"It's easy to be confident when you have control of the puck. It's very difficult to keep that confidence when you have to take whatever strange bounces life throws your way. Don't be careless, but don't be too careful either. You cannot be afraid to lose. That's how you gain the confidence- attack the game when the puck isn't yours."
-Jeffrey Nordling
The Mighty Ducks
In the past couple of weeks, corporate America has made an astounding statement on confidence- yesterday, the Federal Reserve joined the chorus.
The thing is, most large American companies see their confidence deep-rooted into the growth of the rest of the world, while looking for America to plod ahead at a quicker pace. Make no mistake however, the straw stirring this drink is in demand for the stuff stamped with:Made in America or Made from the Minds of Americans. On the other hand, the Fed gave notice that it's ready to take off the training wheels and replace them with a smaller set. But for me, it's the corporate news this week that matters more. These decisions give an insight as to where economies could be in two-to-five years.
Yesterday, General Electric held an investor meeting and the headlines said it all:
"Europe Stabilizing"
"China a Great Story"
The company has been shedding businesses and adding others; looking at their presentation, it feels like the moves that were made factored in China as much as America. The company highlighted strength in healthcare (software and cloud, aviation, power & water, and oil & gas. Of course, this isn't the first time this week that we were reminded that aviation should be the main proxy for the global economy. On Tuesday, Boeing announced a $10 billion share buyback and a 50% dividend hike to $0.73. Talk about confidence!
Last month at the Dubai Air Show, it was clear that the earlier estimate of $5.0 trillion in new orders for commercial aircraft over the next 20 years was too low. In addition, defense orders have stabilized and there are amazing opportunities for new systems and aircraft that promise an avalanche of revenue. By the way, Lockheed Martin hinted at hiking its revenue and earnings guidance for 2014, if the budget is passed and signed by the president.
Also, Tuesday morning 3M announced a 35% hike in its dividend payout. It's the same story...enormous confidence all built around the fact, the world keeps coming on strong. Forget about the period slumps and hiccups- I'm talking a mindset for achievement that is now built into larger swathes of the world than ever before. 3M's numbers tell the story. In the most recent quarter, revenue in America grew dramatically slower than the rest of the world, save Europe, which is quickly turning the corner. Currently the United States is 36.6% of total revenue for the Minnesota-based company; it's easy to see where soon, it will be a lot less.
Watch this trend continue; it does look like fights could erupt over the fact that Main Street is being left out in the cold. Of course, this isn't true, as jobs are being created from overseas demand; I bet a large fraction of Main Street owns MMM somewhere in a fund or 401K. The truth is America doesn't have to yield growth to other nations as rapidly, and in fact should be growing a lot faster.
Main Street doesn't have control of the puck because it has green-lighted polices that erode confidence and all the good stuff that comes with it.
Big Man On Campus
I'm not fan of the Federal Reserve or Ben Bernanke, but I have come to respect him and how much he believes. Yesterday, the Fed chairman admitted to being flat-footed when the crisis initially hit, in part, because he was an academic (historian) relying on data instead of common sense (my words, not his).
Yesterday, the guy surveyed the room with the swagger of someone that had just solved Fermat's Last Theorem in record time. Forget that: he looked like the guy who scored the game-winning touchdown against the cross- state rivals...for the national championship. The Fed announced its intentions to taper back its excessive accommodation of asset purchases, beginning next month. While it sounds like they're going to constantly evaluate the process, there is a firm commitment to ease a little more sequentially.
We were told this news would destroy the market... but it didn't. The doom and gloom crowd, mouths agape, got together last night with a cockamamie notion that tapering isn't really tapering. The qualifiers were absent all year- long, when they promised death and destruction. (We can rib them, because one day the market will pullback, it will correct, and there will even be crashes in the future. Even if it happens that the Dow reaches 20,000, these boys and girls will take a bow and say, "I told you so.") Instead, the market reacted with the Dow rocketing 300 points higher.
I see subtle and not so subtle changes to the market, and we are adjusting our strategy for 2014. I'll probably move cash to 10%, but also ask subscribers to hold onto positions longer. I'm actually focused on names that are buys on dips, as pullbacks are long overdue but only as a matter of course. There is a lesson in this that bears repeating, and was eloquently stated in that big hit, "The Mighty Ducks":
You cannot be afraid to lose!
The market is up largely because earnings are real, but growth isn't coming from this country. That could change; under current administration polices and goals, we are not going to become a runaway growth story, but demand can feed on itself. I love that giant spike in single-family homes. It is time to start families and stop paying so much for rent. I also think that once sated banks share some of that largess, pumped into their vaults via the Fed in the form of more loans to Main Street, that kind of stuff builds - It should have happened long ago.
When asked why it hadn't, Ben Bernanke pointed to fiscal policy that was working in the opposite direction.
The news from the Fed is a sign of confidence. The mending process in America won't be reversed, but just exactly when, we'll be asking ourselves , and is something that will still take a couple of years. The thing for defeatists to consider is attacking the game, when the puck isn't theirs...if you believe in the game and believe in the end, America wins. I do, even if it's not ordained.
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