The stock markets around the world are gyrating daily based upon the news at hand. Just this morning the U.S. Labor Department reported worse than expected employment numbers, and the biggest disappointment was that of the 431,000 new hires in May, 411,000 were temporary census workers for the federal government. This is explains why only 20 percent of Americans consider the economy in good condition, according to an Associated Press-GfK Poll conducted in mid-May.
Closer to home, I received some conflicting economic news. I had a conversation last night with a local business owner whose may be shutting down. Then this morning, my office manager tells me about a local electronics manufacturing company that does work for companies across the U.S. This particular company is seeing signs of improvement; however, when they go to bid on particular projects, some of the components needed are no longer readily available. The suppliers have gone through their inventory, and it can be up to a six-month wait for new components. It’s a double edge sword in that you’ve have the potential for new orders; however, they can’t be completed for many months out because the components are backordered. Thus, any profits for this local company are now being pushed out for many months (i.e., a sale that normally would have been completed in 30 days is now taking six months or longer). Thus, the economic recovery is being delayed due to manufacturing backlogs or bottlenecks, and many of these manufacturers are holding off hiring new employees until they feel more certain that the flow of new orders is sustainable and not just a short-term spike.
In spite of this disappointing employment report and economic problems in Europe, there is some good news.
- Caterpillar announced this week that it was buying locomotive maker Electro-Motive Diesel. Essentially, Caterpillar is betting that freight transportation will grow as the economy strengthens.
- I read two separate articles in yesterday’s Wall Street Journal that illustrated examples of various businesses in the U.S. and Germany that both are experiencing strong orders from various regions of the globe. In each instance exports (i.e., sales to overseas entities) seemed to be the driver for much of the new orders.
- Also, Bob Doll, vice chairman and chief equity officer at Blackrock (a large international money management firm) noted in the May 31, 2010 Barron’s Magazine that the recent market volatility has created some attractive valuations that could spur buying once the European debt crisis subsides. In addition, he still sees the S&P 500 ending the year at 1250, which is approximately 13.34% higher than where it closed last night. He believes that good corporate earnings will fuel the further rise in stock prices this year, but currently there are other prominent diversions drawing our attention away from this.
It’s tough medicine to swallow, but you may feel better in the years to come!
Some nuggets to take away from all the plethora of economic and market news items are:
- European countries are taking steps to cut spending and get their economic houses in order.
- Across the globe, China has recently put measures in place to cool its overheating housing market.
These are painful scenarios in the short-term, and we see their respective stock markets decline as a result. However, it sets the stage for much more stable economies and strong stock markets in the years to come. Some analysts believe that U.S. political leaders need to find the intestinal fortitude and cut spending, prudently review any tax increases and focus on policies that promote economic growth. Unfortunately, these same analysts fear that most politicians are too worried about their electability in the short-term to actually implement hard choices now.
I believe the recent market volatility can shake investor and consumer confidence, and also create bargain hunting opportunities. Profits avail themselves to those investors whom show patience and/or even make strategic purchases in the midst of this market volatility. Honestly, I’ve had only two phone calls from clients regarding the recent market decline. I hope that it is a result of them realizing that a one-month dip is not unreasonable when the stock and bond markets have had a tremendous rebound from their lows of 2009. Long-term economic recoveries and bull markets are built upon steady advances mixed in with occasional setbacks, whereas bubbles are the result of overly optimistic upward movements with little to no setbacks. I would rather have the former versus the later.
The pickup truck indicator
CNBC reported today that pickup truck sales were up 50 percent year-over-year. For many investors, they may not care unless they own an auto stock. However, that’s a huge sign of strength for American small businesses, according to AutoNation Chairman and CEO Mike Jackson.
“Pickup trucks are bought by small business entrepreneurs who have their finger on the pulse of the US economy…It’s an expression of confidence in future of economy. They don’t buy until they see the prospects for business are brighter,” Jackson stated on CNBC Squawk Box.
It’s worth noting that these sales have no impact from government stimulus “Cash-for-Clunkers” money, and some of the hardest hit areas of the country are also seeing outsized gains in sales. Auto sales in Florida, for instance, jumped 38 percent, while those is California climbed 24 percent.
Any uptick or pickup in small business is a great sign for the economy and investors!
Points to Ponder
“We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend … Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.”
Warren Buffett, The Wall Street Journal, March 1, 2010
“We’re in the early stages of a long-term recovery in global M&A volume. Historically, you see that the upcycles last five to eight years, and the downcycles typically two to three years. We have just come through more than a two-year down cycle, and it is clear to me that we have turned the corner.”
Roger Altman, Barron’s, February 8, 2010
Quotes
“You must have long-range goals to keep you from being frustrated by short-term failures.”
Charles C. Noble, naturalist
“In a few minutes a computer can make a mistake so great that it would take many men many months to equal it.”
Merle L. Meacham, professor of psychology
“There is nothing wrong with making mistakes. Just don’t respond with encores.”
Author unknown
“The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.”
Mark Twain, author
Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
If you enjoy the commentary and believe others may benefit or find it of interest, please feel free to forward it on. Also, interested individuals can contact us, and we will be happy to add them to our mailing list.
