Shifting to the Left and the Stock Market?

President Bush and the GOP should have considered long-term implications when they had the chance to make a relatively minor capital outlay to shore up the Levy system in New Orleans. Our view is that this administration seems narrowly focused on a few specific issues at the expense of broader and other important concerns facing the nation and the world. Only now are we hearing President Bush address the issue of racism leading to poverty which leads to major social disruption. Certainly this is an interesting concept in the War Against Terror as well.

Perhaps President Bush's despair over Katrina is forcing him to examine other approaches for his critical missions. It shall be very ironic if this administration were to become more centric during the next few years of his Presidency. The pendulum always swings too far and this country may be moving back to the left. History may point to the less than successful war in Iraq and lack of interest and strategic planning BEFORE and AFTER Katrina as the catalyst that moved the pendulum back.

The economy will likely be faced with higher inflation and interest rates over the next several years thanks to the policies of the Bush Administration. Implications for the stock market are significant. As competition from Bonds offering attractive yields (despite the diminishing real rate of return from inflation), most stocks will have a large hurdle in attracting investor interest. The growth rates in the traditional Dow Jones stocks will not justify the risk involved in owning those instruments versus relatively risk free bonds. Only sectors with outsized growth potential will be able to compete in a high inflation/high interest rate environment. Hence, another reason for our Bullish thesis on Technology stocks.

The moons are aligning for the overall Technology sector. The exciting product cycle about to be unleashed into the economy from key companies such as Microsoft (MSFT) and Intel (INTC) will have a trickle effect into other Technology solution companies. The excitement generated from these technological applications and subsequent earnings growth from these companies combined with the lack of viable growth alternatives in other stock sectors is what intrigues us.

Simply put investors will find themselves searching for favorable risk/reward investments in the stock market without much success. Through default, the Technology sector is likely to attract tremendous cash inflows. The rotation into high growth technology from other sectors such as Housing, Fixed Income, Energy, and slow growth stodgy industries will potentially create the next technology "bubble".

As the rock group Foreigner sang, "It Feels Like The First Time".

___________________________________________________
The analysis, opinions and/or forecasts expressed on the Kcap Trading Blog (“KTB”) are for informational purposes only and should not be relied upon in making investment decisions. By using this site you agree that Kleiner Capital Management, LLC (“KCAP”) and its principals are not liable for any action you take or any decision you make in reliance on any content. Please be aware that there is no commitment by KCAP to update the KTB. Furthermore, there may be inconsistent timing and follow up (if any) of posts.
None of the information on KTB is considered individualized investment advice and should not be construed as a recommendation or solicitation to purchase any securities. Reliance on information provided on KTB in no way establishes an advisor-client relationship. Investors are encouraged to seek the advice of a qualified investment professional prior to investing funds.
Clients of KCAP, as well as the firm’s principals and other employees, may be invested in securities discussed at KTB. However, any mention of said securities is not intended to influence market conditions for the security to the benefit of KCAP clients and/or principals and employees. KCAP is not affiliated with any advertisers on this site and does not endorse any of their content. For additional information and disclosures, please visit www.kleinercapital.com.
The information on KTB has been furnished from sources we consider to be reliable, but no guarantee is made with respect to accuracy.
___________________________

Click Here To E-mail Comments