PLAY ME VIOLINS AND FLOWERS

t.man hatter

Greed knows few bounds.

To the surprise of most the first half of 2014 had unexpected leaders like utilities, consumer staples and healthcare. Energy jumped in there especially after the Ukraine and Iraqi situations erupted. But it was hardly what many anticipated when the new year rolled around in January

Lately, there's been the hint of a slight change as more aggressive areas of the market muscle their way to the front. Over the long Fourth weekend CBS News banged out this story ,http://www.cbsnews.com/news/stocks-soar-and-most-americans-just-dont-care, as we head into earnings season and the second half.

Second quarter earnings, according to some, are expected to clock in around 5%, down for sure from an earlier call of nearly 7% when the second quarter started. But expectations are expectations. And for that matter so is disappointment.

Take it for certain that many want this rotation away from the softer more defensive issues to those aggressive bigger boys. It's what's needed to bring the retail mom and poppers back in for another kill. Line the prey up carefully, dangle the reward up front and wait.

The message is clear. The gap between the haves and the have-not crowd has numerous causes, but one of them is because you folks gave up on the system too early. More than 50 percent of Americans, according to one survey, avoid the stock market like most of us try to avoid a 5 o'clock rush hour on a Friday afternoon.

The ones who stayed the course have seen their holdings for the most part more than make up for (and then some) the losses suffered when things went nasty in 2007. If you've ever managed money--and we have and still do--you know how difficult it is to keep people from panicking.

What is almost as difficult is trying to get investors to buy out-of-favor, banged-up stocks or sectors. Several years ago when the Cox-2 inhibitor furor hit the market and Merck, the huge drug firm,was getting sued by nearly every lawyer worthy of the label and many who weren't and still aren't, we ran a survey of our longest standing clients suggesting they sell rolling puts against the stock as it fell, the given part in all the uproar.

The plan was simple. We wanted to accumulate as many shares as we could on the cheap. Risk has its rewards. Our research, though hardly impeccable, told us this too would somehow pass.

This was an old Buffett move he used with Coca Cola several years ago, though Coke wasn't being sued by anyone. We didn't have any inside info that things would go well, but what we did have was years of experience banging around the medical research industry. 

The FDA has two fundamental flaws--efficacy and safety. Both are like timing and direction in the market: You might get one correct, but seldom do you get both. What is suppose to be always safe isn't. And what is supposed to be efficacious often falls short.

And we also had an earlier experience with all those greedy state attorneys generals who sued big tobacco. The odds were better than good that those with some patience would make money. And we and our clients did. Now these things are never guaranteed. And that's what those who beat the have-versus-have-not drum want. It's disguised as equal outcomes, ten shades beyond anything that has to do with equal opportunities.

Anyone today can buy equities; it's not that hard or costly. Any stock market historian, right, left or revisionist, worthy of the monicker will attest to the shakeout in the broker business even before the Internet arrived. Before that it was a transaction-based business where even one side of a trade could cost several hundred dollars.

Things don't change over night, but before long discount brokers were riding herd and financial news exploded on the major airways overtaking what for many years was the bailiwick of public television. Few cared about it and even fewer watched. Financial media from newsletters to mutual funds to television--much of it directed at the proletariat--proliferated. 

Back in late 1982 when this big, bad bull market finally shook off the cobwebs of the deep, painful 1973-74 bear market, there were fewer than 400 mutual funds. Check out the number now if you can count that high without a calculator

Some of our clients still own Merck and have collected some nice dividends over the time, notwithstanding the upside. Now let's make this clear. This is not one of those pat-yourself on the back or hey-look-at-us things. Not every move in the market goes your way. Plenty don't work out.

And some day when there's more time--but we doubt if there will ever be enough time--we'll discuss a few that went the way of the noted "The best-laid schemes o' mice an' men." It happens.

Whether you put any stock in studies, over the years numerous ones have shown that fear is a much greater motivator than greed. In the case of the mom and poppers it's the fear of  missing out. The higher this market gets, the more Wall Street, MSM, Yellen and friends will roll out the violins and flowers.