The transports seem to be the focus of the news today and they suggest that the markets may be overbought. The concern for the transports and what they are saying reminded me of a once influential barometer of growth, the Baltic Dry Index. This index has been left far in the rear-view mirror. Those who forgot the Baltic Dry Index may end up losing the most. Yes the Index is broken to a certain extent, but the underlying reason that the Index has become broken is the true point of dire concern. Taking a look at U.S. equity markets and the markets abroad, in particular in the emerging markets, we see a massive run up. This implies growth has occurred and growth expectations persist. Comparing this to the Baltic Index, the barometer of shipping throughout the world, these growth stories just do not match up. If the economies are growing throughout the world (excluding Europe), as many experts are suggesting, why is the Index obliterated. The index does have an influx of ships due to the expected growth that was cut short by the 2008 financial crisis, but if that were the case the declines are still not reflective of the global growth story. Markets throughout the world happen to be pricing in dramatic growth, but the index through which much of these goods are shipped is pricing in decline. The story does not add up and should make even a die hard bull leery.
“Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body – the producers and consumers themselves.” – Herbert Hoover
With all the talk of Apple in the news, it seems that the tech giant Amazon has been left behind. Apples previous quarter performance was stellar, and that of Amazon was lackluster. A war has been waging between these two tech giants, and it looks like Apple has won another battle. The war has just begun and the final battle is going to be years in the making. To support this argument the kindle fire must be considered. Many believe that this tablet is no competition for the iPad, those critics are correct. What the critics fail to grasp is that the Kindle Fire has no desire to be the iPad. The Kindle Fire falls into its own bracket and attempts to capture a different part of the populous that cannot afford the iPad, or may just not want a bulky tablet. These critics (or die-hard Apple fans) of Amazon fail to realize that in may take the second or third Kindle Fire to begin truly capturing market share from Apple, but when it does it will be a battle to the death. Imagine if the first iPhone had come out in a market with other smartphones that had similar capabilities, it would not have survived because it was not by any means exceptional. In fact it was extraordinary because it had no competition. Apple went on to critique the iPhone product and that is why they sold the 4s so well last quarter. When Amazon critiques their Kindle they will be a force to be reckoned with.
“Success is a lousy teacher. It seduces smart people into thinking they can’t lose.” – Bill Gates
Buffett somehow gave the impression that he hated the gold medal and bonds. This is merely a misconception that the uneducated have formulated. The point that Buffett was trying to make was simple, money idol becomes money wasted. Gold represents a medium, a currency, a means of exchange. Buffett has no concern with his capital (his currency), he cares about his return, his gain. Idol principle is merely an obligation, because one must find another place to put it to good use (another investment). Buffett has returned to the basics of investing, the ideals that have made him successful. These same ideals made those before him millions and will make those after him billions. It is this idea that money should be used to make income and gain. Yes gold has had a gain for a time being, but is this sustainable like an industry like oil, which we are dependent on into the future? The answer is no, means of currency fluctuates over time, just ask those who bought gold at $250. My point is not to say gold, fixed income, or even storing money under your mattress has no purpose. Rather, my point was to bring at the ideals which Buffett was conveying in his statement, the basics of investing. It is these basics that led us astray in the past (look at 2008). Buffet was looking at the long term future of gold, where it would be in ten years. What he was doing was making the masses aware of the bubble, and by all means ride the bubble. Just make sure that stop is handy.
“Concentrate your energies, your thoughts and your capital. The wise man puts all his eggs in one basket and watches the basket.” – Andrew Carnegie
Investors and analyst as of lately are pushing the idea of markets being undervalued here and abroad. These barons of the market use the P/E ratio as one supporting pillar of their argument. This argument is an easy one to buy into due to its appealing story and the recent market uptrend. Though taking a look at the data, a different story unfolds.
During recessionary and recovery times we see P/E closer to 10 then 20. Those claiming that the market is undervalued due to the P/E ratio are misinformed. Taking it a step farther the “Great Recession” in P/E terms does not look to be a great anything, a more dramatic downside should be obvious through the statistics. The recessions of yesteryear had a greater effect on P/E for an extended time period. Comparing current times to those of the great depression (the only similar economic time in history) another pull back in the P/E may be due. To get to the point, the S&P may be dramatically overvalued contrary to what many of the leaders of finance say. The information above suggests a pullback rather then any further momentum upward.
“Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.” – George Soros
Obviously the auto industry in American is seen as a key to a better America. It just so happens that maybe auto makers are focusing their growth abroad, for example the “imported from Detroit” slogan. With GM earnings coming out recently and showing a loss of $700 million before taxes concerns should be raised. The growth of GM, Ford, and the list of many others hinges on Europe and abroad. Investors fail to realize that these markets are going to come under pressure in the near future. Europe is on the brink of a recession and if they enter into one many of these emerging market companies will follow. GM numbers this morning gave insight into the real situation in Europe and abroad. Many ma argue that the growth of the autos is far beyond Europe, but they fail to realize the repercussions a European recession will have here and abroad. The autos are telling the markets something and have been for a while, the U.S. recovery is threatened from abroad.
“It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”- Harry S. Truman