The market's reaction to the Fed's Jackson Hole meeting last
week reminded me of my recent experience buying a car.
Armed with a rough idea of the size I needed and the price I was
willing to pay, I test-drove several vehicles that were all pretty
much the same. I found myself staring at them with glazed eyes
while the salespeople make their pitches. After a few days of this
indecision, one guy simply cut a bunch of money off the sticker
price and I gave in.
The point is that I bought the car because I needed it. It was
simply a question of what catalyst would get me to sign on the
That's the case with Ben Bernanke's statement on so-called
stimulus: "The Federal Reserve will provide additional policy
accommodation as needed to promote a stronger economic recovery and
sustained improvement in labor market conditions in a context of
Is this any surprise? Does anyone doubt that if the economy
suddenly nosedived off the cliff tomorrow the Fed would take
action? Is the sky blue?
Yet that is exactly what caused the market, and precious metals in
particular, to rally. Given that there was nothing new in the
statement, we must conclude that it wasn't the reason for the
gains. The reason, in fact, was the same as why I bought the car: I
Investors need stocks and precious metals now. They're fully loaded
on Treasuries and underexposed to equities. It's that simple.
Forget about the Fed and Europe. The simple fact is that stocks are
underowned, and we're not going into recession. Period.
Then we have emerging strength in the small-cap Russell 2000 index,
which has started outperforming the broader market in the last
month. One final ingredient is that companies are now better
managed and stronger financially than at any other moment in
Put all those pieces together, and here's what you have: The U.S.
economy is not in recession, and stocks are underowned.
To that end, I'd like to close with some final trading ideas from
. As usual, these are starting points to give you ideas rather than
Monolithic Power Systems (MPWR)
: This small-cap chip maker has been beating estimates and growing
at a double-digit pace. Piper Jaffray cut their rating yesterday,
citing valuation, but those kind of downgrades often provide good
buying opportunities. After all, it was rallying for a reason!
: These stocks have been in a secular uptrend because banks have
been slow to lend. In some respects, they devoted so much of their
attention to mortgages in the last decade that they've forgotten
how to do other kinds of business. These companies have been
leasing items that were previously owned and financed--from
machinery to furniture. Aaron's Rentals (AAN) looks especially
: The ultimate secular pick. It's not hard to predict the wave of
funerals that will occur in the next 20-30 years as the Baby
Boomers age. Many of them will buy their graves and services years
before under so-called preneed contracts. Now's the time for this
trend to really get going with the oldest Boomers over 65. Service
Corp. (SCI) has just broken out and looks pretty interesting.
: The improving jobs picture increases the chance of Obama getting
reelected, and that will rekindle fears of gun owners who've been
stockpiling weapons ahead of potential bans down the road. The
charts on both of these companies, Smith & Wesson (SWHC) and
Ruger (RGR), are amazing and appear to have more upside in the
(A version of this article appeared in optionMONSTER's
What's the Trade?
newsletter of Sept. 5.)