When Markets Jump The Shark

One of the best pop culture idioms of the last 30 years would definitely be “jumped the shark” which, of course, references the 1977 season premiere of “Happy Days”. The episode’s climax featured the Fonz performing a water ski jump over a shark. The series pretty much went downhill from there. Although, I think the series went downhill when Al Molinaro replaced Pat Morita as the proprietor of Mel’s Drive In, but that’s one man’s opinion. That being said, markets and a lot of conditions that affect them have jumped the shark.

The whole “OH GOD INFLATION’S COMIN’ AND IT’S GONNA BE LIKE GERMANY IN THE 20’S…..AIEEEEEE!!!” argument has made the leap. Inflation’s happened and it sucks. But it’s far from Weimar Republic style (which was really Germany just hitting the reset button). A gallon of gas used to be $2.50. Now it’s $4.00. That’s a 60% bump. OK mysterious cabal that manipulates prices…you’ve made your point. Take your 60% profit and go buy an island where you can hunt humans. The potential for deflation is way scarier.

The “HOLY CRAP! INTEREST RATES ARE GOING TO GO UP! THE HORROR! THE HORROR!” schtick has lost its luster. This time last year, the 10 year Treasury was yielding around 3.30%. Today it’s around 3.12%. I’m no maths whiz but that’s lower. The five year is at 1.78% which is absolutely useless. It was at 2.09%. That’s almost 15% lower. OK before you start yelling “Nuh uh…nuh uh..QE2…QE2!!” ..granted that’s played a big part. But what else helps rates go up? Velocity of which there is none or, at least not much. People have to want it and banks have to want to give it out. There’s more of that then there has been but not enough to make 90 day LIBOR go from 26 basis points to 25%. Now THAT’S a buttload of velocity.

The “THE STOCK MARKET’S RIGGED SO YOU CAN’T WIN AND IT’S PROBABLY OBAMA’S FAULT! “victim mentality is old. Stop it and embrace a new day in America. Have you seen your access to markets? For seven bucks you can get two shares of Apple Computer (AAPL) from your iPhone while you drink a latte at the McDonald’s of coffee. Wait a second, McDonlad’s is now the McDonald’s of coffee. Before Chuck Schwab and the internet, you had to call a guy at Merrill who called the order room who called the floor trader who walked over to the specialist at his trading post. Markets have been democratized like a Tunisian supermarket. How is that kind of access rigged against you? Sure. There are other forces out there who stuff on a larger scale and if you try to fight the tape they control, they will mop the floor with you. So don’t. Do what you know other than an index fund. Don’t try to beat Goldman’s algorithmic black box. You can make money in the market. You just have to work at it which is why they call it “work”.

Right now, a handful of sectors have jumped the shark: energy, precious metals, softs, Jim Rogers. AKA…”the Inflation Trade”. Investors are doing a crazy new dance called “the Rotation”. It involves grooving into consumer staples, healthcare, utilities, anything that pays you to participate (also known as a dividend).

Some of the big pharma names are OK: Lilly (LLY) for deep value, Abbott Labs (ABT) for dependability. Some of the herd has already bid Kraft (KFT) up a bit. Maybe take a look at Unilever (UL) or an outlier like B&G Foods (BGS). If you’re snooping around the big, regulated, electric utilities, Duke (DUK) and Exelon (EXC) are always worth the time. Still a bit early to party with the financials. They need to learn how to make money the old fashioned way. However, a few of the asset managers like AllianceBernstein (AB) and Federated (FII) might deserve at least a look. Oh and expect great things from big tech: Intel (INTC) and, yes, even Microsoft (MSFT) and Cisco (CSCO). Give Apple (AAPL) a rest. Build some new infrastructure. Stop playing with the toys for a bit.

But the scary trade mantra doesn’t work anymore. The more real return and hard asset funds the mutual fund companies crank out the better normal, non-commodity linked stuff looks. Time to buy normal and tell the gold hucksters and the slicky boys in the Chicago pits to “Sit On It”.