Email
PrintIt was an interesting weekend, to say the least.
Friday, we had a large water pipe break under the house and had a decent amount of flooding. Since the leak is under the floor, we weren't able to get anyone to start ripping up the floors and walls to fix the leak until this morning. While my wife went off with the youngest to a hotel for the weekend, I was charged with staying home with the pets.
After a weekend with no water, I can say I am glad I have some water-related stocks like Pico Holdings (PICO) and Northwest Pipe (NWPX) in my portfolio. There are some parts of the world and even the U.S. where water is in short supply and my weekend experience is the norm. Fixing the delivery and storage facilities is going to a huge endeavor in the future. I find myself in complete agreement with Michael Burry of The Big Short fame that water is one of the next big things.
One benefit of the turmoil and dry-out efforts is that I did not get caught up in any of the chatter surrounding Friday's surprise jobs report and furious market rally. I checked prices several times during the day but I didn't have the news channel on and hear all the instant analyses of the event. I was able to hold off and sit down and read the report in the relative quiet of a Saturday afternoon while enjoying a baseball game. After digesting the full report and not just the headlines, I have to say I am not that impressed.
While job creation is better than the opposite, 147,000 of the jobs created in June were in low-paying industries. Leisure and hospitality, health care and social assistance and retail trade were the biggest contributors to the jobs number. I started to get excited about the 44,000 in technology until I realized 28,000 of those jobs were the result of the Verizon (VZ) strike ending. We still are not creating the types of jobs in IT, manufacturing, construction and government that will provide the household income needed to move the economy forward. The labor force participation rate is still too low for the economy to gain any sustainable momentum.
While the market's reaction to the report spurred some enthusiasm for stocks among shorter-term traders, it didn't do much for me. There were no new cheap stocks created, as one would be hard-pressed to find any stocks that dropped to bargain levels Friday. We are trading up at all-time highs this morning and that's just a difficult place for a value investor to be an enthusiastic buyer.
I expressed my frustrations over the weekend to one of my friends who is more of a trader. He asked me if I was concerned about being bearish as the market went to new highs. I had to correct his perception of my bearishness. I am not bearish, I am cautious. I hold a lot of cash and I am not putting any to work at the moment, but I am not selling anything and I am not short the market to any degree. I still own many of the stocks bought over the past two years and the community bank portion of my portfolio is stuffed full of cheap little banks with activist investors as shareholders. I am not selling the closed-end funds purchased at double-digit discounts earlier this year. I just cannot find anything new to buy and I think we are at levels in the broader market where putting money to work does not make a lot of sense for a long-term-oriented bargain hunter.
I do not really get bullish or bearish. When there are lots of bargains, I am enthusiastic about putting money to work. When bargains are scarce, I get cautious. Buy and sell decisions are still made to the individual company level, not based on some feeling of which way the market may move in the short term. I try to think like our old friend Mr. Womack and put money to work when everyone is scared and selling and sell when everyone else is enthusiastic and buying, and just sitting still in the months and years between those two inflection points.
We are still in the do-nothing phase, but with seven years since the last real dose of fear and bargains scarce, it's a good time to be cautious.
