For Every Yin, a Yang.

January 24, 2011

Major market indices were higher last week. The DJIA gained 0.96%, the S&P 500 increased 1.71%, and the Nasdaq rose by 1.93%. Value stocks outperformed growth stocks. And the small cap index lost 2.51%. The 10-Treasury yield remained at 3.33%.
On paper, this recovery proceeds forward with all the grace of a wino. But, it does proceed.
The leading economic indicators continue to improve. Employment appears to be stabilizing. Industrials are ramping up. Business technology expenditures are improving, and will no doubt continue to do so following the announcement of this year's business expense deduction.
Who is hurting? Easy. The two areas of the economy that continue to vacillate between hope and hopelessness are middle class consumers and residential real estate.
It makes sense. These were the last two guests to leave the liquidity party. And they were generously over served.
After pounding the six packs they showed up with, they hit the host's liquor cabinet in search of more. When they finally left (long after most other guests) they risked getting behind the wheel to drive home. Of course, they first stopped by Taco Bell for 2 a.m. chillitos.
The hangover is intense. And hardly surprising. But, it does not prevent the rest of the party's guests from waking and going about their days. Not with the zeal afforded by a 10 pm bedtime. But going about their days, all the same.
In keeping with the slow yet steady improvement, the U.S. stock indices are not shooting skyward. But, this tenacious, not-so-flashy persistence will make the momentum sustainable, and allow other investors to join this new, more subdued party.
As we begin 4Q earnings season, a word of caution. Last year's earnings were stellar. The "Beat Rate" for earnings and revenues was astounding. Don't expect that momentum to last.
What will this quarter hold? Of the 29 S&P 500 companies to have reported calendar 4Q results, 72% beat earnings estimates and 68% beat on revenue. So that's a little worse on earnings and a little better on revenue. Still very solid over all.
This quarterly earnings period could provide just the momentum needed to stage a protracted run of appreciation into the new year. Low interest rates. No inflation. And improving quarterly earnings will be just what the doctor ordered.
That said, I would be remiss were I not to mention that many continue to suffer. Even as most of us crawl off the mats and dust ourselves off for another round, many of our fellow Americans appear down for the count.
The number of people on food stamps has hit 43.2 million, an all-time high of 14% of the U.S. population. People who receive debit cards -- the new "stamps" -- worth $140 a week, are supplementing that by visiting food banks and soup kitchens in record numbers. Up 24% in the past year. Close to 650,000 homeless Americans seek shelter every night.
One need only drive a mile in any direction to find jobless mothers and fathers standing on street corners seeking handouts. Some of them are drug addicts. Some of them are not. All of it is sad.
Not everyone can be so fortunate as homeless, formerly drug-addled radio disc jockey turned talk-show darling Ted Williams. Williams has graced the network television circuit from Oprah to Entertainment Tonight. He has opined on redemption during appearances upon late night talk shows. And good luck to him. Many never get a second shot.
As always, a yin and yang. Polar, contrasting forces at work. Some happy. Some not. One need only look back to last Saturday's carnage in Tucson to understand as much. Poor souls.
Still, life proceeds. Wounds scar over. Heal. We carry on. That is the human condition. But do keep in mind those who have yet to recover. Yet to dust themselves off. To heal.
Sometimes a kind word and a helping hand is the equivalent of a million dollar investment. So please, invest wisely. Stay tuned.

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