It’s been a rough winter, but here in Detroit (and I suspect in your town, too, if it’s been hit by the near constant winter storms this year) you can be assured of one thing – when the snow stops and the clouds part and sunshine floods the sparkling, newly fallen snow in the fields, while the streets, in contrast, get grayer, then black as soot as the traffic returns – then, I will bet you, the lines will grow long at your neighborhood carwash. It doesn’t matter whether it’s the end of winter or in the very depths of that season. When the sun finally makes an appearance, optimism, like the groundhog, raises its head and car owners flock to the car wash to feel clean and new again. This year marks the 100th anniversary of the creation of the car wash industry. From one small automated operator who incorporated Henry Ford’s assembly line techniques in 1914, when Frank McCormick and J.W. Hinkle opened Automobile Laundry, at 1221 Woodward here in Detroit, the industry has grown to a $133 billion world-wide endeavor – much of it still centered in Michigan, supporting over 150,000 retail operations. See the Detroit News story on the industry.
Of course, when I think of the car wash my mind drifts back to 1976. At the top of the music charts was a single by Rose Royce, an R&B group from L.A. that gave us the hit song, “Car Wash.” Who can forget lyrics like:
“You might not ever get rich
But let me tell ya
It’s better than diggin’ a ditch
There ain’t no tellin’ who you might meet
A movie star or maybe even a Indian Chief
Workin’ a at the car wash
Workin’ at the car wash, girl”
You can hear Rose Royce (don’t you love that name?) singing “Car Wash” here (it will bring back memories): Watch the video
Obviously, it was the infectious melody and beat that really propelled the song to number one, not its lyrics.
I think what most attracts the deep-winter optimists to the car wash, even though the likelihood is that the snow and winter slush will start to build up even as they exit, is the chance to wash away the dirt and grime, the accumulated ice and snow, and just start over again. And maybe that’s what stock market investors have been doing as well.
Just two weeks ago the market was sliding just as the temperature and the snow were falling. It fell 5.76% (coincidently the same amount as last summer’s last 5%-plus correction). The low came on February 3rd. Since then, the market has rallied an almost identical amount, finishing Friday’s Valentine’s Day session 5.66% higher than at the low.
Source: Bespoke Investment Group
What turned the markets around? Probably the terrific earnings reporting season we have been in is responsible. Earnings have been beating analyst estimates by a higher percentage than any period since 2010. And revenues have been exceeding predictions by an even greater margin.
It certainly has not been economic reports of late. Once again last week, the experts were on the high side for most reports, as only five out of twelve reports exceeded expectations.
In contrast to both earnings and the economy, interest rates have been a mixed bag. Rates have turned higher in the intermediate period, but last week they seemed to stabilize, and overall, in the longer term, you can see that the downward trend since 2008 is still intact.
Source: Bespoke Investment Group
One analyst report that gave readers a scare last week was a chart purporting to show how the last year and a half of Dow Jones Industrial Index price action has mirrored that of the major stock market crash of 1929 which ushered in the Great Depression:
Source: Bespoke Investment Group
It does look scary, doesn’t it? But notice that the price scales on the left and right are vastly different, even though the frightening number “-48%” is given as a percent.
Here’s how the chart changes when we show the same time periods but base it on percent change to make the significantly different price scales comparable:
Source: Bespoke Investment Group
It’s a pretty different picture, right? Yes, the two lines do still turn up and down at roughly the same points in the time cycle, but the bull market that had to be deflated in 1929 was far higher proportionately than the rather moderate rise we have experienced in the same number of days since summer, 2012. In the 1928-29 period, the Dow gained almost 100%, while in the same length of time in 2012-14, the gain was just over 20%. Not a comparable market at all.
I would be remiss not to remark on gold. Back in December (12/9/13), I mentioned that I thought another buying opportunity was developing. Since then, gold has indeed rallied.
As we currently use a 10% allocation to our dynamically risk-managed Hedged Gold Bullion and Targeted Volatility Analysis – gold strategies in our Fusion program – it’s heartening to report that, unlike the on again/off again stock market that is still slightly underwater for the year to date, The Gold Bullion Strategy Fund (QGLDX), sub-advised by Flexible Plan and utilized in the strategies, is up 9.48% YTD (2/14/14). The strategies have also gained ground in that time period.
Source: Bespoke Investment Group
Today (2/17/14) the markets are closed. So I’ve got the day off. Guess I’ll head over to the car wash. It’s been a long winter and the kids are sure to be scrawling “Wash me” on my car soon if I don’t do something.
What’s that? 3-5 more inches are coming in tonight… Yup that’s how it goes with car washes AND the stock market – clean things up, feeling good again, then everything changes! Fortunately, both the car wash and our strategies are fully automated and always operational. You know how it goes:
“Well, those cars never seem to stop coming
Keep those rags and machines humming
At the Car Wash!”
All the best,
Jerry
