Don’t Fight the Tape in a Rising Market
07/25/2007 12:00 am EST
Jordan Kimmel, managing member of Magnet Investing Group, says all signs point to higher stock prices, even amid all the gloom and doom in the financial media.
Nothing is more bullish than a rising market. We have seen this year what many were waiting for: a Dow Theory bull confirmed market—that is, new highs on the Dow Jones Industrial, Transportation, and Utility Averages. And remember, all of this is happening in the context of record short interest, a disbelieving public, modest valuation, and record cash on the sidelines. Corporate balance sheets are strong. An environment like this is where wealth is created for equity investors.
Currently, fears of high energy costs and the declining dollar are getting media attention every day and are keeping the public on guard waiting for better times. What does not get enough attention is the ability of our large multinational corporations to sell their goods and services abroad. In fact, while our trade deficit is at an all-time high, so are our exports. Our own factories are humming and our economy is operating at full employment.
Not only has there been tremendous growth in the overall world economy; the rate of growth is accelerating. Over the next several decades, there will be literally billions of new consumers entering the market. These consumers will want everything from refrigerators to digital cameras. The increased use of the Internet is also accelerating developments in almost every field from agriculture to health care to technology. Regardless of which political regime is in power in any part of the world, the general population wants to participate in the free market and make strides to increase their family’s standard of living.
For now valuation is modest and all signals suggest higher prices. We are seeing more companies being taken private and buying back billions of dollars worth of shares. It is important to note the deals are taking place with cash. Strangely, analysts and market strategists alike are all seemingly afraid to be bullish.
The reality is this is a bull market that the public still does not believe in. Right now, relative to the total capitalization of the stock market, the cash sitting on the sidelines is at an all-time high. Now, with a rising stock market, and the media beginning to talk about all-time record highs, the public will soon be interested.
There will never be a shortage of scary stories for the media to cover. Neither will there ever be a shortage of “the sky is falling” newsletter writers finding ways to keep the public waiting for the next shoe to drop. Today’s story of the day is the troubled housing market and the subprime debacle. Mr. Market, [however], has a much better track record. So, look forward and reap the rewards this market continues to offer.