Well, I know what song you'll be singing all week once you get done reading this commentary-none other than the current pop-rock hit single by the recording artist Pink titled, "Raise Your Glass." Believe it or not, the lyrics at the beginning of that song really sum up the state of the markets today. Those lyrics, by the way, go like this: "So raise your glass if you are wrong in all the right ways, all my underdogs..." That got me thinking about the market pundits and what they've gotten wrong regarding our markets: all the underdog issues. Issues that these so-called experts said couldn't continue into 2011 have done just that, and then some. That's what I call being wrong in all the right ways. The more wrong they are, the higher our market goes. So join in with me now and raise your glass to these five investment issues that have defied all of the experts: manufacturing, productivity, rig count, earnings, and Germany. Let me briefly touch on all five, beginning with manufacturing.
The ISM (Institute for Supply Management) Manufacturing Composite Index1 rose dramatically in January by 2.3 points all the way up to 60.8. As a frame of reference, anything above 50 is considered bullish for our economy, and our markets. Oh, and one more frame of reference for you-that 60.8 level is the highest reading on the ISM Index since May of 2004. Also, one of the subsets of that Index also had a blowout in January. The ISM manufacturing survey's "New Orders" Index2 was up 5.8 points to 67.8. And, once again, anything above 50 is bullish for manufacturing, our economy, and our market. By the way, that 67.8 level is a seven-year high.
Let me move on from manufacturing to my second investment issue: productivity. Productivity, which can loosely be defined as the amount of output per hour worked, was up an almost unheard-of 3.6% last year. That 3.6% annual productivity increase is the highest seen in the past eight years. I've said this before, and I'll say it again: Every day, we seem to discover ways of doing things better, faster, cheaper, and more efficiently than ever before. That's the productivity miracle. Take me, for instance. Right now, I'm composing this commentary on my iPad at 35,000 feet in seat 36C, on Delta flight #1904 flying from Fort Lauderdale to Detroit. I'm connected to the Internet via GoGo Inflight Internet Services, which is enabling me to pull up these government productivity numbers. Now that's true productivity!
Let's move on to my third investment issue: rig counts. While it's not very widely followed, it's a favorite of mine. This indicator is put together by ISI (International Strategy & Investment). The rig count tells you what the oil and gas industry thinks about our economy, and also about oil and gas commodity prices. When the rig count is low, it tells us that the oil and gas industry is bearish on our economy and bearish on oil and natural gas prices. Conversely, when the rig count is going up, it tells you that the oil and gas industry is bullish on our economy, and on oil and gas prices. Near the end of 2008, (right before our financial system began it's meltdown with the collapse of Lehman Brothers) the rig count almost hit 2,000. This was the highest level in the past decade. When our financial system collapsed, so did the rig count. By the middle of 2009, it was below 900. This was the second lowest in the past decade, trailing only 800, a level reached after the terrorist attacks of 9/11. As of February 2011, that number is back up to 1,764, which once again is approaching a decade high. Pay close attention when something goes from a decade high to a decade low in less than two years-it's trying to tell you something. In my opinion, it means that the economy's just fine, and commodity prices (especially oil and natural gas) will stay high.
I'd like to switch now to the fourth of my five investment issues: earnings. Earnings is my favorite indicator. In my opinion, it's the most important issue of all time. Some will argue with me that earnings isn't the most important indicator because it only tells you what's already happened. To that argument, I say, then why do the Bears pay so much attention to earnings when companies don't make money, if earnings really don't matter? You can't have it both ways. That being said, there is an earnings number that's forward-looking. First Call does a four-week moving average of earning revisions by Wall Street analysts. When Wall Street analysts are revising their estimates down, they're bearish on future earnings; when they're revising their estimates up, they're bullish on future earnings. In the spring of 2010, when the Dow3 dropped below 10,000 on its way down to 9,000, this earnings revision number stood at 50%. The latest figure as of the week of February 4th has the number up above 60% again, at 63%. That's an extremely bullish, forward-looking sign for future earnings among Wall Street analysts.
Last, but surely not least, is my fifth and final investment issue: Germany. You may recall that Germany is one of my top ten investment themes for 2011. Actually it's theme number seven, which I call, "Ship It Into Shape" (Germany). While I loved this theme when I released it in my commentary on January 10, 2011, I love this theme even more in February. Here's why. The unemployment rate in Germany has dropped to 7.4%. (You better sit down for this one.) That's the lowest unemployment level in Germany in almost 20 years. Actually, it's the lowest since March of 1992. The major thesis for my top-ten Germany theme was my belief that German exports would be booming in 2011. Would you like to know how that's working out so far? In January 2011, German automobile exports rose an unheard-of 10% to 312,800 vehicles. Talk about an export boom! The only problem with this top-ten theme is that it should've been higher than number seven!
I have a sixth thing that I'd like to raise my glass to. With all of the pre-game hype for the Super Bowl, (it felt like the pre-game show was actually eight hours long) you may have missed what I considered the single most important pre-game Super Bowl event, on Fox TV. It was an interview with Fox News talk show host, Bill O'Reilly, and President Obama. Bill O'Reilly kept pushing President Obama, trying to get him to admit that he's moving more toward "the center" with his political views after the midterm elections of 2010 (just like President Bill Clinton moved toward the center after the 1994 midterm elections in the first term of his presidency). The more President Obama tried to deny that he was moving toward the center, the more facts and figures Bill O'Reilly bombarded him with proving that he is indeed moving toward the center. Here's why this is important. On January 24, 2011, in my weekly market commentary titled, "Our Mr. Cellophane Markets," I unveiled my official market forecast for 2011. I'm calling for a Dow 14,000. As I travel around the country, I'm meeting with a great deal of opposition to this Dow 14,000 call. While most investors have stopped short of calling me crazy, they all think Dow 14,000 is crazy, and will never happen in 2011. Well, guess what? They better think again. You see, all it takes for the Dow to get to 14,000 this year is a 20% gain. I can hear all the Bears moaning now, "Did he really say ALL it takes is 20%?" Here's the deal. That Super Bowl interview proved to me that President Obama is indeed moving to the center politically. Here's what history has to say about that. Twelve months after the 1994 midterm elections, as President Bill Clinton moved toward the center, the market (as measured by the S&P 500 Index)4 was up 32%. Remember, all I need to get to Dow 14,000 is 20%. All I have to say is, "Thank you Mr. President, and thank you Bill O'Reilly for a great interview."
Sometimes I'm my own worse enemy. I can't believe I opened up the door with this commentary by actually discussing the Super Bowl pre-game show. Now I have to raise my glass for a seventh time to the Green Bay Packers, who beat my beloved Pittsburgh Steelers in Super Bowl XLV. Talk about being wrong in all the right ways! That was me and my Super Bowl prediction of a Steelers victory.
Finally, let me end this commentary with my favorite "raise your glass" quote. Actually, it's an anonymous toast, and it goes like this: "Dance as if no one were watching. Sing as if no one were listening. And live everyday as if it were your last."
P.S. The early "Dr. Bob" line on Super Bowl XLVI on February 5, 2012 in Indianapolis, Indiana at Lucas Oil Stadium is the Steelers by +6 1/2 points :-). See ya' at 14,000!
P.P.S. Come on and sing along with me now, as if no one's listening. (You know you want to.) "Won't you come on and come on and raise your glass (for me). Just come on and come on and raise your glass (for me)."
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1 The ISM Manufacturing Composite Index is a diffusion index calculated from five of the eleven sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states. The five components of the composite index are new orders, production, employment, supplier deliveries, and inventories (their own, not customer inventories). The five components are equally weighted. The values for the index can be between 0 and 100.
2 The New Orders Index is one of the five components of the ISM Manufacturing Composite Index; it tracks new orders within the manufacturing sector.
3 The Dow Jones Industrial Average (DJIA) is an unmanaged, price-weighed index of 30 of the largest, most widely held stocks traded on the NYSE.
4 The S&P 500 Index is a composite of the 500 largest companies in the United States.
Indices are unmanaged and unavailable for direct investment.
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