This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Sunday, March 15, 2009

Bear market or bear market rally? Both good news

March 10 was a good day for the stock market, staging a rare rally. The debate has sparked over whether this could be the end of this bear market or simply a bear market rally. Unfortunately, only time will tell. However, even a bear market rally could take the Dow back up near 10,000, giving investors a reason to remain optimistic, but more importantly to stay rational. A bear market rally would provide proof to the growing number of skeptical investors that the world is not coming to an end, and that this too shall pass.

In addition to regaining investor confidence, a bear market rally would also serve well to help many individuals reposition their investments and major corporations sort out their balance sheets. Given the opportunity, companies could sell some of their recovering investments for cash to keep on hand to start new projects, buy competitors or to be prepared in case things get worse.

Individuals, on the other hand, could liquidate undesirable investments without taking such massive losses, and either reposition funds in new investments poised to recover more, or simply use the cash to live more comfortably through the remainder of this recession. With credit still not having loosened substantially, many companies are still having trouble continuing normal operations without a line of credit. Cash gained from the sale of investments would alleviate the pressure to have a standing line of credit and allow companies to continue business as usual.

As discussed in previous articles, the Obama Administration doesn’t seem to be focused on economy, despite this worsening global crisis. Instead, it has used these dire economic times to justify legislation on new programs; as Hillary Clinton said in a speech just a week ago: “Never waste a good crisis.” That ought to tell the American people a lot about where the priorities of this administration are at. However, more recently Obama finally seems to be shifting his focus toward the economy, mostly because his constituency is abandoning him and his approval numbers are falling less than two months after inauguration.

While we tend to focus on the national news, it is important to keep an eye on things happening locally, and to keep an eye out for good news in this mess. We have just such news. In its March issue, Site Selection magazine ranked Toledo the third best metro area nationally according to development based on the number of new projects coming into the region. The greater Toledo area saw 38 new projects started in 2008, trailing only Dayton and Akron.

To find positive news on a larger scale – say global, we have just one word: China. In recent weeks, China is buying – buying a lot of everything. As we’ve previously stated, China recently purchased multiple mining companies in Australia, as well as an oil drilling company in Brazil. These purchases were made so that when the global crisis subsides, China comes out with the resources it needs to continue its rapid economic expansion. And that recovery may be coming sooner than many think. In fact, the China Association of Automobile Manufacturers said March 10 that after the Chinese government issued tax cuts on particular models, auto sales for the month of February grew by an astonishing 25 percent. This is due in part to China’s newly expanding middle class that has been long-awaiting luxuries they couldn’t previously afford.

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