Market Thoughts

Monday, July 28, 2008

Markets need leaders. Where are the leaders in this market? I think we can categorically state that there are no leaders. The market recently bounced because of an oversold, and government manufactured, bounce in financials and parabolic break in crude oil. Oil prices held the market hostage for much of 2008 as prices continued to climb higher and higher and Goldman Sachs began touting $200 per barrel forecasts. Financials have performed horribly in 2008 writing off billions and proving that even the safest of all financial firms, read Fannie and Freddie, can be overexposed to unknown risks.

2007 had leaders in the technology space like Apple, Research in Motion, Amazon and Google and a plethora of inventive solar energy companies. These companies were built through innovation with novelty products that garnered strong consumer demand in their respective markets. These firms had extremely high growth rates with considerable pricing powers. Markets need leaders like these that excite consumers and investors.

2008 has offered leaders from the energy sector, in coal and oil, and agriculture companies. These companies have unduly profited from exploding commodity prices and not from the new or different. Markets cannot be lead in the long-term by firms simply profiting from the uncontrollable rise in the price of their outputs. And, as in most bear markets, everything is eventually sold and even these quasi-leaders have been sold.

The recent market bounce has not highlighted any new leaders in the market. Oversold financials finally found some friends and crude oil participants finally found some fear in buying these high levels. Once we start to find some companies with great products and high growth rates that begin showing strength by breaking out to new 52-week highs, we will have some good investing possibilities. I continue to watch Visa and Mastercard, both reporting earnings this week, as potential candidates to offer leadership out of this bear market.


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