“We view this as fuzzy thinking. In our opinion, the two are joined at the hip: Growth is always a component in the calculation of value... In addition, we think the very term ‘value investing’ is redundant. What is ‘investing,’ if it is not the act of seeking value at least sufficient to justify the amount paid?”
Nevertheless, to placate our readers, both Art and I currently favor “growth” over “value” across the entire capitalization spectrum.
Speaking to the S&P Macro Sectors: At the present time there does not appear to be any particular leadership, which is one of the reasons investors, and the major market indices, are having such a difficult time.
Still, in parsing the sectors, the 3 that look best are healthcare, consumer staples, and technology. Technology is particularly interesting, since the tech sector has the largest exposure to foreign earnings and therefore should benefit from the dollar’s demise (though the greenback has firmed recently).
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For the last 8 years, however, my firm has avoided the marquee tech stocks, except for an occasional trading foray, often commenting that, “The leaders of the last cycle rarely lead the next cycle!” That stance has left us out of the Cisco's (CSCO) of the world; yet we have attempted to get at technology via “backdoor” investments in subsectors like Homeland Security via names like Cogent (COGT), L-1 Identity Solutions (ID), and Argon ST (STST), all of which are favorably rated by their respective fundamental analysts.
One of the more ubiquitous questions at the conference was about international investing. While my firm recommended substantially reducing international and “stuff stock” exposure at the end of last year for previously stated reasons, we have since warmed to them again given the substantial declines they've experienced.
That said, Art showed a particularly interesting chart in his presentation that was the S&P 500 divided by the SPDR MSCI AWCI ex-US ETF (CWI).
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The chart suggests that the US (domestic) markets have been outperforming most of the world’s equity markets even though it doesn’t really “feel” like it. As Art concludes, “I would have a smaller slice of international exposure and increase my ‘slice’ of U.S. exposure.”
The intellectual argument for this view rests in America’s improving trade balance driven by the boom in exports. Interestingly, our nation’s large trade deficit has tended to serve as the financing mechanism for many emerging economies. The fact that “prop” is now shrinking is a worth consideration. Nevertheless, for our international “slice,” my firm still likes open-ended mutual funds like Quaker Global (QTRAX), MFS International (MDIDX), Ivy Asset (WASAX), and Blackrock Global (MDLOX), to name but a few.
Unsurprisingly, during many of the conference’s sessions, I heard the phrase, “You can’t ‘time’ the markets.” To which I reply: “Total sophistry.” While true, it's nearly impossible to day trade with any consistency. My firm argues that, if you have patience, and wait until the trading odds are tipped so far in your favor that, even if you are wrong, you are going to be wrong quickly, with de minimis losses, you can indeed supplement the investing side of your portfolio with some opportunistic trading.
This strategy is reinforced by many of Wall Street’s premier hedge funds that do “trade” with a portion of their capital and have consistently produced returns that substantially beat the major market averages. To be sure, this year has been more of a trader’s market than an investor’s market, and my firm has attempted to act accordingly. For example, we were bullish at the January “lows,” cautious at the February “highs,” aggressively bullish at the subsequent downside retest of the January “lows” in March, yet cautious at the mid-May “highs” when we recommended shedding trading positions.
My firm got pretty bullish again around the beginning of July, sensing the “selling stampede” was nearing an end, and recommended that trading types purchase those groups with the worst relative strength characteristics since they had been compressed the most and were likely to give us the biggest bounce-back rallies. Unquestionably, those groups turned out to be financials and real estate; and given the HUGE rallies they have experienced since those mid-July “lows,” we have advised participants to reduce those “bets” accordingly.
The call for this week: The “Pros” return from holiday this week and with them the “volume” should also return, giving the SPX the ability to break out above its August 11th closing high of 1305. If that plays, our long-standing 1320-1330 price target comes into view - and maybe more.
But the time to be aggressively bullish was at the mid-July “lows,” not here. Nevertheless, with the “Gustav Gotcha” in the rearview mirror, and crude oil down $7 per barrel this morning, the pre-opening futures are dancing higher. Yet we’ve seen this act before over the past two weeks with the DJIA gaining 608 points, and losing 724 points, leaving the net change at a frustrating -116 points.
However, there have still been ways to make money, like the NASDAQ Biotech Index that “tagged” a 6-year high; as things continue to get curiouser and curiouser...
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