Markets in a Nutshell
February 8, 2010 Issue
Stocks fell last week. The Dow dropped 0.6%, the S&P 500 0.7%, and the Nasdaq 0.3%. Gold pulled back 2.9% (about $31 an ounce to $1,052 an ounce. Below $1,000 may be an entry point for those looking to get in), and oil edged down toward $70 a barrel (closing down 2.3% for the week at $71.19, good for lower gasoline prices!). Moving up last week was the U.S. dollar (as we talked about last month) up 3% for the year, and U.S. Treasury Bonds, which after falling in 2009, are up 2.8% in 2010.
"Experts: Stimulus reduced our pain." This was a headline from an article in the 1/25 USA Today. The article goes on to say that unemployment and the state of the economy would be worse if not for the massive multi $trillion "stimulus" (the infusion of money into the economy) by the federal govt over the past couple years. While we would agree that the money poured into the banking system probably avoided a much worse short term situation at the time (quite a few including the "worlds greatest investor" Warren Buffet say that we were hours away from financial collapse in the fall of 2008), the $trillions poured into the system were borrowed and will have to be paid back (really what it does is "borrow" from future growth). So while our pain was reduced in the short term, it may very well have prolonged the time for a full recovery.
"Loosen Up Tightwads!" is another headline, this time from the 2/1 Barron's. This article states that since 1926, 40% of the annual return of stocks (S&P 500) has come from dividends. And although this ratio got skewed in the last quarter century (in the 1980's and 90's only 12% of stock returns were from dividends), the trend is likely to reverse over the next ten years. Barron's points out that many of the biggest and most profitable companies in the U.S. (many of them technology companies) do not pay any dividends (yet). Some examples are Apple (sitting on $40 billion of cash with no debt), Google ($24.5 billion, no debt), and Cisco ($25 billion, no debt). We expect that these type of companies will become the "blue chip dividend payers" of the future and thus are an area of good potential long term investments.
Can you picture this? It is the year 2036 and Cleveland (and the rest of the Great Lakes fresh water region) is undergoing an economic boom. Real estate values are soaring, jobs are hard to find as people from all over the country are moving in. As I see many of you snickering and scratching your heads at that seemingly unlikely prospect, maybe it is not so farfetched. Barron's (2/1) asks the question "Is Water the New Oil?" in its review of the book "Water: The epic Struggle for Wealth, Power, and Civilization." If so, those areas with plentiful fresh water sources (like those in the Great Lakes) would be the drivers of the economy. Stay tuned. We will likely hear more on this topic as the years go by and fresh water supplies are increasingly in demand. Already billionaire oil man T. Boone Pickens is hot on this, gobbling up acres of "water land" in Texas.
How's this quote from author Thomas Friedman (The World IS Flat): "French voters are trying to preserve a 35-hour work week in a world where Indian engineers are ready to work a 35-hour day." This is true of much of the burgeoning "emerging" economic world (India, China, Singapore, Brazil, Malaysia) which is a reason these areas will likely provide better investment returns (with higher risk of course) and higher economic growth rates over time. Although, I might add that while a 35-hour day will help you get rich, it can also push you into a early grave. Finding the balance is always the tricky part.