I am an optimist. It's a requirement of my job, and in the past 30 years it has served me well. People who invest in the stock market for a living by their very nature are optimistic. When faced with uncertainty -- and outright pessimism -- optimists are willing to stand by their conviction that solid businesses, and our economy in general, will prevail through hard times.
To be sure, equity investors can position their portfolios more defensively when they believe the market is headed for a downturn, emphasizing consumer staples (think Wal-Mart) and other conservative stocks that tend to weather tough times. But at their core, equity investors believe that one way or another, the economy will continue to grow and capitalism will continue to thrive.
So as we witness the latest game of chicken in Washington, I refuse to be held hostage by political brinkmanship. The bad news is that we are in a period of extraordinary uncertainty, and the stakes are very high. The good news is that the issue of our current federal budget imbalance is top of mind -- and as ugly as the democratic process may seem at times, at least the issue is being addressed.
Will we plunge over the cliff, and if so, how serious will be the consequences? Equally important to us: How will the markets react? One thing is for sure: When markets temporarily decline, that's when we optimists buy.
Clearly, once we get a better idea regarding our country's tax and spending policies, those entrusted with making decisions about hiring, investing in new equipment, acquisitions and buying raw materials -- everything that goes into making an economy grow -- will have more confidence and begin to move forward with those plans.
Just look at the data released last week by the Institute for Supply Management, whose index contracted to 49.5 in November from 51.7 a month earlier. The purchasing managers surveyed were consistent in their comments: No decisions until we have some clarity on the fiscal cliff.
These are the latest in a long string of yellow lights that have been flashing in the face of the economy for the past two months. Energy, financials and technology stocks -- all highly dependent on an expanding economy -- have been weak. While the market has been showing concern, investors have resisted a selloff similar to the one in August 2011 after the debt ceiling debate and the downgrade of U.S. debt by the major ratings agencies.
Being the optimist I am, I'm expecting the economy will move forward, and certain Minnesota companies are positioned to perform well. Here are some examples. (Full disclosure: Marks Group owns all three stocks.)
C.H. Robinson Worldwide, the Eden Prairie-based global trucking broker, lagged the market and other industrial companies for the first nine months of the year. But rising business and consumer confidence would stimulate the economy and generate higher trucking volumes.
Donaldson Inc., which supplies filters for cars, trucks and industrial plants, benefits from increased industrial and vehicle production, miles driven and higher construction and mining activity. While Bloomington-based Donaldson has been increasing market share in automobile production, disappointing truck production and mining activity have put pressure on the stock price. Increased demand for metals used in manufacturing, rising auto sales and increased trucking activity would be positive for the price of Donaldson shares.
Target Corp. With increased capital spending comes increased job security, and that can lead consumers to buy large-ticket discretionary items such as apparel and home furnishings. These are some of the highest-priced and highest-margin goods that Target Corp. sells. Higher sales in these merchandise categories would help drive Target's profit margins.
We have already seen an increase in early holiday sales for retailers. The earlier people shop, the more dollars they tend to spend. Layer that on top of improving home sales and increased sales of merchandise to feather new nests, and Target profits could be in line for a very merry fourth quarter.
In the past several years, it seems we have lurched from one crisis to another. Clearly, the near-collapse of the financial markets in 2008-09 qualified as "The Real Deal.'' But in every instance, whether we go all the way back to Y2K, the horror of 9/11 or the 2011 debt-ceiling debate, we've soldiered on.
I can't help but believe we'll climb beyond the fiscal cliff, as well.