are positive trends. And while I’m no Gene Kelly, successful investing takes skill, good behavior and faith in the future.

This entry was posted in Uncategorized. Bookmark the permalink.

Comments are closed.