After Bear Sterns revealed that one of their hedge funds was in trouble and would be forced to close is probably the most significant point we can all relate in which the markets began to show signs of strain. I also remember hearing the experts and analysts, aka the ones who currently do or once did analyze the financial markets for a living, claim that the financials have always led us out of any bear market/recession so watching the banking indexes for signs of strength would be the surefire indicator. Well, at the time it sounded good so I began watching what the banks did on a relative basis. However, recently, I think I finally had that moment of clarity that brought me to believe it's going to be different this time.
Anybody can go out and say this is going to be the worst recession in humanity without any knowledge whatsoever of the general markets, but anybody can also walk into a casino right now and plop down their life savings on 45 Black in roulette because they have a good feeling about it. If thousands of people did this at once, somebody is bound to hit the big one and gain his/her 15 minutes of fame. So with that, and keeping in mind that it's very difficult, almost to the point that I believe it to be impossible to say or know ANYTHING that isn't already factored into the markets at this point in time, I'm still going to give my best shot and state my case for what will make the rebound different this time.
Looking at any bank or bank index, it doesn't take one with much market knowledge to realize that over the past 2 years, bank and investment bank stocks have been destroyed. The stimulus and cash injections just haven't worked the way they have in the past. Looking back to around 1980 or so when this entire mess, in my opinion, touched off like a rocket; outside intervention has always found a way to take the risk premium out the the financial markets. Put another way, if the market was a person, this person just ate potato chips and other junk food non stop, only to be saved each and every time from obesity and death by pills of modern science. Instead of mixing in a treadmill or walk every now and then, Mr. Market simply popped a few weight loss pills and continued to indulge in cheesecake knowing that no matter what happens, modern science would produce another pill to keep him running. Well, around mid 2007 those pills just stopped working. Mr. Market has been forced to hit the treadmill and he doesn't like it one bit. It's the best thing for him, but nothing is easy and the pain is making a lot of folks out there uneasy. BAC, a bellweather in which many have relied on for dividend income over the past 20 years has been forever ruined by the greed, ignorance, and arrogance of it's CEO by gobbling up CFC and MER and overpaying for them in the process.
So with that said, I think it's time to focus on a different sector for market leadership than the financials which we have come to lean on for so long. The banks have been hammered into the ground and will most likely be unable to rebound from this mess like they have on every other occasion. The capital, lending, and confidence is just not there anymore and we've just begun purging the excesses of past 30 years. It's not that I'm not a fan of doomish commentary. I'm not a fan of those who complain and rain on us with the day of reckoning commentary (which is already factored into the market 99% of the time) and do not bring a solution or idea that they believe would make things better. Most of these overly bullish or overly bearish analysts in which everybody should be avoiding (I hope) will benefit if the market moves in the direction they are predicting. (The ones who say, "Well, we're neutral right now" should also be avoided because they are too arrogant to come out and say they have no clue what to do next.)
Me personally, I have no idea what sector will be the next market leader though I do believe that the commodity sector will have some degree of outperformance in the next decade. Why? Well, with the lack of borrowing, lending, investment and increase in job, project and growth cuts, I'm thinking that if the demand for commodities should stay the same or increase even slightly, that the producers will find even greater profit margins going forward as they are unable to keep up with the demand. Like I said, unless I'm saying something that nobody else knows, this is most likely already factored into the markets right now.
Anybody can go out and say this is going to be the worst recession in humanity without any knowledge whatsoever of the general markets, but anybody can also walk into a casino right now and plop down their life savings on 45 Black in roulette because they have a good feeling about it. If thousands of people did this at once, somebody is bound to hit the big one and gain his/her 15 minutes of fame. So with that, and keeping in mind that it's very difficult, almost to the point that I believe it to be impossible to say or know ANYTHING that isn't already factored into the markets at this point in time, I'm still going to give my best shot and state my case for what will make the rebound different this time.
Looking at any bank or bank index, it doesn't take one with much market knowledge to realize that over the past 2 years, bank and investment bank stocks have been destroyed. The stimulus and cash injections just haven't worked the way they have in the past. Looking back to around 1980 or so when this entire mess, in my opinion, touched off like a rocket; outside intervention has always found a way to take the risk premium out the the financial markets. Put another way, if the market was a person, this person just ate potato chips and other junk food non stop, only to be saved each and every time from obesity and death by pills of modern science. Instead of mixing in a treadmill or walk every now and then, Mr. Market simply popped a few weight loss pills and continued to indulge in cheesecake knowing that no matter what happens, modern science would produce another pill to keep him running. Well, around mid 2007 those pills just stopped working. Mr. Market has been forced to hit the treadmill and he doesn't like it one bit. It's the best thing for him, but nothing is easy and the pain is making a lot of folks out there uneasy. BAC, a bellweather in which many have relied on for dividend income over the past 20 years has been forever ruined by the greed, ignorance, and arrogance of it's CEO by gobbling up CFC and MER and overpaying for them in the process.
So with that said, I think it's time to focus on a different sector for market leadership than the financials which we have come to lean on for so long. The banks have been hammered into the ground and will most likely be unable to rebound from this mess like they have on every other occasion. The capital, lending, and confidence is just not there anymore and we've just begun purging the excesses of past 30 years. It's not that I'm not a fan of doomish commentary. I'm not a fan of those who complain and rain on us with the day of reckoning commentary (which is already factored into the market 99% of the time) and do not bring a solution or idea that they believe would make things better. Most of these overly bullish or overly bearish analysts in which everybody should be avoiding (I hope) will benefit if the market moves in the direction they are predicting. (The ones who say, "Well, we're neutral right now" should also be avoided because they are too arrogant to come out and say they have no clue what to do next.)
Me personally, I have no idea what sector will be the next market leader though I do believe that the commodity sector will have some degree of outperformance in the next decade. Why? Well, with the lack of borrowing, lending, investment and increase in job, project and growth cuts, I'm thinking that if the demand for commodities should stay the same or increase even slightly, that the producers will find even greater profit margins going forward as they are unable to keep up with the demand. Like I said, unless I'm saying something that nobody else knows, this is most likely already factored into the markets right now.
...the roulette wheel only goes up to 36. 
