When you’re being chased by a bear, you don’t have to run faster than the bear; you just have to run faster than the other guy.

Good advice when you’re camping in bear country. Good advice, too, when you’re thinking about how to allocate your money in the current very chaotic financial markets.

The U.S. economy and stock market don’t look especially attractive right now in absolute terms. But they do look a lot better than most of the alternatives. For the next few weeks, a couple of months, or maybe as long as a quarter or two, the U.S. stock market and the U.S. economy are the best in the world.

Yes, you heard that right: In the short-run that deeply in hock, struggling to grow, politically dysfunctional United States economy is the best in the world—and you need to make sure you own enough of its stock market to take advantage of that temporary superiority.

How can that be? Read more

Last Friday, November 19, I sketched out a picture of a very volatile 2011 (http://jubakpicks.com/2010/11/19/5882/ ) and said that today I’d take my best shot at a strategy for how to invest through that turbulence.

I probably shouldn’t be telling you this, but most of the time investing is pretty simple: Follow the trend with your money and get your emotions out of the way. And that’s also the key to even a turbulent year like 2011 promises to be.

My strategy is based on taking advantage of that “most of the time” and staying alert for the exceptions.

Most markets are in a trend. Read more

Third quarter GDP comes in on projection; unlikely to change Fed’s decision next week

he first estimate for third quarter U.S. GDP growth came in right on projections at 2.0%. That was up from the 1.7% growth rate in the second quarter but below the 3% or so growth rate needed to cut significantly into unemployment.

Housing was the big drag on the economy. (Big surprise, right?) Residential investment—home buying to most of us–fell 29% in the quarter. That more than offset a 9.7% gain in nonresidential investment. Nonresidential structures—commercial real estate—grew by 3.9% in the quarter, up from a drop of 0.5% in the second quarter. That’s good news for the still beleaguered commercial real estate market (and the banks with big loan portfolios in the sector.

The bright spot in the numbers belonged to consumer spending which grew by 2.6% in the quarter. That was the strongest quarterly growth rate since the fourth quarter of 2006 and a significant increase from the 2.2% growth rate in the second quarter. The growth rate for consumption of goods (2.8%) and services (2.5%) was about equal for the quarter but that disguises a big increase in the consumption of services from the second quarter when consumption of services grew by just 1.6%.

What conclusions can we draw from today’s numbers?

First, that economic growth remains weak enough so that the Federal Reserve is likely to go ahead with its second round of quantitative easing. Read more

Durables disappoint but order backlogs rise so no big worry–yet

Last month I argued that the headline number for durable orders—a 1% drop for August—wasn’t significant since it was driven by typical month-to-month volatility in airplane orders. The timing of twenty or so airplane orders as they fall in one month or the other can swing the headline durable orders numbers wildly.

I don’t have to make that argument today. The headline number for durable orders (durable goods are things that last a while such as airplanes, trucks, and production equipment) for September released today, October 27, showed a big jump to 3.3% growth. Most of that, though was due to a huge 72.4% pop in airplane orders in the month.

So today I get to make the opposite argument. The headline number isn’t as important as the 0.8% drop in durable orders minus transportation. Read more

I’m starting to see a new pattern in third quarter earnings reports.  Now to see if it continues through the end of earnings season.

What’s the potential pattern? Companies that announce great earnings but that still don’t measure up to Wall Street expectations. The stocks take a beating after the report even though nothing is wrong with the company except that it didn’t meet inflated expectations.

If this pattern holds up, it would be yet another piece of evidence suggesting that the market is looking for a breather.

Tuesday’s Exhibit A is Cummins (CMI).

Cummins did indeed miss analyst earnings projections for the quarter. The company reported third quarter earnings of $1.33 a share and that was 8 cents a share below the Wall Street consensus.

It was also roughly a 140% earnings increase from the third quarter of 2009. So shoot them. Read more