Growth Stocks vs. Value {Two-Part Video}

Direct Vimeo Link Part I. Click Here

Direct Vimeo Link Part II. Click Here

Direct Vimeo Link Click Here

___________________________

The stock market closes at 1 pm EST today, and I have a hard time believing that the varsity traders are manning institutional desks right now. We have a bounce going, but the underlying participation and energy of it is not compelling me to take much action yet. The Euro remains weak, and the Nasdaq Composite is lagging the major indices. Recently, when we have seen that happen it usually portends a failed bounce.

I am still in “show me” mode, looking for the bulls to come in and do some heavy lifting before I am willing to have confidence in trading a bottom. The oversold conditions of the market can easily be worked off with uninspiring bounces like we have today, which obviously bodes well for the bears. With Black Friday today, it is not surprising that the retail/consumer discretionary plays are catching a bid. However, the key for me will be to see not how the junior varsity performs today, but rather the varsity next week and beyond.

The inherent flaws in our capitalist, mixed economy are similar to that of the American judicial system–While far from perfect, they are the best systems out there and, by and large, work well most of the time. As you will find during every other secular bear market over the past one hundred years, when the going gets tough and the flaws of the system are exposed for all to see, there are serious questions raised as to just how durable capitalism is.

Pure, unbridled capitalism only works when the overwhelming majority and powerful participants have a certain moral backbone. Doing business in good faith sounds like a basic concept, but with the dot-com and debt bubbles we have seen in recent years trust has evaporated like boiling water thrown into below-freezing air. Corrupt, pirate capitalism with no conscience allows the worst of the worst to exploit the system and threatens to bring everything down, even those playing by the rules. Just as Thomas Jefferson often discussed during the founding of America, the motivation to contribute to society and do right by each other needs to come from within individuals and encouraged by those around them, rather than being thrust upon them by the King of England or a central government in general. Beyond that, the increased commingling of government-business interests has further added corruption to and depleted morality from the system. Indeed, government is just as culpable in corrupt capitalism as any institution.

At the end of the day, though, the market wins out, as you cannot fool all of the people all of the time. History says that the market has a few more years, at least, to cleanse the excesses from the system during this secular bear. The fact that the problems we face are becoming more apparent and widely-discussed is a sign of progress, but there is likely much more work to be done. Stocks will fluctuate, as they always do, but my belief is that we have a long ways to go before we have another August of 1982, off-to-the-races-for-a-secular-bull-market moment.

Until that happens, central bankers and politicians can try all they want to keep the ATM machines working and prevent full-scale social unrest. While they may or may not be saving us from the abyss, I am certain that the only thing that can eventually pull us out of the malaise is capitalism…with a conscience, where trust and good faith become more prominent in doing business. And that can only come from within communities, within social circles, within families, and within the individual.

On this Thanksgiving Day, it is a good reminder to recall how the Pilgrims found capitalism in its purest form:

The fall of 1623 marked the end of Plymouth’s debilitating food shortages. For the last two planting seasons, the Pilgrims had grown crops communally–the approach first used at Jamestown and other English settlements. But as the disastrous harvest of the previous fall had shown, something drastic needed to be done to increase the annual yield.

In April, Bradford had decided that each household should be assigned its own plot to cultivate, with the understanding that each family kept whatever it grew. The change in attitude was stunning. Families were now willing to work much harder than they had ever worked before. In previous years, the men had tended the fields while the women tended the children at home. “The women now went willingly into the field,” Bradford wrote, “and took their little ones with them to set corn.” The Pilgrims had stumbled on the power of capitalism. Although the fortunes of the colony still teetered precariously in the years ahead, the inhabitants never again starved.

That passage is from page 165 of Nathaniel Philbrick’s bestselling book, Mayflower: A Story of Courage, Community, and War (New York: Penguin Books, 2007, paperback edition).

I hope you all have a happy, safe, and enjoyable Thanksgiving.

Direct Vimeo Link Click Here

____________________________

Just to follow-up on several of my recent posts, the Euro continues to weaken and is flashing ominous signs. The Euro/Yen cross is in real danger of breaking lower to retest the October lows, which is highly likely to suppress risk appetite in equities. Monitor this chart. Beyond that, the high growth leaders since 2009 remain problematic. Salesforce.com also broke down from its sloppy “War box” consolidation on its weekly chart. If the bulls cannot recapture $110-$115, this looks to be a short on any bounce.

Until charts like these continue to improve, with the headline-driven Euro and high growth leaders weak, resisting the urge to pick a bottom to stocks is one of my main priorities. Beyond that, value plays look to be more attractive than growth and momentum ones, even if the market stabilizes.

____________________________

____________________________