Thoughts on future directions

With the chop lately, Rock’s not been making much money. It seems we actually had the start of a trend reversal, but looks like it’s back to normal, up up and away.

I think we all realize in the short term, the government is trying its best to help Wall Street, and not Main Street. The basic reason for this is because Main street had to bail out Wall Street, and the Government doesn’t want that to happen again, so while we establish regulations to hopefully prevent banksters from going there, we need to keep the markets up. Then Main Street doesn’t have to bail out the banksters or the pension funds, and we will all be saved from creating a lot more debt.

We need to keep interest rates low. I watched the Bernank address congress where he said this spending can’t go on forever and we need to get some fiscal responsibility. In the mean time, the Bernank will keep interest rates low so the US debt doesn’t increase because we have to pay a lot of interest. How do we do that? Buy bonds, keep interest rates down. Definition of QE2.

Congress is likely to take years to decide how to cut spending. I may be dead by then, but I’ve seen a couple of green shoots: there’s talk of a transfer tax, and rich guys have said they could pay more taxes. But we need more than green shoots.

So let’s have a look around at the market. We must try to get ourselves ahead. Granted the job picture is weak, so structurally we don’t want investment in stocks that need lots of consumer spending or non-necessities. I suspect the jobs picture will be very bleak for years. There may be some shining stars in the best sectors, and there may be some real underperformers in the poorer sectors, so still you must be careful and do your homework. So structurally, where do we go?

1. Defense spending. As more saber-rattling happens in Korea, and Afghanistan, we will need to continue defense spending. I saw an article that some pentagon leader is worried about defense spending cuts, but it ain’t gonna happen. So research what companies are primarily here, and post em to our blog.
2. Oil and Gas—equipment and services, not reserves. People will drive, even with fewer jobs, they will drive.
3. Coals—we will use electricity (he says, as his coffee cup sits on the warmer, 4 monitors on, 3 computers on, and a future of electric cars needing charging)
4. High-end retail. The rich will continue to buy, and give their kids money to spend.
5. Ultra low-end retail. The poor will look for better ways to spend the tiny amount of cash they’ve got
6. Cash driven businesses. Like gambling and high-end resorts or high-end reits. Places where people can take their illegally gotten cash and dump or launder it. Like the Sands, especially if they are an overseas branch, like our new Sands here in Singapore.
7. Metals and mining: precious metals, especially ones that get used up. Not copper. Silver, platinum are good.
8. Cheap home entertainment. Nintendo, Sony, Note Phillips just bought Saeco, maybe we should short Starbucks
9. Baby stuff. More time at home, well, I also said cheap entertainment……I actually think a baby boom may lead us out of this non-depression we’re in. I have little hope of China or emerging markets in general leading us out because I’ve been there, and I’ve seen. Too many basic necessities are missing.
10. Semis. This is kind of like "basic materials" for our technological world, and I don't see that sector going away, or underperforming like the following.

Places to stay away from:
1. Middle retail. No jobs, no spending, no profits. These guys are relying on developing markets for their additional revenues, not looking at the US. With the emerging market’s impending inflation, I don’t think they’re in very good shape. Thank you, QE2.
2. Solar. My heart is there, but my pocketbook says fossil energy will be cheaper for tens of years.
3. Home schooling. I think a lot of people got a dose of reality when they realized there weren’t any jobs for accredited schools’ graduates.
4. Medical: instrumentation, drugs, the whole thing. First, it is unknown what new regulations will be coming, and with the hospitals losing money because of lawsuits, the services will drop. Get ready to travel outside the US if you need a major medical event.
5. Banks. They are insolvent. A new regulation could bury them, and could happen any day of the week. If you invest here, you are taking a substantial risk that would be lower almost anywhere else.
6. Emerging markets. They are facing huge inflation, especially as China moves the RMB. When your food is going up daily, you don’t spend on other things. Like India is now.
7. Currencies. Too volatile. Sovereign debt. Political fights over Euro. Trading wars. Just too much risk.
8. Techs. Too much interbreeding. And remember, you've seen major CEOs jump ship and try to enter politics. Somehow, this seems oxymoronic. Or just moronic.
9. Insurance. sorry, Dad. I just wouldn't put money into a piece of the Rock just now.

Now a couple of charts. Yeah, I know. You thought Rock wasn’t gonna have charts.

First, interesting charts are the number of companies that are above their 50 day and 200 day moving averages. These are 3LB charts, the ones I like to use to evaluate trends, courtesy of Stockcharts.com.

The trend looks up to me.

Second, (or third, if you’re counting) is the SPY. Sorry, Mutt, but it looks like the trend’s in favor of going long.