Small Time Blog
In October of 2014 I wrote a piece called Evolution of an Investor, Lessons from the First Three Years. Those first three years were trying to say the least! Wading through all the lies and myths and trying to gain the necessary knowledge to get a foot in the door and actually make money from owning stocks. Trade is in the name of nearly every online broker leaving the unwitting to think trading is the only way to make any profits. Options or mathematical mysticism, whatever you wish to call them, are way over the heads of almost everyone, me included and I sort of understand them! Mutual Funds, the only way for the "common man" to diversify and manage risk, I found to be over-diversified dividend eating monsters relentlessly mashing up the dividends of their holdings and spitting out a small sliver for you, the mutual turtle shareholder.
The world economic picture is still one of expansion and not contraction. The presidential election, with all it's fireworks, does not change anything about the business cycle. That is why I am sticking with my macro forecast of continued economic growth world wide. Everyone is trying to prepare for the crisis that just happened and that clouds their vision of what is actually happening on the ground. In the 92 months since the market bottom on March 9th of 2009, there are 14 million more people working. Those 14 million people are spending money and even getting raises. Weekly applications for unemployment are at a 43 year low, according to the bureau of labor statistics.
The major indexes are marching toward the levels we anticipated way back in 2014. Why and how did I make such a prediction? First I considered that the sell off in '08-'09 took the markets to extreme lows and left companies sorely undervalued. Second, I looked at the Institute for Supply Management's manufacturing index and saw that '08-'09 produced the longest factory slowdown since the end of WWII and the third longest factory downturn in 75 years. I also considered interest rates on the 10 year treasury note reaching historic lows around 1.5%. The rates are low because the population of America, and the developed world, is aged and all managed portfolios are heavy in fixed income. The fact is older people invest in bonds to preserve the capital that they have accumulated over their lifetimes. The baby boomer generation is set to pass on that accumulated wealth to the tune of 59 trillion dollars over the next 20 years with that money flowing to a generation who is younger and more risk averse than the boomers. This to me means that stocks could go to levels that would seem absurd today, like the S&P 500 at 4500 by the year 2020, which I think will happen. These and other factors I mentioned in earlier posts are what has driven the market to these levels and what will continue to drive markets for the next several years. Wal-Mart and Target are among several large companies that have given raises across the board to lower wage workers. Those raises will not be saved, but will be spent driving corporate profits higher and expanding P/E multiples in the marketplace.
You may look at the Smalltime Model Portfolio and say, "hey, you lost over $1000, what a dumb ass!" Yes I feel like a dumb ass when I look at the balance in the account, but when I look at it from a longer term perspective, things change. Revolution Lighting (RVLT) grossed $26 million in 2013, $76 million in 2014, and $129 Million in 2015. The company is projecting 2016 revenue in the range of $180-$190 million. Mean while the stock price has gone nowhere but down, with me buying more on every new good news event from the company. You see growth costs money and when those investments finally begin to pay off, the earnings per share will rise, which in turn drives the stock price. If I am wrong then I just picked up a bunch of trash for no financial gain, but I still helped in a small way. If I am right, I'll make money off of something everyone views as worthless.
Interest on the German 10 year bund went below zero for the first time ever this week as the US ten year bond is nearing 1.5% again, a level not seen since August of 2012. It is actually very simple to figure out, the developed world is aging and the emerging economies represent the youth needed to spur growth. India has surpassed China in annual growth rate pushing above 7% and lets not forget that India is the worlds largest democracy! India is also trying to build out it's infrastructure growth with renewable energy sources rather than dirty old coal.