More wise words

This is from Mitch Zacks, Senior Portfolio Manager at Zacks Investment Management. The previous one got 12 recommendations so here’s another, even better.

I’ve done a lot of cutting and snipping.

In connection with a previous post I asked Zacks Investment Management if I could post an occasional letter from Mitch Zacks on a MF board and they said it was okay as long as it was occasional, that I gave him full attribution, and a link to their site. Here’s the link and there’s more attribution at the end.


…After the US economy grew at a blistering pace of 4.1% annualized in the third quarter of 2013, many were expecting a drop-off in the fourth quarter. However, the initial reading came in Thursday showing the economy grew at a very healthy clip of 3.2%. After all the talk of sluggish holiday sales and deep discounts not being enough to draw shoppers into stores, consumer spending rose at the fastest pace in three years. Household purchases rose at 3.3 percent rate, the best performance since 2010.

The increase was not constrained to one area of the economy. The rise in demand was broad-based as business investment accelerated, which was already showing signs of picking up as I mentioned in a previous column. Exports also grew, overcoming the damage done by the 16-day partial shutdown of federal agencies and budget cuts. Add this to the sequestration and tax hike we had at the beginning of the year and the US economy has shown itself to be remarkably resilient and healthy.

US stocks rebounded Thursday on the GDP news, completely erasing the losses of the week. However, at the time of this writing the S&P 500 is down 34 basis points to stand at 1,787. Despite some steep sell-offs recently, the S&P 500 is only down 3.3% on the year. Adding to the advance were several large companies beating earnings estimates. All 10 main sectors in the S&P 500 rose on the news of the economic growth.

Tapering Continues

On Wednesday, The Federal Reserve decided to cut its monthly asset-purchase program by another $10 billion to $65 billion ($35 billion of longer-term treasury securities and $30 billion of mortgage-backed securities). In the statement issued after the two-day FOMC meeting, … they said“Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters."

Though most believed the Fed would continue its tapering plans of cutting $10 billion each meeting, a poor December jobs number and ongoing turmoil in the emerging markets led many to believe there may be a pause in the taper schedule. Stocks sold off approximately 1% after the announcement.

After the market close on Wednesday, 44 companies in the S&P 500 have reported profit above projections of analysts. Four companies trailed projections…

…One of my concerns is that there continues to be trouble in emerging markets. Emerging market currencies have been under pressure for some time, partly as a result of the effectiveness of the monetary stimulus of the US Federal Reserve. The monetary policy of the Fed has strengthened the U.S. economy and therefore reduced the relative attractiveness of emerging markets.

However, a survey out of China signaled the first time manufacturing there shrunk in six months. The HSBC survey backs up a preliminary version earlier this month that rattled markets by raising fears that the worlds second largest economy is slowing. Whenever China hiccups the market tends to over react and [China’s] Purchasing Manager Index…for January came it at 49.6…A number below 50 indicates contraction. While the reading was not good, it does not portend a global economic slowdown.

While the potential for a slowdown in emerging markets causing the earnings of U.S. multinationals to decline is real, the fear is likely overblown. At the end of the day, the market was looking for a reason to sell-off after its run-up. The emerging market problems are more of an excuse than anything else.

The news overseas in Europe was better with German unemployment declining more than originally forecast as … confidence in Europe’s largest economy kept growing. Like I have said in the past, while the peripheral countries in EU are slowly exiting their economic crises, Germany is the country that will be doing the heavy lifting in Europe.

In addition to Germany, England is showing signs of increasing health. Last year it was believed that England was in for a prolonged period of stagnant growth. The Bank of England finished Quantitative Easing and GDP had fallen six of the previous 16 quarters. 2013 was supposed be a lost year. Yet the preliminary estimate of Q4 UK GDP is showing the economy grew at 0.7% q/q in Q4, which would bring the full-year growth to 1.9% - the strongest since 2007 and the first time the UK has grown [for] four straight quarters since the third quarter of 2010. There seems little doubt the UK is headed in the right direction.

Putting it All Together

As you can see the developed economies across the globe are growing at a healthy clip or at least starting to. However, continued problems in emerging markets will most likely continue to cause jitters in the markets. We are essentially seeing a role reversal where emerging markets were growing at a brisk pace, but are now having currency and credit problems of their own. As I have said before, this could cause the correction that is long overdue, but the global economic expansion continues to pick up steam. While I expect a much more volatile year than last year, I believe developed markets will lead the way to another strong year in equities.

About Mitch Zacks

Mitch is a Senior Portfolio Manager at Zacks Investment Management. He wrote a weekly column for the Chicago Sun-Times and has published two books on quantitative investment strategies. He has a B.A. in Economics from Yale University and an M.B.A. in Analytic Finance from the University of Chicago. Mitch also is a Portfolio Manager for the Zacks Small Cap Core Fund ( ZSCCX ).

Zacks Investment Management, ?Attn: Wealth Management Group, ?One South Wacker Drive, Suite 2700, ?Chicago, IL 60606


While the potential for a slowdown in emerging markets causing the earnings of U.S. multinationals to decline is real, the fear is likely overblown. At the end of the day, the market was looking for a reason to sell-off after its run-up. The emerging market problems are more of an excuse than anything else.

Saul - thanks for posting. I like the writer’s style and perspective. I thought the paragraph above is pretty telling. The “experts” are looking for a reason to sell, which is why they’re making a big deal out of something that likely is not a big deal.

Fine by me - hopefully, I’ll find some good sales while the experts are trying to time tops and bottoms.


Hi Saul,

Which newsletter from Zack’s do you find interesting?


Which newsletter from Zack’s do you find interesting?


I used to subscribe to The Reitmeister Trading Alert, but buying stocks I knew nothing about for a short term hold, just because someone told me to, was not my thing at all. So I cancelled it.

I now subscribe to Home Run Investor, which is supposed to be a “long term” letter (“six to twelve months”). The problem is that the guy running it used to be a short term trader and still runs another short term trading newsletter. He doesn’t seem to know anything about the companies he recommends, what their products are, except for the most elementary basics, if those. All he knows is whether the analysts estimations have been rising (Zack’s thing). His outlook is still short term and he crows if the stock goes up 30 cents on the day he recommends it. If you investigate his recommendations, though, there are occasional good ones (TSLA, AMBA, UBNT, SYNA). No nurturing follow-up or discussion boards like MF though.



Thanks Saul for the detailed reply.


“…No nurturing follow-up or discussion boards like MF though.”


What an aptly profound choice of word.

Kudos, Saul.