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.