We covered the economy and fickle investor psychology the other week, and acknowledge that the jobs and the real estate market remain legitimate challenges. Creative destruction, in a perverse way, also compounds the situation as "the new" sectors push out, or significantly disrupt, "the old" sectors.
Yet, for a telling perspective on the second headline, "Jobs must lead, not lag, the recovery" from CNN, we recommend watching recent monthly commentary video update from Liz Ann Sonders, Senior Vice President, Chief Investment Strategist, Charles Schwab & Co., Inc.
We previously shared her work in our December post, Unemployment: Headlines Gloomy, Yet History Tells Different Story. We think she offers balanced insight on the markets and the economy. From her July Market Update, we share several of many helpful slides -
- NOTE: CNN might consider incorporating this into their article, borrowing Liz Ann's title: Unemployment Rate Lags Big Time [in every instance]:
- Never forget that sentiment bounces around in lock-step with the market -- per Sir John Templeton and also from our own experience, we know the best time to buy is at the point of maximum pessimism:
- Here's another under-appreciated point: CEO confidence leads consumer confidence, which takes more time to recover from bruising during a harsh recession:
- This is a pleasant surprise - new claims for unemployment are declining at a faster pace than during the "jobless" recoveries of 1992 and 2002 (would you believe it?!):
- Finally, the familiar Market cycle that we also shared in slide four of our Which Way from Here presentation back in January -- always keep this in perspective:
Despite lingering concerns and federal/state budget woes, most corporate fundamentals remain stable to better and balance sheets remain flush with record levels of net cash. Our expectation is that fundamentals will lead the way to improved sentiment and, ultimately, more jobs. We understand the fear is that America is totally spent because of over-leveraging thanks to easy money and subsequent greed on Main Street AND Wall Street (e.g. humans are prone to behavior that creates problematic bubbles). This is, in fact, true on many levels.
Unfortunately, we all must now pay the consequences of foolhardy behavior and, perhaps, forward growth will be muted. Still, history shared by Liz Ann implies that jobs will arrive, possibly sooner than the current consensus view. Watch for demand from emerging markets for U.S. products and services to buoy our economy. The challenge is that all corporations are evermore focused on running lean and driving out costs. With productivity gains, they can do more with less (people).
As always, investors need to pick their spots. We think an emphasis on cash generating, franchise-type companies offered by the Market at low multiples of earnings and cash flow remains a prudent investment strategy in all markets. Out of favor asset plays trading at meaningful discounts to readily ascertainable net asset value are also sensible.
© 2010 Jeffrey Walkenhorst
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