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 ¼ 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?