Market Focus of a Startup

As I attempt to brainstorm new business ideas, I constantly find my mind wandering and lacking focus.  I sometimes find myself wondering how to completely dominate a particular market, when in reality this is the wrong approach.  A common misconception is that large successful companies such as Microsoft or Google started with a broad focus to dominate the entire market space.  This is far from the truth.  Almost every succesful business starts by filling a void in a small niche.  More specifically, a good niche is a market that is small enough that larger competitors are not already going after it, but big enought that if you are successful, the profitablity can parlay into greater success.  When this initial niche is filled, then it is ideal to tackle another niche that can be approached with the same level of success.  After successfully adressing several niche markets, it becomes easier to expand into more niches and grow the existing product offerings vertically.  A key to developing a good product is finding the right balance between uniqueness and desirability.   A good balance of both will always provide the greatest success.

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The Depth of the Current Bailout

Here is an eye-opening video I found on reason.tv that shows through comparison the true magnitude of the bailout that were are experiencing…

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Who benefits from recessions?

I saw an interesting interview with Pastor Rick Warren, the author of The Purpose Driven Life, on Fox Business Channel today.  He stated a few interesting things.  During a recessionary time, people lose faith in materialism.  Three industries benefit directly:

1. Church attendance goes up
2. Bars gain more traffic
3. Movie Theater attendance goes up

Well, what is it that people are searching for when they begin to increase their attendance to the following places?

1. Church – people search for meaning
2. Bars – people search for connections
3. Theaters – people look for relief

There is a lot of sadness, madness and blame going around during recessionary times, what is the best way to combat this?

1. We must learn to work together, blaming does no good
2. Everyone has to take responsibility for their part in the disaster, we have been living beyond our means as a society
3. Look at what is left, not what is lost

Interesting analysis and thoughts.  As I thought more about this, I realized that there is a lot of truth to what he is saying.  I have never seen him interviewed before, and though I disagree with his stance on certain issues, I respect his opinions.

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Markets were a Lagging Indicator

It is common knowledge that the stock markets are generally good predictors of economic activitiy over the coming year.  They are termed as “Leading Indicators” of economic activity.  What is interesting is that this time around, the markets seemed to have been late to the party.  The Dow Jones Index as well as the BKX banking index  followed the housing bust…

The question that is left now is: Does a market rally mean that the housing market will be turning around, or will the markets continue to follow the path of the housing…

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Sources:
http://www.ritholtz.com/blog/2009/04/are-markets-leading-indicators/

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Beginning of a New Bull Market or Just a Dead Cat Bounce…

Well I rarely watch financial news anymore, but I was watching CNBC today while working out and Larry Kudlow was touting the recent 25% rally in the US’s major stock market indices indicates that we are likely ready for the new bull market…  I was not even close to being convinced by his argument.  So I decided to research just a bit this evening to see what I could dig up.  Here is a great chart from “bonddad” that shows some technicals of SPY (SPDR S&P 500 ETF).  From it you can see that it is has passed through some short term resistance levels, but the real test will be the 200 DMA around 1000 for the SPX.

In another article, I found an interesting analysis of the current rally by David Rosenberg.  He indicates that history leans towards the currently rally being a false indicator.

David Rosenberg, the soon-to-be former Economist for Merrill Lynch, had a very prescient commentary last week about the 25% four week rally on Friday:

As for this 25% rally in three weeks – the consensus has swung to the view that this is a real inflection point. One warning. We saw this happen in late 2001 and early 2002 too … big, big rally; early cyclicals flew; the markets thought we were in for a V-shaped recovery … it was longer away than many at the time believed and many were burnt as a result. And keep in mind that the ‘second derivative’ on growth began to improve in the fourth quarter of 2001, and the S&P 500 still did not bottom for another year.

Currently, the equity market is priced for $70 on earnings on a going-forward basis, or a 75% rebound. And with retailing stocks up 30%, leisure/accommodation up 35%, and the homebuilders up 40%, the market is priced, amazingly, for a revival that is led by the consumer! (in fact, the only S&P sector that is now trading at P/E multiples that are at post-2001 highs is the consumer cyclical group). If we see that in the next year, we will be the first to hang up our Hewlett Packards. Being up 25% in a year and staying bearish … well, shame.

Achieving that in less than a month – come on. Too flashy for our liking.

In fact, let’s learn from history. The only times we have ever seen the stock market surge close to this much in such a short time frame were:

* December 1929
* June 1931
* August 1932
* May 1933
* July 1938
* September 1982

Only in September 1982 and in May 1933 was the equity market embarking on a new bull phase. But guess what? By the time the S&P 500 surged 25%, it had already crossed above its 200-day moving average. So call us when the S&P 500 crosses the 1,000 mark – another 20% to go. That is how deeply entrenched this particular bear market has been – that even after this massive rally, the onus is still on the bulls! Consider as well that on 4 of the 6 occasions that the equity market staged such a huge rally over such a short time period, it relapsed. So we are going to wait this out, acknowledging that we could be late to the party. We still feel the downside risks are too high to be involved.

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Sources:
http://www.ritholtz.com/blog/2009/04/rally-too-flashy-for-our-liking/
http://bonddad.blogspot.com/2009/04/market-mondays-is-this-real-rally_06.html

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Closer to a Housing Bottom?

Below is an interesting chart from Calculated Risk that shows the correlation of New Home Sales vs Recessionary periods.  From a technical analysis standpoint, it looks like we are near long term resistance at te 400k mark.  Although, from a fundamental standpoint, the credit markets are still shaky.  All of the federal incentives for first time homebuyers may help put a bottom in (at least a temporary one) this year.

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