I was talking with a friend who works for Deutchse Bank and his wife this weekend. We were all in agreement regarding the overall market and economic conditions being nearly catastrophic. He mentioned to me that he just needed to figure out what to recommend to his clients, and we all got a little laugh, (although a cynical one) out of it. That indeed is the problem, and I've spent days pondering the answer.
I revert back to my technical analysis and sector rotation. It is so imperative that anyone invested in any equity understand sector rotation. Imagine if you will a "football field," with the end-zone on the left being the 0 yard line and the end-zone on the right being the 100 yard line. Stocks that are at the 0 - 20 yard represent sectors that have been oversold. Stocks in the 80 -100 area are stocks that have been overbought.
Downside risk<-------------------------->Upside Potential
When a sector reaches those high 70,80 and 90% areas, its potential upside is diminished and downside risk becomes much greater. Conversely, when a sector hits those low numbers, it downside risk becomes minimal, and its upside potential becomes greater and more attractive.
Here's the first problem. Nearly everything is oversold now, with the exception of commodities and perhaps gold stocks, although those seem well on their way to joining other sectors at the left end of the field. The question becomes, which sector or sectors will lead in the next market uptrend?
The government has yet to figure out that the way to spur the economy and end another depression before it begins is through job creation. When Reagan brought us out of a recession, it was through jobs that were created during the cold war in aerospace and defense. Hoover and FDR did it through construction in infrastructure and the Hoover Dam. The Clinton years brought us technology. The next Government funded projects for the sake of the country's financial health will be in my opinion, alternative energies; yet that scenario will take a year or more to begin to play out. No economy can prosper on Walmart salaries.
So today, as I was driving home and listening to CNBC on Sirius, a commercial caught my attention. It was a commercial for Advil. Immediately I recognized this as a new advertiser. I then recalled a statement by Mel Karmazin recently that mentioned his desire to offer a low priced solution to advertisers. Mel, your a genius! You may not know crap about stocks but did you ever bowl me over today!
"That's it!, I exclaimed to myself." MEDIA stocks will lead the next market! Allow me to be the first to call it. As companies look to lower costs they will seek out less expensive advertising solutions. A business without a sign, is a sign of no business! Consider help wanted ads, "for-sale" ads and such. Companies that want to survive will be looking for low cost ad solutions, and companies that provide these solutions to corporate America on a national scale will benefit the most. Media such as Sirius XM will thrive, provided of course, that it can survive the current credit crisis.
Positions: Long SIRI