Getting Closer to the Truth

French economist Guy Sorman proclaimed, “The consensus is not always the truth.” (Quoted by Matthew Kaminski, “Why Europe Will Rise Again,” The Wall Street Journal, 8/18/12). Sorman’s observation articulates a suspicion I have harbored since the summer began.

From April through early June, U.S. stock indexes tumbled as job growth and consumer spending data raised the specter of renewed recession. Yet the outdoor shopping center by my office stayed crowded, people seemed upbeat in conversations about pending vacations, and airplanes were full. To parody Tina Fey lampooning Sarah Palin, “I could not see doomsday from my house!”

The consensus was not the truth. It has always seemed to make sense to take the most pessimistic outlook, add Pollyannaish views, and divide by two, bringing one closer to reality and truth. Rarely is anything as good or as bad as some would have you believe. This technique is good for your psyche and will help to keep your investment policy under control.

With the stock market as a leading indicator, marching upward since June, a sunnier outlook emerged. While overall U. S. growth is tepid, August data showed exports holding up surprisingly well given woes in Europe and slowing in Asia, job growth improving, and consumer sentiment more positive.

France’s Sorman is confident that Europe will not implode, and the currency union has taken away a simple fix previously employed by debt-ridden countries, currency devaluation. Kaminski quoted Sorman as noting that the lack of an easy fix forces “each economy to be more rational, more flexible and more productive.” The logic of that thought is powerful, providing dots that connect to other ideas.

Take the U. S. “fiscal and tax cliff” that worries investors, as well as the flack about entitlements and Social Security and Medicare. The election battle underscores the truth that the status quo is not a strategy. Our political leaders will come out of the election forced to be “more rational, more flexible, and more productive,” regardless of who prevails.

The travails in Spain and Italy and other countries may depress markets. Again, there is an offsetting truth. Bloomberg Business Week notes that “parts of Europe have quietly become competitive.” (“Cliff Ahead. Speed Up,” by Peter Coy, 8/13/12-8/26/12).

The story cited Italy’s disc brake manufacturer Brembo as an “elite export powerhouse.” Coy tagged a Spanish consortium selected to build a high-speed rail line in Saudi Arabia, the success of Spain’s Zara clothing empire, an Italian shipbuilder constructing super luxurious vessels for a cruise line, and an Italian company selling helicopters to Algeria. Money managers look for green shoot companies midst markets depressed by surface headlines and herd-like reactions.

In Atlanta, stalled real estate projects slowly are coming to life. No one foresees another boom, but the pace of new construction, particularly single- and multi-family homes, is roughly 20 percent higher than one year ago. The National Association of Homebuilders confidence index rose in August suggesting that builders feel that the market is at least stabilizing.

As always, threats to the markets remain, those talked about and potential Black Swans hiding in the reeds. But scenarios surrounding a euro-collapse and a renewed recession appear less worrisome as we anticipate the pleasant days of fall. The bond bull market is over. When average investors figure that out, billions of dollars could move elsewhere. Depressed investor sentiment is the friend of contrarians.

Acclaimed Wharton professor of finance, Jeremy Siegel, tosses out the possibility of Dow 15,000 by the end of 2013. Fifty-fifty odds, he says in BusinessWeek. “I would not be at all shocked if we got to 17,000.”

His pythonic musings do not represent a consensus. When wild card opinion morphs into consensus or recognizable reality, bargains are gone. Investment success demands patience, immunity to startling headlines, and a willingness to be “wrong” in the short term. That’s the bottom-line truth!

The Investment Coachä 1994, Walker Capital Management Corp. Lewis Walker is President of Walker Capital Management Corp. and Walker Capital Advisory Services, Inc., a Registered Investment Advisor (R.I.A.) Securities and certain advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative of SFA  which is otherwise unaffiliated with the Walker Capital Companies. 3930 East Jones Bridge Road ▪ Suite 150 ▪ Norcross, GA 30092 ▪ 770-441-2603 ▪