Recession? Hmm. Is the Talk Shifting to Recovery?

The most eye-catching headline I came across this weekend was titled “Is the Recession Over?” Authored by Paul LaMonica, it was on money.cnn (http://money.cnn.com/2009/06/19/markets/thebuzz/index.htm?postversion=2009062008).  Mr LaMonica consults various credentialed people and presents a fair case for both yes and no answers, and then observes with his experts that for most people the question is not whether the recession has ended, but when the pain will end.

Of course for us at SmallCapWorld, we are pretty interested in the stock market, especially the smallcap stock market, which has had its own pain cycle over the last 10 months.  We tend to suspect that the market can be an early indicator of recovery, especially when indicators are broad, and reach most of the major segments.

At the same time, in a more optimistic universe, Motley Fool’s Adam Wiederman was looking for “The Best Stocks for the Next 4 Years,” the sort of headline (and article) that presumes that the sun’ll come out tomorrow.  He even quotes Sir John Templeton about investing at “points of maximum pessimism,” which, aside from calling up the spirit of Benjamin Graham, is about as close as you can get to scripture-reading for investors.  http://www.fool.com/investing/small-cap/2009/06/20/the-best-stocks-for-the-next-4-years.aspx.  Not to ruin the suspense, but the 4 stocks that people he talks to have picked are (1) Insmed (Nasdaq: INSM, a development stage biomed company headquartered in Richmond VA), which closed Friday at $2.47 vs a 52-week high of $2.57, and a market cap of about $309 million; (2) Satyam Computer Services (NYSE: SAY, a diversified software and services company in Hyderabad, India), which closed at $3.65 Friday vs a year-high of $3.71, and a market cap of just over $1.2 billion; (3) Allied Irish Banks (NYSE: AIB, as you might guess headquartered in Dublin), which closed Friday at $5.35 vs a year-high of $32.48, but up from $1.44 on March 30, 2009; and RF Micro Devices (Nasdaq: RFMD, from Greesnboro NC), which closed Friday at $3.69 vs a 52-week high of $3.98 and with a market cap of about $980 million.  Note the lack of niche industry orientation and broad geographic interest.

Of course Wiederman also quotes a bear saying the bottom could fall out —  to keep things well balanced.

No one seems to have an unqualified opinion about whether we are still headed down, whether we are sitting on the bottom, or whether we have started back up.  There are numerous favorable indicators, like a drop in overall unemployment claims; a slight revival of housing prices in a few areas that may be bellwethers like Orange County and San Diego, CA; more buoyancy in the market in general; more roadshows and more deals (though most are still PIPEs, registered-direct and discounted sales to PE investors — and a dizzying array of warrants are being issued). 

Monday morning Apple announced that it sold 1 million new iPhones over the weekend, twice what it expected — impulse purchases every last one.  And bring on more media stories about the best car under $18,000 and how to refi your mortgage at these low rates.  I was particularly amused this weekend with stories that bigname luxury stores are stocking cheaper merchandise —  who knew?  And there was a network news story on WalMart’s aisle endcaps showing a one-cup coffee brewing system for $109.95.  I beg your pardon?  Payback period on that, please?

Either the price of oil going up is good news (increased demand) or bad news (gonna hit the consumer at the pump), but it is definitely a sign that one industry is beginning to move again.  The same is true of the general fascination of the press with greentech issues — many of which are beckoning investors to rather small companies with rather sketchy performance histories (but interesting IP, of course).

BioMedReports.com issued a report on adult stem cell companies, a bit esoteric, but right in the middle of the policy liberalizations of the Obama administration with regard to biotech research.  If that interests you, have a look at http://biomedreports.com/articles/most-popular/1423-next-big-boom-adult-stem-cell-stocks.html for commentary on 5 stem-cell companies we can almost guarantee you have never heard of (but may want to know about). 

We are not investment advisers, and it’s a good thing, because the wobblies might have come even sooner if people had invested in everything we wrote about.  We write about interesting and newsy companies, many not even publicly traded, not just stocks we think will surely go up.  But we have the feeling that the market, while it operates to a certain extent on hard, quantifiable things like news and earnings, interest rates, currency movement, energy &  commodity prices, same-store sales, etc — is equally a critter that moves on instinct.  Isn’t “consumer confidence” an essentially fake extrapolation expressed as a percentage to make us trust it more? 99 and 44/100ths percent pure.

So when we saw an article with the title “Wall Street Looks to Refuel Rally in Week Ahead” on Sunday morning, it made the coffee taste a whale of a lot better: http://money.cnn.com/2009/06/21/markets/sunday_weekahead/index.htm?postversion=2009062107.  It is for SURE not a cockeyed optimist’s view of the world, but it is an almost 180-degree switch from headlines we got used to seeing in the cold, cold winter of our 2008-2009 discontent.  The more people ponder whether the worst has passed, the more likely it may be — it seems to us untutored folk — that attitudes may be able to act as a self-fulfilling prophecy.  Many of the companies we have written about over the last 6 months have done really well, and very few have missed big on something important (yes, there is always a laggard here and there — HURRY UP NOW, KEEP UP WITH THE CLASS!).

Point being that it seems that the basic palaver has changed from “how bad can it get?” to “how soon can it get better?”  And that may signal more to us than the basically historical numbers that we hold our breath for every week.

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One thought on “Recession? Hmm. Is the Talk Shifting to Recovery?

  1. Great Article. Graham is considered the first proponent of Value Investing, and I am a great fan of Benjamin Graham myself, I follow most of his rules, I started a site on value investing. The site mainly screens out Low PE, Low PB, High Divident Yeild. Low PB+ High Div etc.. for the India markets. I really appreciate the effort you have put in your blog. Best Wishes.

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