MOVING UP THE ALPHABET FROM B TO CS

Buy backs have been much the rage in this latest bull market charge.

Now there appears to be a new-old kid in town, capital spending. If you're looking for a reliable indicator, you might want to use the old hiker's wind gauge of wetting the tip of your index finger and sticking it in the air, chances are you'll fare just about as well as those with their expensive, convoluted econometric confabulations.

And right now that moist finger seems to be drying in the direction of capital spending. This is not to suggest that capital spending had dried up. Like my old boss, it just wasn't appreciated that much. Buy backs were.

In this weekend's edition of the Financial Times the teaching of the dismal science at the undergraduate level came under some heavy fire: "The world has changed a lot. Economics has changed a lot too. But the curriculum hasn't."

At the center of this controversy is the claim that for the past 30 years teaching quantitative methods have increasingly dominated the courses. This is per se, according to the critics, not a cry against neoclassical or mathematical tenets of  the dismal science but a call for the recognition that these are only part of the total.

With all undue respect, we highly recommend the wet index finger wind test. It's right up there with another bete noire of classical economics, anecdotal evidence. And if you're really interested in discovering what's happening, put the two together.        

On a performance basis, there's something else in the air. Stocks of companies that have increased capital spending of late have far outperformed those who are using their cash, borrowed or otherwise, for buybacks. The bottom line here is sentiment and perception are cuts from the same investor fabric.

Low interest rates create low funding costs. So you might want to start looking at firms that are putting their money where their future growth is since growth drives earnings. There is, however, just one caveat. But please don't try to tell it to elected bureaucrats.

Some folks are just better than others at managing they're own money.