Daily Investment Interpretations

April 5, 2009

2009-4-5:  Perhaps I should reiterate the fact that we've been in a super-bear market since 2000, and that this will probably continue until 2016-2018.
    This week's cover of BusinessWeek shows a huge green sprout, with the title, "Signs of Life". Inside the magazine, the Business Outlook column, by James C, Cooper, is upbeat about a turnaround in the economy in the second half, after being grimly bearish in the past. Could it be that the economy is susceptible to being re-inflated? (The Fed can handle inflation far better than it can deal with deflation.) How could it happen?
    Consumers might be induced to spend if (1) they saw great investment  opportunities (e. g., distressed real estate) and (2) they weren't worried about losing their jobs. Fear of losing their jobs will be affected by what they hear in the media, and by what they see happening around them. They've saved a little money over the past few months that they could spend if they saw sufficient opportunities. Meanwhile, there's an enormous hoard of cash waiting on the sidelines for the propitious moment to buy back into investments that appear to be selling at fire-sale prices. Given the 25% surge in the popular stock indices, performance anxiety is driving more and more investors back into the water, further fueling this rally.
    Marketwatch' Chuck Jaffe has written an article, Hold the line, warning investors not to chase performance but to stick with their long-term investment plan. Investment plan? Hm-m-m. We've been in a super-bear market for the past 9 years, and can probably expect to remain there for the next 7-to-9 years, so buy-and-hold won't work. In the midst of this, we've entered into the worst financial downturn since the Great Depression--something categorically different from anything any living investor has ever experienced. We've seen the classic advice such as "diversify among asset classes" for safety fall apart, with all asset classes declining together. Furthermore, not only did the "uncoupling" of the U. S. stock market from the rest of the world not happen... the emerging markets were hit much harder than the U. S. equity market. In addition, the falling dollar has acted like a form of inflation with respect to the rest of the world. So what kind of investment plan are we supposed to have other than making back the money we lost? And some sort of market timing, in the form of stop-loss limits, is going to be required to outflank the super-bear market we're in.
    Toward the end of the article, he writes, "
While the market may have created a real bottom, this could also be a bear market rally." He concludes, "If there's one thing this market is taught us it's that even if we believe the long-term looks good, we have no idea what will happen next."
    Todd Harrison has written, Creating More Debt in a Debt-Laden World, observing that what the U. S. government is trying to do is to give the drunk another drink. The government is pumping borrowed government money into the economy to replace the shortfall from consumers until, supposedly, the economy revives, and consumers spend at a rate that will sustain the economy at some level. The problem is that we don't need to return to the kinds of insane real estate prices that were prevalent in certain cities such as San Francisco (and its exurbs), a few cities in Florida, and isolated cities in other attractive places. Even now, their levels haven't fallen to pre-bubble tariffs. Todd Harrison's point is that we have "to go through it to get through it", and returning to something like 2006 is going to leave us facing the same chasm that we faced in 2008. "
The only true solution for what ails our economy is debt destruction yet all we're seeing is an attempt to create more debt.
    Of course, the stock market will do what the stock market will do. It cares about next year's earnings rather than about debt destruction.
    With emerging markets beaten down even more than U. S. markets, emerging markets seem to me like a good bet for the future. So far, emerging markets have been stronly correlated with the U. S. stock market, but that need not always be the case. 
    Alternative energy is tipped for takeoff this quarter or more probably, next quarter. In the meantime, Suntech (STP) has already gone from a March 9th low of $5.16 to $14 a share, nearly tripling. (This is a consequence of the solar subsidy program announced on March 26th by the Chinese government.) Suntech stock hit a high of $90 on January 8, 2008. That's  more than 6 times its Friday closing price.
    First Solar (FSLR) has recently gotten the cost of their solar panels under $1.00 a watt (and is said to have brought production costs under $0.75 a watt in their Malaysian factory). Within a few months, First Solar may become a beneficiary of the Obama Administration's solar subsidy program. And over the coming years, I think the cost of solar power is going to continue to fall until eventually, solar power becomes ubiquitous. I could envision solar panels on laptops to keep their batteries charged. (I suppose it's even possible that laptops could be opened and folded out  so that both their tops and their bottoms could absorb sunshine.) One of these days, roof shingles may be designed with integral solar panels, and organic solar power films might sheath the sides of buildings. Solar panel production has been increasing by 40% or more a year. At that rate, in 12 years (by 2021), solar power production will have 64-folded, taking it from 0.3% to 20% of generated power. Furthermore, production costs drop 20% every time production doubles. That means that by 2021, solar power costs should be what they are in 2009. And, of course, it won't end there. The first ball point pens cost  today's inflation-adjusted equivalent of $150. Grid parity is already here in certain markets, and within the next five or ten years, solar power should be fully cost-competitive in most U. S. markets.

Todd Harrison on bright side
Cody Willard: Don't panic now
FDIC Seeks 500 Billion Loan
What Will Signal the Bottom?
Bears Out of Momentum
Randoms: The Roadmap Through Ruin
Kansas City Fed's Hoenig slams current govt. handling of bank crisis
Market Snapshot: Price-to-earnings ratios sink to historic lows, could fall more
GM shares reach 75-year low amid bankruptcy talk
Consumer borrowing rose unexpectedly in January
Huge layoffs push joblessness toward double digits

Are We Headed for a Depression?