As part of my ongoing financial awareness routine, I was sitting happily on the patio this morning reading Barron’s, a weekly publication I have delivered to my home. On Saturday I wrote about trade offs, and again today I am having a pretty good trade off. I am reading Barron’s instead of looking at my favorite magazine, Traditional Home, BUT I am enjoying this beautiful Austin morning outdoors with my faithful yellow lab; I have already spotted my first hummingbird of the season, and the neighborhood roadrunner about 15 feet in front of me. How cool is that? I have to secretly confess, however, at this point in my life, I actually enjoy reading financial publications, especially, Barron’s!
There are only a few investing experts whose opinion I listen to about what is going to happen in the financial markets, and my decision is based on their long term ability to provide good information. Lately, they have been predicting a large correction. This makes sense to me, as the market has run up so steeply and quickly, consumers still have a lot of debt with rising interest rates, and still high unemployment rates. The thing that is bothering me is that each of these experts is saying the same thing, and history has shown that when everyone agrees, they are usually wrong.
A bullish article, entitled “Stronger Than Ever” and by long-time writer Michael Santoli, appeared in today’s Barron’s. The article made the point that large companies in the United States have bare-bones budgets from reduced spending and excess capital reserves due to that reduced spending. The article stated:
Cash holdings by Standard & Poor’s 500 companies, whether measured as a percentage of corporate assets or as a proportion of total stock-market value, are at or near record levels. The ratio of free cash flow to stock-market value, too, is close to an historic high.
One investing lesson I have learned is that when anything is at or near record levels, I pay attention. This isn’t to say that the market is not looking like it may have a near term correction, but it does remind me of the early 1990’s, when companies flourished after coming out of the recession due to reduced spending and better financial positioning. I believe it is impossible to predict exact tops and bottoms of market cycles, but it makes sense to pay attention to what is happening by looking at big pictures and broad trends, and certainly noticing all-time records.
Image Source: Danny Perez Photography