10 Themes for the New Millennium Teen Years

NEW YORK ( TheStreet) -- The teenage years of the new millennium will be difficult for investors, businesses, Wall Street, Main Street, retirees, the health care network, the housing market and the banking system. We will be in a prolonged period where Americans will have to adjust to a lower standard of living. Stocks are overvalued making stock picking an important art to learn.

On Wednesday I wrote, The Stock Market Is a Risky Asset Class in 2013 even though I knew that the new year would begin with a strong rally for stocks. Strength has made stocks even less attractive fundamentally particularly with the yield on the U.S. Treasury 30-year bond up to 3.15% this morning.

In this environment I continue to believe in a buy-and-trade investment strategy and on Thursday I wrote, Polishing Apple's Profile for 2013. This story illustrates my method of stock picking.

Next week we add the fourth quarter earnings season to the mix and on Monday I will profile five stocks that report quarterly results during the week. During earnings season I will also keep track of the stocks that miss estimates or lower guidance in a stock feature I call "Woodshed Stocks." I will provide value levels at which to buy these stocks on weakness as long as they maintain buy ratings according to www.ValuEngine.com.

For the stock market the fundamentals are not cheap. At ValuEngine we show that 44.2% of all stocks are undervalued with 55.8% overvalued. This morning all 16 sectors are overvalued as shown in the table below. Note that 11 sectors have elevated price-to-earnings ratios of between 20.23 and 49.09.

Ten Themes for the teenage years of the New Millennium:

  1. The Housing Recovery will remain sluggish in 2013. The National Association of Home Builders Housing Market Index will have a tough time sustaining a trend above the neutral 50 reading. Single family housing starts will be stuck around an annual rate of 600,000 units. Existing home sales may average five million or so, but there is a backlog of other real estate owned in the banking system, and at Fannie Mae and Freddie Mac.

From the minutes of the Dec. 11 FOMC meeting: "Conditions in the housing market continued to improve gradually, but construction activity was still at a low level, restrained by the considerable inventory of foreclosed and distressed homes and the tight credit standards for mortgages." "Starts and permits of new single-family homes were essentially flat in October after rising significantly in the preceding month."

  • The rebound in home prices will slow. As measured by the Case-Shiller 20-City Index home prices could decline in 2013 on a year over year basis. This index is up 9% since bottoming in March 2012, which puts pressure on affordability.
  • The upside for money center and regional bank stocks will be limited in 2013. The bigger banks including those considered "too big to fail" will need additional capital to comply with Basil 3 capital and liquidity standards, Federal Reserve stress tests, and increasing assessments to fund the FDIC deposit insurance fund. Banks will also have to comply with still-to-be-determined Dodd-Frank rules.