On a regular basis I try to take some quiet time and consider the real agenda for the individual investor. For eight years there has been a recurring theme: Fear.
The events of 2008 served to underscore the fear lesson. I have a prediction that we can check out in about ten years:
For most investors, the biggest cost of 2008 will not be their losses from that year, but from missing a lifetime of opportunity.
The Factual Background
What is happening in the world economy is a matter of objective, factual record. It has improved dramatically. The economic future via the ECRI and the objectively measured risk via the St. Louis Fed Stress Index are also available each week. I make this information readily available in a weekly article (encouraged and nurtured by my SA editor - thanks Evelyn).
In building my investment record I have found it important to avoid emotion and focus on such data. The facts show that this is a lonely position! Most others write laundry lists of "headwinds" or "tailwinds".
The Public Perception
The general public does not see this progress. The top concern for people of both political parties (71%) is the economy. This is followed by excessive worry about budget deficits (64%). Check out the lastest Gallup Poll results for the full story. While the reasons for this extreme pessimism are beyond my scope here, it partly relates to the never-ending political campaigning. There is always a full-court press against the economic policies of the incumbent.
The "man-bites-dog" media emphasis contributes. Stories about economic progress are boring and may even be labeled as naive.
The CEO Perception
Leaders of corporate American see a different picture:
The CEOs of America’s leading companies anticipate higher sales and plan to increase capital expenditures and employment over the next six months, according to the results of Business Roundtable’s first quarter 2011 CEO Economic Outlook Survey.
“With today’s survey results, the last three quarters have shown steady improvement in the CEO economic outlook. Our CEOs see momentum in the economy over the next six months, with increased demand fueling greater investment and job creation,” said Ivan G. Seidenberg, Chairman of Business Roundtable and Chairman and CEO of Verizon Communications. “This shift continues a trend as reflected in recent employment data, with the private sector leading the way in creating more jobs.”
Corporations have been cautious during the economic rebound. Inventories are thin and so is the base of employees.
There will be "mean reversion" in inventories, in employment, and in revenues. These are all important trends.
The Messengers
When I look at the gap between reality and public perceptions, it is natural to ask how this can be. In the age of the Internet we have more information than ever. Despite the information, the individual investor has not been helped.
One important source of information is the community of economic bloggers. Tomorrow I will head for the annual conference sponsored by the Kauffman Foundation. This group is a very interesting mixture of professional economists (university and institutions), journalists, entrepreneurs, and those whom I have described as "pop economists."
Here is their current take on the economy -- much more positive than the public.
I go into the conference with a long list of questions. The "investment perspective" may be under-represented in the group. Many of the items that I think are most important are of little interest to professional economists.
Even if the top pros wrote about these topics, most readers would not believe them. I'll give an example in my conclusion.
Kauffman's point man on the conference, Tim Kane, has graciously shared the survey data for some additional analysis. To my surprise, there is little difference between the two groups I have described as "blogging economists" and "economic bloggers" despite the obvious self-identification at the meeting. This is something that I need to reexamine in my observations.
Investment Implications
I have a long list of economic topics where public perceptions are inaccurate. I will have this list in mind. Meanwhile, here is one great example.
There is a current obsession with the imminent end to QE II. Pundits who have been consistently wrong about the economic rebound, Europe, banks, corporate profits, and assorted other issues, have ascribed any progress to this relatively modest Fed program.
Since they were wrong about the cause, they are going to be wrong about the effect. I was especially impressed by the savvy discussion from Josh Brown, one of our featured sources who is getting well-deserved recognition, in yesterday's interview on Fast Money.
This is a good "heads up" for investors. Don't obsess about the Fed. Watch the data.
I am working on some specific stock ideas, but quite frankly, my current holdings are doing very well. The biggest challenge for most investors was not getting scared out by a small decline accompanied by big news.
Meanwhile, I am going to identify some good themes at the Kauffman Conference. I'll post something if I have time.
