My house-building effort has been wrangled into reasonable order, so I am finally catching up on reading. The most marked change from a few weeks ago is a rash of “Has the market topped?” commentary from a pretty wide array of reasonable thinkers. I read this as a sign the market has a ways to go (up) yet. Plus some other musings as I try to re-establish my bearings.
The old saw is that “the consensus” is usually wrong. This wave of doubt can be read as that (ie. wrong). But I’m making a more narrow point here.
- The commentary is coming from reasonable, thoughtful, fact based thinkers, The sort of person I like to track. The sort of person I like to think I am.
- The market is pretty reliably un-reasonable, thoughtless, and blindly indifferent to facts (until they hit too hard to be ignored).
- The “reasonable” people are reliably too early getting in AND out of the “unreasonable” market. I have learned this often, and painfully.
- The trick is to hold on well past the point you think things are “reasonable.” In my experience, this is usually still too early to actually sell but better than leaving at halftime.
- More cynically, the commentators are starting to shift position so they don’t look dumb. That shift usually occurs well before the turn. There is no public reward for being a bull these days.
I also think we will start to see more meaningful sector rotation before the market has really gotten tired.
- Dividend stocks are still at a premium. I’m waiting for money to shift into more speculative stuff. Of course, I happen to own a lot of speculative stuff this may just be wishful thinking.
- That premium is because “no-one” really believes in a revenue growth story for 2014-2015. Commentary is still mostly on whether margins can go higher or even hold where they are. The idea that revenues could actually drive EPS growth is rarely even discussed.
October’s surprisingly strong job’s report helps tie (likely) declining margins to (likely) growing revenues.
- Companies have exhausted their ability to wring productivity from an (equally exhausted) workforce. So they are hiring. This will depress margins.
- All those newly hired people will go out and spend their newly earned money. Which will increase revenues.
- Wall Street’s natural sympathy with the plutocratic side of the equation (margins) is blinding them to the fact that the revenues have to come from someone out there getting paid. Henry Ford famously (and probably apocryphally) set out to pay his workers enough to be able to afford Ford cars. A lot of people are going to have to re-learn that basic lesson.
As a final note, business investment remains low and a long-predicted M&A wave still hasn’t, ummm, waved…. Rising revenues = rising animal spirits = rising activity = more revenues. I still think we have a nice leg up ahead, but probably in more “growthy” sectors while the dividend story fades.
