Be Wary of the Pundits...

Spring is upon us...at last! The approach of Daylight Savings Time - and more sunlight - is already improving my disposition and my outlook. Perhaps the markets will inhale a sense of new life as well.

Last night I stopped at the local grocery. As I stood at the checkout, I heard two girls talking. One of them was telling a story about some third party and her mother. The mother stopped the car in the middle of a highway and got out amidst oncoming traffic. The story seemed to get crazier and crazier. In fact, I really think the details were made up on the fly. As I got in my car to drive home I started to see a similarity between that story and the ongoing talk about the doom and gloom of the markets.

Many a pundit has indicated that tax returns and rebate checks will benefit the Chinese economy more than our own. My contrarian sense immediately kicks in when I here these comments. I mean, you don't need to be an economist to realize that goods are bought at a price, marked up and sold to consumers. The difference between the purchase and selling prices is called gross profit. This markup begins at the end of the manufacturing process and continues until the final enduser makes a purchase. If you think it through there are wholesalers, importers, transporters and store clerks that handle these goods and derive profit from their movement. Then there are the residual benefits - i.e. utilities, gas stations, etc - that benefit from the movement as well.

You could make convincing arguments that the rate of purchases are slowing down, that people aren't paid enough or that rising costs are making it more difficult to make ends meet but, that's a far cry from saying that only the Chinese benefit from our spending habits.

Ironically, very similar statements were made in the '80s concerning the effect of Japanese imports on our economy. And, as we decry sovereign wealth funds now, we decried Japanese companies that were purchasing American real estate then. The severe 10+ year recession that the Japanese have endured is a stark contrast to what the pundits were predicting at the time.

I am not suggesting that the Chinese economy should or will go into recession. However I do believe that when everyone is beating the same drum, it might be wise to step off the dance floor and watch for a while.

You see, I may be stating the obvious here but the markets never go to zero. Oh yes, they recede. [Right now, some analysts are debating whether the current slide is a correction or a change in trend.] Who cares? At the end of the day, it's an opportunity to search for value. It is a good time to turn over rocks. Look at the stocks of companies that aren't in the news everyday. Pick the Dow stocks (the blue chips) that have been beaten to a pulp. That is exactly what I'm doing this month.

Holy cow! I get so worked up I need to talk myself down off the cliff! :) So, let me get to my last points.

I have made it through the first of the core chapters. Several friends have been kind enough to take it for review and feedback; they are too kind. And, I've begun working on number two. The first chapter presented a simple plan for beginning stock investors. This chapter focuses on 401k investing. While I use my company plan as the model the tools will be useful for most.

Finally, here are my yield curve numbers for the month of February:
90 Day T-Bill: 2.10%
10 Yr. Bond: 3.73%
My chart - which I'll post next month - expands upon a positive trend that should begin to appear in the second half of this year.