Valuable Lesson

I don’t have the stomach this week to write about the trials and tribulations of the Greece bailouts (I’ll have more time to write about this in the future because there will be many more…), I don’t care to write about the non-stop meetings between Germany and France to talk about everyone else (I’m starting to think they don’t like to cook and just want free meals…), and I don’t feel like writing about how the stock market keeps going up even though only a few stocks are behind it (Apple should soon be worth all of Europe combined…).  What I do want to write about is what I believe to be one of life’s greatest lessons, which can actually be learned from our very own children.

Kids are hands down the best negotiators around.  You and I as parents might get frustrated by their actions sometimes, but if we take a minute to analyze what’s going on, we can all learn a valuable lesson.

Short story.  Just the other night when putting my daughter to bed, she requested I read her a book before going to sleep.  We were getting to bed a little later than normal that evening on a school night and so I had told her that not tonight, but we could certainly read a book the next night (this is all code for I just felt like heading back downstairs to start watching some of my favorite television shows).

Thinking ever so quickly on her feet, she immediately replied, “Can we just read part of a book?”  A seemingly meaningless question, but she was setting me up and I didn’t even realize it. My response to this was to simply try and reaffirm my earlier response by restating the fact that it was late and time to get to sleep.

Like water off a duck’s back, her next question was, “Well then what if we just read a few pages?”  Now she was just playing with me.  She was starting to ask me open ended questions as opposed to simple yes/no type questions.  My 6-year old professional negotiator was now toying with me.

So now I really had to dig me heels in and firmly stated that it was way past her bedtime and there was absolutely no time left to read a book.  Without hesitation (and I even think she chuckled under her breath as she laughed at my shear ignorance as to how she was manipulating me), she responded, “What if we just read one page?”

As a now worn down adversary I responded, “Ok, we’ll read a few pages and then it’s time to get to sleep.  What book do you want to read?”  She replied, “Hell if I care, you pick…”

In life, “No” simply means no to the specific question asked, but may not mean “No” to a slightly modified question (please don’t take this to extreme, there are certain situations where you should respect “No” as the final answer…).  Kids understand this point better than anyone; however, as adults many times we hear “No” and quickly think it’s the end of the conversation.  In life, don’t take “No” for an answer!

Next article, it’s time to start talking more about the economy and the impact it will have on your treasured savings.  There’s still a lot going on and a lot to discuss.  Till we meet again…

Joel Fink

Joel.fink@yahoo.com

Where do We Go From Here?

As you know if you’ve read any of my postings, I am a skeptic when it comes to the economy.  I can not connect the dots to understand how these improved earnings can be sustained.  With that being said, I will be the first to admit I have not participated to any great extent in the recent market rally.  My exposure to stocks is probably about 40% of my portfolio with the rest in cash and a little in government bonds (which helps me sleep at night because these things have been on a tear since Aug 11’). 

The great thing about markets is that they don’t care what you think.  Just because I think the market is too high and should be priced lower doesn’t mean the market will actually go down.  Many times markets will move to unreasonable levels in light of current dismal conditions before correcting lower.  Or worse, the market continues higher because economic conditions improve and you finally have to admit something you don’t want to admit… that you’re wrong!

I am not at the point yet of admitting my thesis is incorrect.  But I am getting close.  The Dow Jones Industrial average is just several points from its high (12,876 high back in May 11’ vs. 12,870 on Friday/Feb 3^rd) and the S&P 500 is not quite as close, but getting closer every day.  If these highs are taken out, the market could see an explosive rally as short traders (people like me betting against the market) come in to buy stocks, which is how they close out their positions.

This to me is still a big “IF”.  As we approach the highs set earlier last year, the number of stocks contributing to this rally is less than before.  At the peak in May 11’, there were 493 stocks making new highs (actually hit 636 in April), and on Friday there were only 442 stocks hitting new highs.  So the number of stocks driving the rally is less.  If we look at the Nasdaq (generally technology related stocks), there were 189 stocks hitting new highs during the peak last year (240 in April 11’) and this time there are 235 stocks hitting new highs.  So from my point of view, this is generally a technology driven rally with less involvement from other stocks such as industrial, retail, energy, etc.

Now that we see technology is a driving force, let’s look at Apple specifically.  The following is an article showing that before Apple reported earnings, S&P earnings growth was 2.7%.  After Apple reported earnings, the growth rate jumped to 11.6%.  This market is a one-trick pony!

http://blogs.wsj.com/marketbeat/2012/01/26/apple-earnings-give-facelift-to-entire-sp-500/

And let’s not forget, Europe still hasn’t figured out what to do next.  Rumor has it (strictly rumor) Greece may be announcing their exit from the Euro in early March. 

This will be an interesting week coming up to see how the stock market responds as it tests the highs from early last year.  I remain a stubborn skeptic till death do us part.  Have a good week!

Joel Fink

Joel.fink@yahoo.com