The Cindy Crawford Economy
I remember intently examining a few magazine covers that former supermodel Cindy Crawford adorned in my prime high school and collegiate years. Like our economy, the resultant recovery in 2009-2010 feels a little like a more mature version of Cindy Crawford (now 43 years old). Things look pretty good on the surface, but somehow people are more focused on pointing out the prominent mole, rather than appreciating the more attractive features. Many market commentators feel to be making similar judgments about the economy – we’re seeing nice-looking growth (albeit at a slowing pace) and corporations are registering exceptional results (but are not hiring). Even Ben Bernanke, our money-man superhero at the Federal Reserve, has underscored the “unusually uncertain” environment we are currently experiencing.
Certainly, the economy (and Cindy) may not be as sexy as we remember in the 1990s, but nonetheless constant improvement should be our main goal, regardless of the age or stage of recovery. Sure, Cindy chose cosmetic surgery while our government chose a stimulus (along with healthcare and financial regulatory reform) for its economic facelift. But the government must walk a fine line because if it continues to make poor decisions, our country could walk away looking like a scary, cosmetically altered version of Heidi Montag.
Our government in many ways is like Cindy Crawford’s former husband Richard Gere – if the Obama administration doesn’t play its cards right, the Democrats risk a swift divorce from their Congressional majority come this November – the same fate Richard suffered after a four year marriage with Cindy. Like a married couple, we need the federal government like a partner or spouse. Fortunately, our government has a system of checks and balances – if voters think Congress is ugly, they can always decide to break-up the relationship. Voters will make that decision in three months, just like Cindy and Richard voted to separate.
The Superpower Not Completely Washed Up
We may not have the hottest economy, but a few factors still make the equity markets look desirable:
- Corporate profit, margins, and cash levels at or near record levels. S&P profits are estimated to rise +46% in 2010.
- Interest rates are at or near record lows (Fed Funds effectively at 0% and the 10-Year Treasury Note at 2.74%).
- The stock market (as measured by the S&P 500 index) is priced at a reasonably alluring level of 13x’s 2010 profit forecasts and 12x’s 2011 earnings estimates.
Multiple Assets & Swapping
I don’t have anything against the institution of marriage (I’ve been happily married for thirteen years), but one advantage to the financial markets is that it affords you the ability to trade and own multiple assets. If a more mature Cindy Crawford doesn’t fit your needs, you can always swap or add to your current holding(s). For example, you could take more risk with a less established name (asset), for example Karolina Kurkova, or in the case of global emerging markets, Brazil. Foreign markets can be less stable and unpredictable (like Kate Moss), but can pay off handsomely, both from an absolute return basis and from a diversification perspective.
Money ultimately goes to where it is treated best in the long-term, so if Cindy doesn’t fit your style, feel free to expand your portfolio into other asset classes (e.g., stocks, bonds, real estate, commodities, etc.). Just be wary of stuffing all your money under the mattress, earning virtually nothing on your money – certainly Cindy Crawford is a much more appealing option than that.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
*DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds (including those with exposure to Brazil and other emerging markets), but at the time of publishing SCM had no direct position in any other security directly referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.