Since the stock market is down so much I have been buying something in the fourth quarter almost every week. I have been patient and have been expanding my watch list. The difficulty for me is that I feel like almost everything is on sale -- but is everything a bargain?
Maybe not; maybe I'm delusional. Perhaps that is because I am tuned into another time and place when I would have been dancing in the streets if I were able to acquire Anglo American ADR (NASDAQ: AAUK) or General Electric (NYSE: GE) for pennies on the dollar. Maybe that is all these stocks are worth? That is what Wall Street currently thinks. That is what Main Street currently thinks. There is a lot more bad news than good.
Then why is Warren Buffett buying, and Carl Icahn and Ken Heebner? After all, I'm just following in their shadows.
The reason is that most investors are simply focused on all the bad news. That is what has most folks' attention and that is making the market -- bankruptcies, billions of dollars in losses, government out of control, Wall Street out of control and more. There is also serious fear things will get worse. If you lost money in the stock market (all of us), or lost your job or your house or any combination of the above, then things look bleak and for now they are. However, we should not be investing for now; we should be investing for the future.
Consider the following elements that support a recovery in the next year. I do not mean a boom, just a recovery -- just a more positive investing environment.
1) By spring it is estimated the government will have poured $2 trillion dollars into an economy of $13 trillion over a 12-month period. Not only is this a market stimulus, but it may prove to be highly inflationary, and if so equities are a better place to be then cash.
2) The Federal Reserve has lowered the Fed rate to zero. It is also doing everything it can to push home interest rates to 4.5%. I refinanced my house two months ago for what I thought was a good 5-year fixed rate, now I'm refinancing again. I simply have to take advantage of the low 30-year fixed opportunity. There is going to be a landslide of this activity. This will help keep homeowners in their homes and put more cash in their pockets. This will also contribute to a stabilization in the overall home market.
3) Oil prices have crashed from $147 a barrel to as low as $35 a barrel, and prices at the pump for gas have dropped to a national average of $1.65 for regular unleaded. According to all accounts, this will help the economy to the tune of a billion dollars a day, and it will keep more of the money here.
4) The job market stinks, unemployment is rising and looks like it will continue to rise. However, it is sad but true that labor is a primary expense for every business large and small, and lower labor prices will help those that survive turn around. They are consolidating, and in many cases, taking advantage of a bad situation under the cover of the economy. No one is expecting an increase in salary or benefits this year.
There is more, but just give some thought to these powerful economic drivers. A huge influx of capital, rock bottom interest rates, a stabilized housing market and reduced labor costs. Now add the fact that commodity prices have crashed across the board and, starting in the third quarter, the earnings comparisons are going to improve based on the past year's poor showing.
So maybe there are some bargains today!
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of AAUK and GE stock.
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Reader Comments (Page 1 of 1)
12-26-2008 @ 8:43PM
jd said...
You have made a fallacious assumption: that the hyperinflation which will be introduced by the Obama Fed/Treasury will translate into higher stock prices. While it will cause inflation at home (like Zimbabwe's government did), the value of American equities will fall off a cliff because we are in the early stages of a DEPRESSION. Inflation is the leading indicator. The dollar will lose about 40% of its value against the euro, thanks to an idiotic Fed and Treasury, the leaders of which should be hanged for treason against the American taxpayer.
12-27-2008 @ 4:27AM
Bill said...
I don't think inflation will be a problem in the short term, probably the contrary at least for the next 12 months or so. Why not wait it out, till we hit a firm bottom, this could be a suckers bump on the way to a dow at 6,500. Check out this could trading site I found www.freetradingquiz.com gives you a free trading profile and some cool free stuff.
12-27-2008 @ 6:09AM
Wyant said...
When do we know where a firm bottom is? We don't, nobody does. I'm with Sheldon, though I may be wrong, only time will tell. I believe we have already hit bottom. As for all the talk of a depression, it's not going to happen outside of Detroit. That is the fear and anxiety talking, and that is why stocks are so low right now. It's all about fear.
12-27-2008 @ 7:01AM
al coholic said...
I never would have believed it but the reality of our situation is that inflation is the least of our concerns right now.
For decades now it has been assumed that consumers would buy goods even before they could afford them lest prices rise. Because everyone expected prices to rise forever it made sense to buy more house than you could afford since it would increase in value about 10% per year. Nobody waited to buy anything unless they had to because they knew it would only cost more if they waited.
People are now coming around to the notion that if they wait a while before purchasing things they may actually get cheaper. This is a 180 degree change in our buying habits which, if it continues, will have a profound effect on the entire world's economy.
That effect will be deflation. And it is a lot scarier than inflation. That's why the Fed has unleashed the helicopters.
12-27-2008 @ 10:05AM
Kerri said...
The consequences of spending $5-7 A DAY more than we earn(look at the $50 - 70billion a month trade deficit), for every man woman and child in the country (that's 300 million), for the last ten years, are becoming evident. Now the new man at the helm is proposing we spend even more than we earn(did I hear a $800billion rescue package?). Isn't that rather like having a drink or two to cure last night's hangover? We would still be alcoholics. The only logical answer(except one) is that we have to accept a lower standard of living...Not by much, but we cannot continue to spend more than we earn.....There is one other solution, produce and sell more, but is that likely? Xmas is over folks!
This is why you have got to start thinking about yourself. Do what I did, and learn to trade the forex. If you don't know how, you can get a $100,000 free demo account by going to http://forex-currencyexchange.com click the link at the top left corner, if I remember correctly. It will take you to a sign up page where all you have to do is give your name and email. You can then start practicing trading. Trading with virtual money is so much fun... and addicting. The only problem is, more often than not, you will be wishing you were trading with real money. You never know, this may be something that you have a knack for, then go ahead and try your hand at it with the real stuff.
12-27-2008 @ 8:02PM
Bobby said...
Ah yes, the gloom & doom.
Ask yourself, is a contracting GDP all that bad? Over zealous pricing is what got us here, the opposite will lead us to stable ground again that will allow a level playing field for yrs to come.
Even the Saudis understand their mistakes on this one, they need revenue as well. Just like the Hunts drove the pricing of silver decades ago, there are inflationary lessons learned by all.
Serve some suffering up to every single one of us, let's all take our lumps together & develop a slow growth future. Outside of that, you'll see these same results occur within every decade....
12-27-2008 @ 6:21PM
william lindblad said...
Solid logic says buy the bargain. Old policy and usually bears fruit. However, in the present case we have something never seen before.
Economic problems of the past have always been cellular and impacted areas of the world - not the entire globe. Therefore, old thinking is not a sure bet. The potential of having deflation followed by inflation remains high. It is also possible that both with share the same stage. Logic says that this is unlikely, yet this has been on the mind of many.
The only certainty is uncertainty. Lack of confidence on the part of the consumer will continue to push the economy deeper into what now looks like an abyss.
Buying a bargain should remain a good policy - as long as you can recognize what is a bargain.