PATIENCE

I haven’t blogged for a few days and there’s a reason for that – there’s not much to say, nothing much has changed with the Market and its condition thereof.

As mentioned in a previous blog, the Dow Jones Industrial Average continues to tip-toe towards the point it reached right before things got really crazy last year (12,800).  First of all, it’s easy to be optimistic this early in the year.  There’s eleven more months in the year, material data hasn’t yet been released, and we just came off the holidays.  No new news is good news.  That’s one reason the Dow closed up 50 points today to 12,472.

Another reason is that the stock market continues to speculate about whether or not we are in a recession of if a “double-dip” is on the horizon.  Pundits, experts, and television promoters fuel this transparent debate.  Economic expansions are great for business, investment, and markets.   It appears that if there is no recession consensus there is no recession.  And for this misguided uncertainty, stocks continue to trade valuations above the action zone midpoint.

As I say in my book, take your cues from Market fundamentals not stock market activity.  If you do this you’ll always be ahead of “the market.”  And if you’re going to be ahead it, you have to be patient to make your investment moves.

Market fundamentals remain consistently negative.  Here are a few headlines from today’s Wall Street Journal:

  • Kraft Plans to Cut 1,600 Jobs, Raises Full-Year View (Paul Ziobro)
  • FDIC Proposes ‘Stress Tests’ for U.S. Banks (Alan Zibel)
  • China’s Growth Engine Declines (Tom Orlik and Bob Davis)

In a nutshell, more unemployment, continued concerns over the U.S. banking system, and more recessionary pressures from overseas.  None of this is good.

As WSJ journalist Timothy Aeppel so eloquently put forth in his article entitled: Man vs. Machine, a Jobless Recovery, “In no other U.S. recovery since World War II have companies been simultaneously faster to boost spending on machines and software, while slower to add people to run them.”  In other words, companies like Kraft are generating more profit with less people and more machines.  While that may be good for Kraft it’s bad for the market because consumers are market, and unemployment weakens them.

Now, I hate the term “jobless recovery.”  It is impossible to recover without an increase in jobs. Unemployed workers are unemployed consumers.  Knowing that consumers are market, it is impossible for markets to recover without consumers going back to work.  It’s like a high-powered engine without sufficient fuel.

And if you think the U.S. banking system is out of the woods then please think again.  The FDIC wants to test the risk profiles on several more U.S. Banks not because everything is hunky-dory but because they’re concerned about them.  The FDIC insures bank deposits – and I’m not one of those who believe in the $250,000 limit per account. Can you imagine the chaos that would ensue should banks not honor deposit commitments for businesses with million dollar accounts that are used to pay employees?  It’d cause pandemonium.  That’s why the FDIC is looking to perform risk assessments on banks – they don’t trust them – and perhaps they want to adjust their insurance premiums accordingly.  As an FYI, the FDIC had a negative net worth of $7 billion through 2010.  Even they’re on shakey ground.

Add to this the continued proof that China’s growth is slowing, that Europe is shrinking, and that inflation is starting to pressure U.S. profits, and what you have is one really ugly picture for stocks and markets.

Yet the Dow continues to hang around the 12,500 mark – more than 1,000 points above the action zone midpoint, or 11% higher.  That’s pure speculation and I caution you from buying into it.

Once again, investment is not about buying at the lowest and selling at the highest.  It’s about buying low and selling high.  “The market” is high here but specualtion can easily cause it to move higher (like it did last year.)  Prepare your portfolio for the opportunity that is sure to arrive.  But it still may take some time.

Patience is a virtue.