With unemployment still over 9% investors remain skeptical
Without beating around the bush—we think this is the beginning of a significant move up in stocks. But we understand why investors remain doubtful.
This chart shows two pictures of the economy: the bears believe one line and the bulls are looking at the other line. We have to admit we never thought a 9.5% unemployment rate and record consumer spending could happen at the same time. But the numbers don’t lie.
It appears that the 90% who are working have never done better, but the 9.5% out of work face a bleak future.
Both numbers help the profits of large companies: sales are good and labor costs are down. This is not a good long-term way to build an economy, but as investors this is the world we face. As long as profit growth remains strong, the stock market should grind higher.
Lowry Research, which we have referenced before, does a great job of looking inside the market and discovering the forces of supply and demand that drive prices in the short to medium term. Rarely have they been more bullish than they are now and their numbers support that view. Buyers have been very active since June and selling has practically dried up. It is as if the last nervous investor threw in the towel in June.
Lowry did a very good job of spotting the market top in 2007, so we are inclined to take them seriously.
So profits are surprising on the upside and the market is technically healthy (Lowry’s view) — what’s not to like?
We are shifting back into international investments, but the emphasis has changed. In 2009 we were heavily invested in resources and countries that supplied them. Now we are putting cash to work in areas that favor consumers in developing economies, plus financial centers in Asia. Both the consumer and banks in these regions missed the entire boom-bust cycle in real estate and mortgages. (They will probably produce the next crisis, but that’s years away)
July was an excellent month and August has begun well—a result no one, and we mean NO ONE predicted. We don’t know what will happen in the short-term, but stocks with earnings growth look like the place to be over the next 12 months.
Best regards,
Daniel A. Ogden
