Where Are We Going From Here? (Nov 2014)

[Dividend Watcher]

As I was reading SA and several other investments sites during the week, I was starting to become a little uneasy. In my opinion, there was more than a tinge of hubris which we have not seen since the Great Recession and I became a little more uneasy.

Sure Chuck Carnevale pointed out some fairly valued, big name stocks in his recent posts along with some other authors. However, if you read between the lines, he wasn't pounding the table to go out and invest. Instead, he urged further due diligence and caution to not over pay -- his usual, conservative strategy. Likewise, some of the other commentators, David Van Knapp, chowder & David Crosetti amongst a few others, that I have come to respect the opinions of, have not been gushing with suggestions as we saw in the 2009 - 2011 time frame. Our own Eric Landis had a good series on SA covering the different S&P sectors of the economy pointing out some interesting companies to research further.

On the flip side, the talking heads of CNBC, Yahoo! Finance and those that stand to gain from investors creating trading costs have been talking up the market. Likewise, some of the younger commentators have been more upbeat on the prospects for investors. To their credit, most have emphasized the long-term view and acknowledge that there will be pain from time to time. Yet I sometimes become skeptical thinking some of these people haven't lived or invested through the oil crisis of the 70s, the inflationary early 80s, the crash of '87, the dot.com bubble and subsequent bust at the turn of the century.

I don't mean to discount the impact of the Great Recession. It may be a once-in-a-lifetime event and what lies ahead for the next 20-40 years may be mild in comparison but it doesn't discount other events which may try all of our patience for a time.

At this time, we are witnessing a collapse of the oil market. This has happened before yet so many are discounting it as a short-term event. Maybe it is and maybe it isn't; only time will tell. To me, it is appears to be an inflection point. This can be good for the market and economy as a whole or it can be start of a downturn that will shake out the weaker players in and out of the sector and lead to sub-optimal growth in the near term. I don't have the answers nor a Magic 8 Ball.

On the plus side, cheaper oil means lower input costs for the majority of businesses and a boost for the pocketbook of consumers which may finally increase demand for goods and services. In this case, the hubris I detected may be justified.

However, in our interconnected world, the challeges to a major portion of our carbon-based economy may cause some severe dislocations to a great many. Imagine oil going to $30/bbl for an extended period of time. What effect will that be on the thousands of people employed in the shale fields? What about the businesses and localities that have had to support this infrastructure? If a lot of this willy, nilly investment dried up for any length of time what industry is going to step in to pick up the slack? Housing construction? I doubt it with wages stagnant for 2 decades and people still repairing their household balance sheets I don't forsee a return to the 00s housing boom with its McMansions.

I'm not writing to scare you nor am I all gloom and doom. I am, for the most part, optimistic about our economy for the long-term. I am going through a little angst here because of the tone of many people.

Now, perhaps, those of you that have popped in here lately asking for recommendations of stocks to put in your portfolio may see why responses have been lackluster. None of us want to say buy this or that and then rue the day when some unexpected event causes the stock to take a huge drop. You need to develop your own thesis on why you should or shouldn't own a specific company. Seadrill comes to mind immediately since that is the market's most recent debacle.

So, to bring up something similar, there is Deere (DE). We've talked about it here. It's been hashed out on SA and the talking heads have also chimed in at times. I hold it and it could suffer from something similar. Are you prepared for earnings (and possibly stock price) to drop somewhere around 50% should the farm implement market dry up for a time? It has in the not too distant past. This is a rhetorical question. I just wanted you to think of a similar industry which could suffer similarly to oil right now.

So what was the purpose of writing this diatribe? I wanted to document this gut feeling I've been getting for the last month or so -- since the August 2014 pullback, I guess -- and solicit some feedback. I am planning to hold what I have with maybe some rebalancing in the near term. That would only be because of the structure of my portfolio and not in reaction to the market. I'm wondering what you've been thinking about the near-term future of the market and the economy. I could be totally off-base here. Please join in with your thoughts.