Gary Mendell
Posted by fallenx888x on Friday, October 19, 2012
The Federal Reserve, along
with an average assessment among economists, are publicly setting
growth expectations lower than historical averages. Last month, Ben
Bernanke said, -œThere is a reasonable chance, looking at the long run
of history, that the U.S. will return to health growth somewhere in the
3% range.- I'm sure that just like me, you too are tingling with
this confident reassurance -¦ -œreasonable- and -œsomewhere in the
range-. Not exactly the cup of coffee I like to wake up to in the
morning.
I constantly pound the inflation drum to clients. People have to keep
in mind that -œgrowth- must always be defined in -œreal dollars-.
Money must be persistently thought of as having a set ability to
purchase goods. If inflation is 3% and your money is safely sewn into
your mattress, your money is safely loosing 3%. Reserve's inflation
target is in the 2-3% range. To project U.S. growth in the 3% range
suggests that in real dollars, the Fed is projecting no real growth.
And here's the pinch: Investors are not necessarily bound to this
dynamic. Companies can thrive in an environment like this simply by
means of economic survival of the fittest. To illustrate, let's say
here in Denver there are two TV stores called -œABC- and -œXYZ-.
Let's say that the Denver market demand for TVs was 1,000 and these two
companies split the market share exactly 50/50 (each store sold 500
TVs). Let's say the economy slows down and demand for TVs drops to 600.
The two stores struggle and cut back as they're down selling 300 TVs
each instead of 500. Eventually -œXYZ- goes bankrupt and boards up the
windows. -œABC- is then the sole survivor to service the market demand
of 600 TVs. The result is that simply because they held out, their sales
actually went up 20% from before the slowdown (when they were selling
500 TVs) to now in an environment with less competition (when they are
now selling 600 TVs). However, Denver as an economy may not be
better because of it. The people who worked for -œXYZ- are now out of
work. The tax revenue of the 600 TVs is much less to the municipalities.
You get the idea. This is why an investor has the potential to
experience growth that outpaces a sluggish economy. It is not an
investing environment where you are able to throw a dart at the Wall
Street Journal and make money, but by no means is stock growth locked
into the rate of growth of the broader economy. The stock market and the
economy are two different things. And this is precisely what we've
seen. The companies that have survived are on a whole hoarding cash.
Years ago they cut costs and have historically never been more
productive relative to costs than they are right now. Naturally not
every company is like this, but this is looking at the broader market.
Not only this, but it is not as though US companies are bound to
American demand. Roughly half of the sales from US automakers come from
buyers overseas. This is where if you think like a CEO for a moment:
What's the projection of US demand? Below normal. Where are people
who've never bought my product before? Not here. In my opinion,
it's easier to invest in an environment like now.For more info,Please
visit Gary Mendell
In my lifetime, I have never seen such a vacuum of hype in investing.
In the past three years the stock market doubled and it hasn't even
gotten the public's attention which could be one of the greatest gifts
that an investor can get. It's generally a bad thing when the masses are
excited about investing. It is smart to loathe bullishness in anyone
but you and love it when everyone else is bearish and you hear of people
bragging about selling out of their stocks. The irony of investing is
that investor sentiment is largely driven off broader economic news, but
nobody ever said that companies are bound by the broader economy. Once
demand has stabilized and perhaps some competitors have left the supply
side, it's a dream environment when unemployment is high, interest rates
are low, and when people are hesitant to take a risk and compete.
The opinions voiced in this material are for general information only
and are not intended to provide specific advice or recommendations for
any individual. To determine which investment(s) may be appropriate for
you, consult your financial advisor prior to investing. All performance
referenced is historical and is no guarantee of future results.
GreenStar Advisors, GreenStar Advisors Blog
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