by Michael Tarsala
Alan Greenspan may be making the argument for renting stocks, in addition to owning them for a coming capex spending surge.
Long-term investments at corporations is at the lowest it has been since 1935, the former Fed chief told CNBC in an exclusive interview this morning.
Companies are thinking short-term, he explains. They have record cash levels, and many have strongly positive cash flows.
But companies don’t know what to do with the windfall. They are frozen and scared at the moment. So the portion of those cash flows corporations are investing in long-term assets – capex spending on new plants, equipment buildings – is very low.
The same applies for acquisitions, as well, by the way.
Greenspan’s comments led me to two conclusions:
- I’m sticking with stocks – especially dividend-paying stocks that will pay me to wait things out. That cash is going to be put to work at some time in the future. It may take several years. But there will be a mean reversion – a point where spending for the long-term drives another rally. You won’t want to miss it.
- In the meantime, the corporations are thinking in the short-term. Perhaps it’s an opportunity for market participants to do the same. I think makes the case for swing and position trading – holding on to stocks for several weeks and months at a time, when they are making their moves. We have a portfolio at Covestor that does just that – the Technical Swing model, run by Michael Arold.
For background, check out this post that makes the case for low-volatility investing and high-volatility trading – and perhaps a bit of both.
