Morning Market Thoughts

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Good morning. We’re looking at a slightly weak open, with traders exercising a bit of caution at the start of this holiday-shortened week. Trading is closed for Thanksgiving on Thursday, and will open until 1 pm ET on Friday.

Just a couple of comments this morning.

1. There is a lot of discussion on the national level about a big trillion dollar infrastructure program next year, and the benefit of such a program to economic growth efforts. It would indeed inject a lot of money into the economy, which always stimulates economic activity. But be mindful that the US Gross National Debt is close to $20 trillion, and about half of that debt has been incurred in a zero interest rate environment — “ZIRP”. So paying on the debt service hasn’t been a big deal at all because the money was basically free. Imagine the sale prices you get when you buy a car during the auto dealer’s “Pay no interest until 2020” special. You are buying the car, and then just paying down the interest in manageable monthly payments. It’s a pretty easy deal. But when 2020 comes around and you’ve got to start paying interest on the car, you have a bit of a problem if you haven’t accounted for the hike in payments. If you’ve been saving your dough for the specific purpose of paying the interest when it comes due, the increased financial obligation is not a problem.

Well, our debt is a bit like that — only we haven’t been saving to pay back the interest when it starts to kick in. We’ve just kept incurring new obligations. Now, with the cost of money rising fairly fast (i.e., rising bond yields), the $1 trillion expenditure will be much more difficult to put in place because it will cost so much. Now, I’m not rendering an opinion as to whether spending more money is a good thing with positive benefits, or a bad thing. I’m just focusing on the cost of money in light of the current bull market in bond yields (bear market in bonds). Lots of selling of bonds.

You’re not really hearing about the debt aspect of federal spending right now — everyone seems to be eager to spend more money. But the devil will be in the details. My reason for mentioning this is simply to put something in front of you that you might want to know as new policies are rolled out in the next few months.

2. Symantec ($SYMC) is buying LifeLock ($LOCK) for $2.3 billion. Last week I mentioned that the stock was moving higher because the market was anticipating either an acquisition by another company, or the company would take itself private. Either way, the price would move higher…but now that the news has been released, the stock should probably be sold. No further upside, unless you anticipate a higher bidder. But even then, how much higher? High enough to warrant holding the stock for the specific reason that someone MIGHT raise the bid?

3. Small cap stocks are working best. I’ll be looking at some of the top performers in the Russell 2000 small cap index in tonight’s Strategy Session, and will probably be focusing on the small caps all this week. When stocks are generally moving higher, it’s fairly easy to be in stocks that are moving higher. But the goal should be to be in stocks that are at the front of the pack!

See you in the forum.

–Dan

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