As we scour the landscape for evidence of a broadening in economic well-being, we continue to be disappointed. The most recent evidence of continued middle-class struggles comes from first quarter earnings reports from the retailers. Yes, extraordinarily cold and stormy weather had a major effect on first quarter sales and profitability. But we knew this going into earnings season. Why are so many earnings reports from major U.S. retailers being met with such negative reactions in the stocks? Retailers heavily dependent on low- to moderate-income customers — such Wal-Mart, Target, TJ Maxx, Dick's, PetSmart, and Staples — have all stumbled this earnings season. Stocks in the two largest dollar stores, Dollar General and Family Dollar, have been weak all year. Which retail stocks are rallying on earnings news? Well, one in particular stands out: Tiffany's. What is the market telling us?
The Fed's trickle-down monetary policy becomes less impactful every day. Yet the risks of creating monetary-policy-induced asset bubbles continue to grow. We think it's time for the Fed to get lost. The economy is recovering, albeit slowly. This suggests, as all recoveries from debt bubbles do, it will likely be a long and slow climb that may last several more years.
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As markets flirt with new highs and fears abound, we counsel both cheer and fear. New highs mean that patient, disciplined investors are being rewarded. Investors learned in 1998 that, though expensive, shares could go a good deal higher. At the same time, if the rule is to buy low and sell high, this isn't low! Market timing doesn't work, but caution is a great companion for the long haul. Strong, well-managed, well-capitalized multinational companies with strong cash flow make sense to us. This is not a time for adding incremental risk.
There are two very important investing rules in addition to buy low and sell high: be disciplined and remain calm. Discipline and calm are essential for enduring those long periods between high and low.
Commentary by Michael K. Farr, president of Farr, Miller & Washington and a CNBC contributor.