Sunday, September 27, 2009

Recovery or Not?

Alot of debate in exists in the financial community regarding whether the recovery is for real and ironically whether the market has already topped for the year. Its very interesting that the debate is so fierce. It seems so unlikely that the market would've topped out already with so many individual stocks that we follow still trading at upsurd levels. Heck our favorite play, AerCap (AER) has a roughly 4 PE. Plenty of other stocks still trade below book value.

Now its important that an investor doesn't just try to find a story that fits his thesis so that's always a concern that we're worried about. To us though, that seems to be what the shorts are doing these days. Check out this article from Minyanville.com. They are typically in the bear camp so it isn't too surprising to find an article suggesting a top, but all the jumbled up technical jargon in this report just seems like a stretch. Its been shown plenty of times that markets don't correct during a recovery at times usually going more than a year without a 10% correction. The market fell off a cliff after the Lehman collapse near 1,200 all the way to 666 then why wouldn't is just as easily melt up back to 1,200. Heck I've never heard of the 'Pinocchio', but its the reason for the market top? Hmm.... This cracks me as desperation from a website and likely a contributor that has been wrong too long. So far we've seem nothing but a healthy pullback in an uptrend and calls like these support that case.

Then on the Kudlow Report on the 22nd, Larry Kudlow who I'll admit is usually way too bullish does a good job of outlining the leading economic indicators from both the Conference Board and the ECRI. The weekly ECRI report is up 25 smacking percent. That is an incredible number that hasn't ever been seen in the 40 years of the report. Regardless Gary Shilling has tons of reasons for why the economy isn't recovering. Yet, it's almost undeniable that a recovery is underway. Considering the scale of the decline I don't understand why so many want to argue against the recovery. Of course we have weak areas and concerns in the economy and especially the jobs market, but that's typical of a period after a recession. Even Cramer was somewhat negative about the market on his Friday Mad Money show because he is concerned about whether the September jobs report will beat estimates of 180K yet it is almost unlikely that we'd see a worse then expected report and its definitely unlikely that we'd see a worst then August report. As long as the trend continues in tack, its difficult to see the market not continuing up. So many companies overcut that now they must hire back. Once the ship turns its just so unlikely that the recovery stalls at-200K jobs with weekly claims only getting back to 530K. Weekly claims will undoubtedly return to 350K if not lower and we'll see positive jobs reports. So why the week to week and month to month sweating. The numbers will fluctuate, but the end goal will be achieved.

What's also striking is the exchange in this video where Shilling discusses being correct last year as opposed to Brian Westbury and hence not only does he have more credibility but then he leaves the caveat that it almost doesn't matter if he is wrong this year because he got it right last year. It almost sounded like a concession speech from somebody to bullheaded to change. And if anything we've learned from the last 10 years, it seems like guys that get it right in one direction hardly ever are able to switch gears. Westbury has been dead on the last 6 months regarding the V shaped recovery and I'd stick with the hot hand for now. Just don't stay too long we've learned. With the Fed flashing huge signals that they aren't going to let the bears win, it just seems unlikely that the leading economic indicators whether from the Conference Board or the ECRI aren't accurate. Just about all the numbers support blowout numbers for the next few quarters.













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