When I think of the traditional American economy, I think of
cars and housing.
Images flash through my mind of the 1950s, when huge swaths of
empty land were converted into suburbs and automakers reigned as
the kings of industry. They were two of the hardest-hit sectors in
the last five years, and this summer is likely to mark their
My thesis is that stocks tied to housing (
) and driving (
) will all benefit in the process. We have already seen the
remarkable strength of the builders.
Yes, they're up big from October, but many of these names are still
reasonably priced versus their levels over the post-2009 period.
Unlike most equities in the market, they have not rallied for two
years straight, so now could be their time to catch up.
Another trend we've seen recently is bullishness in refiners such
. These stocks have traditionally done well between January and
July in preparation for the summer driving season. Judging by
employment and consumption data, U.S. consumers will go into
Memorial Day this year in their strongest position since 2006 or
2007, which is good news for refiners.
That seasonality will also benefit housing because people typically
move during the spring and summer. Overall, the next few months
could feel surprisingly good for the economy.
The data suggests that this is already happening: Yesterday the
Federal Reserve released its quarterly Z.1 "Flow of Funds"
, which showed consumer credit shooting up at a 6.9 percent
annualized pace in the fourth quarter. That was the strongest
reading since 2001! It was the fifth straight quarter that consumer
credit grew, and it was finally big enough to offset contraction in
Now I know that "debt is bad" and "this is how we got into trouble
in the first place." But these things go in cycles, and we've just
finished a nasty deleveraging process. Banks have also been
loosening credit standards at the same time that loan demand is
climbing, according to the Fed's
Senior Loan Officer Survey
. Put all those pieces together, and the leveraging cycle is now
going in the right direction.
Another consideration is that vehicles need to be replaced, with an
average age of about 10.5 years in 2010. That's up from about 9
years back in 1999, according to the
National Automotive Dealers Association
. Not surprisingly, auto dealers have been quietly adding workers
in recent months, according to the
This is one way that the current period differs from the 1950s:
Back then, railroads had entered a long period of stagnation and
decline because of trucks. Now, thanks to containerization and high
fuel prices, trains are working their way back into the economy.
, which consists of about six companies, has one of the strongest
growth profiles anywhere.
But we've been hurting for a long time, overall. This summer could
be the first in many years when things start getting back to normal
(A version of this article appeared in optionMONSTER's
What's the Trade?
newsletter of March 9.)