Markets in a Nutshell
March 8, 2010 Issue
Stocks gained last week. The Dow rose 2.3% and is now up 1.3% for the year. The S&P 500 was up 3.1% to push into positive territory for the year at 2.1% and the Nasdaq jumped 3.9% for the week and is up 2.5% for the year. The Barclays Aggregate Bond index remains in plus territory for the year with a 1.8% gain. Gold was up 1.4% last week and is up 3.6% for the year. One note on gold: although as we see more and more people calling for higher and higher gold prices and see headlines like "Should You Join The Next Gold Rush?", we start to wonder if there is too much short term bullishness and a pullback is coming.
"It's Not as Bad as You Think: Why Capitalism Trumps Fear and the Economy Will Thrive." This is the title of a new book by forecaster/economist Brian Wesbury (as reviewed in Forbes 2/8/10). Wesbury makes the case that while the current economic growth we are seeing is not soundly based (Wesbury believes economic expansions fueled by "easy money", such as super low interest rates and government spending, always fizzle out), the long term outlook for America is great. "..as it has so many times in history, America will climb from the ashes of the current crisis and move forward as an economic leader." Read on...
Wesbury also sees stocks as very undervalued with 15,000 on the Dow (it is currently about 10,600) a more fair value (this would be a 41% increase in stock prices from today). While we would debate a 15,000 Dow as "fair value" in today's economy, we agree on the long term outlook being positive (with a volatile short/medium term) as we work our way through the current "restructuring" of America's economy.
From the 3/1/10 Barron's comes an article on a potential investment that could "[create] lots of green for consumers and investors." That would be a massive modernization of the U.S. electric power grid (remember the blackout in 2003?). Barron's reports a Cisco Systems (tech company) executive saying that upgrade of the power grid (which was designed over 100 years ago) would need many high tech metering, monitoring, security, and communication devices. Read on..
Barclays bank believes annual spending on upgrades could hit $40 billion in 2015 (it is $10 billion today) and $100 billion by 2030. So which companies could be big beneficiaries of this? The aforementioned Cisco as well as software from Google, Microsoft, IBM, Duke Energy (metering), and FBL (utilities). As we have written before the tech industry right now is perhaps the financially healthiest in the country and could very well lead this economy over the next generation.
Housing prices are on the move up. Bloomberg Business Week (3/1/10) reports that average home prices increased 19% from a year ago. But it isn't in the U.S. that prices are moving like this. That would be north of there. As in Canada. And the 19% jump is for prices of homes in Toronto where the average home now sells for $392,000. Interestingly enough, even as the hot housing market enriches Canadian Banks, they have lobbied and have gotten stricter lending requirements passed by the Canadian govt (which is opposite of the U.S. during the housing boom here when banks lobbied and got looser requirements).