The Fable of the Ant and the Grasshopper

Stock Market Video

The Fable of the Ant and the Grasshopper

Money Goes Where It’s Treated Best

In Case You Missed It

In this week’s Cabot Weekly Review, Mike Cintolo, editor of Cabot Market Letter and Cabot Top Ten Trader, sees the June 21 dip in the market as a real caution sign. Cabot’s market timing indicators for growth stocks have given buy signals, but the abnormal downside action on Thursday tells another story. So it’s still best to be building your watch list until conditions improve. Stocks discussed include SXC Health Solutions (SXCI), Cerner, CERN), Under Armour (UA), Apple (AAPL), Chipotle Mexican Grille (CMG), Amazon.com (AMZN), Tripadvisor (TRIP), Dunkin’ Brands (DNKN), Monster Beverage (MNST) and eBay (EBAY). Click below to watch the video!

Screenshot 6-22-12

The Fable of the Ant and the Grasshopper

Aesop’s Fables, a collection of folk tales with morals attached, were supposedly written by a Greek slave in the fifth century B.C. In fact, we have no idea if any such person actually existed, much less whether he actually collected the stories that bear his name. Such stories appear in almost every culture, and scholars have happily spent centuries arguing over the sources and analogues of the more than 700 tales.

The Fables have been the source of lots of common catch-phrases in English, and many people who refer to them don’t even know they’re doing so. If you hear someone talk about a “dog in the manger” or “the tortoise and the hare” or “sour grapes” or “the boy who cried wolf” or “the goose that laid the golden egg,” you’re hearing at least an echo of Aesop’s instructive little stories, each of which has a lesson to teach.

The fable of The Ant and the Grasshopper is one of my personal favorites. In its simplest telling (and there are dozens of versions), the grasshopper is chirping his way through the summer, living the high life and trying to tempt the ant to join him in having a good time. The ant berates him for his irresponsibility and goes on gathering and storing food for winter. When winter comes, the grasshopper is dying of hunger and sees the ants distributing what they’ve stored away. The fable ends with the moral: “It’s best to prepare for the days of necessity.”

With Europe struggling to get ahead of debt crises in Greece, Italy and Spain, the point of the fable of the ant and the grasshopper is pretty clear. While the ant (Germany) has been squirreling away nuts for the winter, the grasshoppers (all those Mediterranean wastrels) have been drinking the red, red wine and dancing on the beach.

The problem is, of course, that while the ant could ignore the starving grasshopper (and probably even add its frozen carcass to its larder), Germany can’t really just let its southern neighbors slide into insolvency. The eurozone is too fiscally integrated to confine the effects of a big default to just one country.

And from the reports I’ve seen over the past months about German Chancellor Angela Merkel’s efforts to get Greece to adopt stringent austerity measures, she’s plenty ticked off about it. Her insistence on harsh measures to rein in Greek spending ultimately failed when the Greeks themselves soundly rejected austerity and everything associated with it.

In some versions of The Ant and the Grasshopper, the title characters strike a pact, with the ant supplying the food to get the grasshopper through the winter and the grasshopper supplying the music to make the cold months bearable.

And again, this is very close to the real world. Many Northern Europeans seem to have a built-in need to bake themselves in the sun during the long winter. And where do they go? Greece, Italy and Spain are high on the list.

So I’m only partly joking when I say that it will be best for all concerned if Germany just bows to the inevitable and ponies up the money to keep the Mediterranean grasshoppers partying on.

It’s certainly what the world’s stock investors want to happen.

Money-Goes-WhereHere’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.

Money Goes Where It’s Treated Best

Cabot founder Carlton Lutts often used this phrase when writing about the effect of interest rates on the stock market.

When interest rates rise (he would write), money is gradually drawn out of the stock market, as the rewards of bonds and other interest-paying instruments increase. And when interest rates fall, money leaves those instruments and flows back into the stock market.  

This, of course, is a simplistic explanation; interest rates have numerous interrelated effects. Nevertheless, it’s true. But I would amend the saying, to “Money Goes Where People Think It’s Treated Best.”  

And it works for individual stocks, too. Growth investors can do well by following the institutional money, because professionals are putting it where they think it will be treated best.

[Editor’s Note: Walter Wriston, CEO of Citibank from 1967 to 1984, was one of the first business leaders to anticipate the profound effect that electronic fund transfers would have on the movement of money. He said, “Capital will flow where it is wanted and stay where it is well treated.” He responded by moving his company’s MasterCard operations to South Dakota, which didn’t have a usury law.]

In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.

Cabot Wealth Advisory 6/18/12 – Volatility Isn’t Always an Option Trader’s Friend

In this issue, Cabot Options Trader Editor Rick Pendergraft reveals why markets that alternate up and down days aren’t really an options trader’s friend because in such markets, you have to time your entry and your exit almost perfectly to make a decent return. But options can work out very well when volatility is consistently up or consistently down.

Cabot Wealth Advisory 6/21/12 – The Company Is Not the Stock

With markets giving a green light for growth investors, Cabot Market Letter Editor Mike Cintolo advises getting a clear picture of every aspect of a company, its fiscal performance and its chart before buying.

A great weekend to all,

Paul Goodwin
Editor, Cabot Wealth Advisory

P.S. Don’t miss this!
 
With a lagging U.S. job market and financial unrest in Europe, it’s clear the market’s volatility is about to increase exponentially. For these reasons, the next market move we see headed our way in the next 30 days could be the biggest shocker of 2012.

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