I am not impressed with the top sectors of stock performance coming from areas like Utilities, Telecom, Energy and REITs. For far too long, this bull market has relied on performance from value stocks and dividend plays.   Call me nutty, but I’d rather have appreciation from companies that make high value-added products or services. I know you can point to examples like AAPL and GOOG, but those are isolated stocks, not sectors. Instead, investors are throwing money at parts of our economy that I hope are not considered leaders.

When I think of leadership, I immediately look for innovation. Unfortunately, our country is spending more time and money on financial innovation than product innovation. Excitement in our market comes from Private Equity buyouts and the subsequent speculative premiums that keeps hyping stock valuations. Sorry but that story will end some day and then we will have to find a replacement. I’d like that to come from new products that make us the envy of global competitors but our R&D and capital spending plans have not been inspiring. Instead, we are using cash flow today to manipulate and manage EPS through buybacks and the market cheers. At some point, we will realize that product innovation provides long term revenue streams and financial innovation just maximizes short term goals. Meanwhile, much of the world is growing rapidly and we are getting mired in pre-recessionary trends or maybe even stagflation.

It is what it is, but I am disappointed that we fail to accept the facts. Instead, investors are buying into the spin that first quarter earnings are great and Dow 13,000 means something.   Neither of those are true.  When it comes to the consumer, bulls want you to ignore everything but consumption (at least when the weather is nice). Just forget about how that spending was funded and I guess you will be ok. Deny the impact of lowered housing prices, increasing foreclosure risks, fuel price inflation, food inflation, and just keep hoping that it all gets fixed somehow. Whenever someone brings up a concern, I hear the bulls criticizing but I am yet to hear how they see these things reversing. It almost seems like they want you to believe that if you just do nothing and wait for long enough, the problems will go away.

We have serious problems in this economy and yet, stocks don’t seem to care.  I intend to play along and look at this on a stock by stock basis, but we need some better leadership and we need it soon.  Despite seeing improvements in technology stocks recently, I am missing the catalyst for this new leadership.  The last time I looked our economy is slowing and earnings growth is pathetic.