Saturday, August 8, 2009

Enjoy Summer Because The Fall Is Coming

And I do mean the fall. Falling stock prices this Fall. The market, no matter how good it feels, is way ahead of reality. I know Warren Buffett says that markets rebound before economies do, but this economy has a long way to recover before it is healed. We have made only a small dent in deleveraging the years of debt exuberance.

This Summer I've lopped a couple of strokes off my golf handicap, worked down the honey-do list, grilled and floated in the pool with the dog. My remaining stock portfolio has done wonderful and I don't regret any opportunity cost associated with my outsized cash position. Grilling, beer, and a growing portfolio-perfecto!

It took a while but I finally got out of a stupid investment, Southwest Airlines. When I bought it I opined that it was a lousy industry and even Buffett had trouble making money in it. But I thought LUV was the best and the price was attractive. Well I've been in a deep loss for months and the market euphoria has finally pushed it up enough that I've exited with a decent gain. But, the industry stinks and I've learned a lesson. Never buy a great company in a bad industry.

Flowers reports soon and I think all the insider buying bodes well for the results and hopefully it isn't already baked into the price. Aarons and K12 have rebounded nicely and should continue to move upward as their sell-offs were overdone. My remaining stocks like the above names and Waste Management are all defensive and should do relatively well when the market moves South as I expect it to this Fall.

Why do I expect it to decline? Here's why:

Commodity prices don't signal growth, they signal speculation
China's growth will be modest and their commodity binge is troubling
The chicken and the egg question and I think the American consumer will not be enticed by cheap Chinese goods. Saving yes, buying no.
Financials are not healed and will need another round of capital raising, if they can get it.
Obama is finally starting to scare both business and consumers

I could be wrong, but as Charles Barkley says: "I don't think so". It remains better to protect capital than to miss gains.

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