Occupy Wall Street or Tea Party?
A Great Canadian Stock
"The most convinced supporter of Capitalism to-day must admit that there is something faulty in a system that postulates a percentage of permanent unemployment and a periodical destruction of what is called "surplus" wealth--wheat, coffee, etc., in order to retain its markets."
Thus begins the book Sickle or Swastika?, whose title called out to me as I perused the volumes of an old library recently.
So I took it home and read it ... and though it wasn't an easy read, it did provide some food for thought, in no small part because the book was published in 1935 in London, and I have the advantage of knowing that neither the sickle nor the swastika proved to be the answer. In fact, both proved to be great failures.
But I wondered if there were some parallels between 1935, when the world was struggling to escape from a depression (five years after a Wall Street bubble top) and 2011, when the world is struggling to escape from widespread recession (four years after a real estate bubble top and 11 years after a Wall Street bubble top).
And I'll get to that. But first the book. Its author was Mrs. Cecil Chesterton (Ada Elizabeth Jones). Her husband, also a writer, was the brother of G.K. Chesterton, author of more than 80 books and much more. The three of them worked, singly and jointly, for various London newspapers when they were young. Mrs. Chesterton even spent two weeks disguised as a homeless woman to document the travails of the poor. Her husband was wounded fighting in France in 1916 and died in a field hospital there. But she carried on writing, with a particular focus on social problems.
So it was as a journalist that she traveled to Nazi Germany and witnessed firsthand the fervor inspired by Adolf Hitler. While she applauded the way he was energizing to the country as a whole, she lamented the way mob sentiment sometimes overcame rational thought. She deplored the treatment of women as second-class citizens, whose main purpose was to produce Aryan babies. She noted that the motivation of many people, particularly the Jews, was fear. And she concluded that creativity--even individuality--had been erased from the society.
She then traveled through Austria, Hungary, Yugoslavia and Greece, noting in turn how those societies were progressing.
But her main focus was Russia, to which she had been invited to attend the First Congress of Soviet Writers. Government controls on writers had been lifted in 1932, and the academic and artistic communities were thriving in a new era of freedom.
The Russian section of the book begins with this.
"Whether one believes in the Capitalist system, clings to the Divine Right of Kings, or is interested in Collective ownership, it is impossible to remain insensible to the change of temperature, psychological and economic, which sets in at the Soviet border. Unemployment, with its inevitable depression, lack of security, spiritual ennui, the dry-rot of hopelessness symptomatic of Europe to-day, falls behind. One meets an atmosphere charged with purpose and vitality."
Her sympathies are clear.
At the conference, she socialized with both Maxim Gorky and Alexei Tolstoy, and she gave much credit to Gorky for the new atmosphere that promoted writing and intellectualism. She also visited a farming commune and a voluntary reform school for young ex-cons. And she was positively impressed wherever she went. She reveled in the way individuality was thriving without the restrictions of class distinctions. She praised the way no one was hungry, and all able-bodied people were employed. She even praised the air travel system!
Now, when I started reading this book, I had a vague idea that the "Sickle or Swastika?" dichotomy might parallel, in some way, today's choices between the Occupy Wall Street movement and the Tea Party.
But there is no simple comparison. On the left, yes, Occupy Wall Street mirrors Russia in that it seeks to reduce the inequities between the rich and the "other 99%" and it wants fuller employment. And on the right, some Tea Partiers' attitudes toward immigrants recall the Nazis' attitudes toward Jews.
But the Tea Party wants less government, not more. And the Tea Party has no charismatic leader energizing the masses, a la Hitler. Then again, Occupy Wall Street is leaderless as well, so maybe that simply reflects the youthfulness of these two movements.
In any case, what is to be remembered about those prior political systems is that while Fascism and Communism were interesting new movements in the 1930s, both ultimately failed, while Capitalism healed itself--often despite the meddling of politicians--and propelled global progress for 70 more years.
Now we are in another difficult period, seeking to recover from the excesses of the latest growth wave. And my amateur opinion is that while both the Tea Party and Occupy Wall Street movements will grow--and both will help usher in some needed correctives--in the end, Capitalism will lead the way out and up, just as it has previously.
As to the market, it's looking better, and we are now advising growth-oriented investors to start reducing their cash levels and buying. Trouble is, at the start of a new bull market it's difficult to know which stocks will become true leaders; all we know is the new leaders are seldom the leaders of the prior bull market.
So my suggestion today is to look at a growing company that's also attractive because it meets the value investing criteria of Cabot Benjamin Graham Value Letter Editor Roy Ward. Roy (who lives in Florida) has been featuring Canadian companies at regular intervals because "The Canadian economy has performed much better than the U.S. and many foreign economies during the past three years. Canadian banks were not allowed to sell risky loans or buy unsafe investments. The housing market in Canada remains solid, economic growth continues to climb, the nation's debt remains low and precious metal prices are high."
In his latest issue, Roy recounts how he screened his Benjamin Graham Database to find Canadian companies with rapidly growing earnings and strong balance sheets. He chose six to highlight for his readers, and I'll pass one of them on to you today.
"Lululemon Athletica (LULU), founded in 1998 in Vancouver, British Columbia, makes long-lasting athletic clothing for running, dancing, practicing yoga and other active endeavors. The company sells women's pants, shorts, tops and jackets in 138 company-owned and four franchised stores in Canada, the U.S., Australia and Hong Kong. The company will likely increase sales and earnings by 19% during the next 12 months. LULU's share price, as measured by P/E, is expensive at 38.6 times our forward EPS estimate of 1.26, but far less than its 50.0 times EPS of a few months ago. Same-store sales increased 20% in the quarter ended 7/31/11, and Internet sales soared 93%. Internet sales and lower costs could propel earnings higher than forecast."
Now, this wasn't the first time Roy had recommended LULU. He first recommended it in April 2010, and from then until July of this year, the stock was a big winner. In fact, it appeared in the momentum-focused Cabot Top Ten Trader seven times in that period! But in July, Roy recommended selling LULU (for a profit of 177%) because its price was too high.
Now, however, he writes, "We recommended selling Lululemon in our July Cabot Benjamin Graham Value Letter, but we now believe the drop in its stock price is too good to pass up and therefore recommend buying Lululemon at its current low price."
For more details on high-quality value stocks like LULU, click here.
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory