That Was The Week That Was – 3rd Week February

Troubling signals as ‘Dow Theory’ shows signs of a possible market tumble. The Theory holds to six principle tenets with two of them closely adhered to by traders. One is transports, a gauge of shipping activity, and another is trading volume. According to CNBC volume has been down since the market rally beginning in October.  On the other side the transport index- DJT have hit what technicians call a triple top – meaning its tested current levels three times, and not fared well the first two. This has some traders nervous and considering selling into the January rally. That plus an overall bullish sentiment have contrarians worried.

On the Good Side many still see 2012 as a year where stocks and gold are driven higher. The Aden sisters, who publish the Aden Forecast, named investment newsletter of the year in 2010, report that sentiment drives the market and not necessarily reality (anyone remember 2011?).  They go on to report that with some measure of a deal in Europe calm seems to have returned to the markets but the fundamentals have not changed. Stocks have moved up significantly but the Aden’s warn of keeping trailing stock stops close. They like the markets going higher but not without corrections.

 More Room to Run sez Zacks.com. On Thursday 2 out of 3 indices made new closing highs and the S&P 500 will soon be joining them. Reason that markets are moving higher: Greek bailout moving ahead – Jobless claims down and better than expected – Housing starts up and Philly Fed shows surge in regional activity, topping estimates. Zacks believes that S&P will reach 1400 before a 5-10% correction takes place. That should take  six to eight weeks to trudge to that point. Oil spikes and war drums can put a kibosh on this scenario that sounds plausible but not guaranteed.

 

Gene Epstein writing for Barrons last week predicted that based on cyclical patterns of market history the odds are better than 2-3 that the DJIA will reach 15,000, or higher, over the next two years. There is also a 50-50 chance the Dow could spurt to 17,000. This is based on 141 years of equity performance from which, Epstein writes, a fairly straightforward cyclical pattern can be discerned. This is explained by the rubber-band cycle. The following chart of those cycles created by Wisdom Tree Asset Management.

The conclusion is that the worst 20-years eventually leads to the best. Investors examining five and ten year returns, including a strong 2012, find that those returns fall into the lowest quartile. Meaning that performance will need to improve immensely for the completion of the cycle. There’s a lot of math that goes along with this but I just want to know if things are going to get better and by how much.

Quantum Leap British Investment Guru Quentin Lumsden dummies it down a bit writing that Bull Markets often begin in a year ending in 2- 1982, 1992, 2002/3. With the notable exception of 1972. It’s like betting on the #5 horse in every race. But Lumsden has more signs of an imminent bull market:

• Bull Markets start when unemployment is high.
• Negative sentiment is a good indicator.
• Equities are cheap.
• Economic policy is switching from squeezing to easing.

News that the U.S. is burning off natural gas as too cheap to market is taking a turn. Recovering from the nuclear disaster of a year ago Japan is now transforming their energy scene as is Germany (see blogs in January).  Natural gas price is at the low point while LNG imports in Japan have climbed 12%. The problem is cost as natural gas has to be liquefied for shipping, hence LNG and then turned back into gas at destination. It isn’t cheap but exporters believe at current price levels domestically the U.S. can compete effectively with other exporters. Investors can buy energy mutual funds, exchange traded fund UNG. You can also buy stocks such as Exxon Mobil ticker XON an oil and GAS company, and even an ETF that shorts the long symbol UNG exchange traded fund.

The Detroit News Monday wasted a lot of paper and ink printing 5 basic rules for a couple’s money management:

• Talk
• Plan
• Commit
• Pay off Debt
• Plan for Emergencies Just in case you missed it…

Apple hit $500. when markets opened Monday. Experts say more room to run. According to CNBC  this latest surge in share price is on the possibility that the company will declare a dividend or even split its shares.  Apple has almost $100 billion in cash and that equates to about $105 a share, still making the shares in Apple rather inexpensive with about 9.3 xs estimated earnings going forward. At these levels you don’t use the word cheap…

If it isn't in the charts some investors are not going to buy or sell… At the same time if the fundamentals are not there than other investors walk away… Mixing technical and fundamental analysts is like mixing an oil & vinegar salad dressing- eventually they’ll separate. Marc Lichtenfeld writing ‘Can Technical and Fundamental Analysis Coexist’, sums it up by concluding that Technical analysis allows him to know entry and exit points while Fundamental analysis whether a company is worthy of investing.  Investors need both. Unsure what’s what call for more information.

Moody’s Cuts Ratings on Italy, Portugal and Spain. It also cut the outlook on France, U.K. and Austria to negative but kept ratings at triple –A for the time being. Busy as bees these ratings companies that couldn’t tell a good mortgage from a bad a few years back now slashing and burning sovereign nations….

Emerging Markets a safer bet than some traditional investments, so sayeth Jerome Booth, head of research at Ashmore Investment Management. Just 3.2% of U.S based open ended mutual fund assets fall into emerging markets. Booth reports that those countries labeled emerging markets have fewer fiscal strains and political risks than many other sectors that American investors hold. Booth holds 90% of his money in emerging markets and considers that prudent. ‘People need to get their head around the fact that 85% of the world’s population and 50% of the economic activity is in the emerging markets,’ he said.  Twenty years ago you couldn’t get the average investor to buy a foreign mutual fund….they all thought folks living in London lived in huts and caves.

Invest in European Countries With Low Debt: Matthew Lynn’s London Eye suggests the following countries have low debt should garner your investment dollars over the next decade: Russia, Turkey, Bulgaria, Sweden and Estonia.

Stocks with Expanding Dividends. Peter Vanderlee, Managing Director at ClearBridge Advisors, said that we can expect another great year for dividend paying stocks. He goes on the explain that investors need to diversify their holdings along with targeting those companies with a history of increasing their dividend payments. His best picks include: Kimberly-Clark, Lockheed Martin and NextEra Energy. Vandeless insists investors need both dividend yield and increasing dividends in their picks.

Europe Foreshadowing A Rally?

Michael Gayed, Dow Jones writer, peeks into the crystal ball and writes that we indeed could be heading into a legitimate Bull Rally. He compares the charts of 2009 before the markets started their  run with the same chart today. He illustrates the European small cap chart that preceded a strong market run for domestic and foreign markets. But, as always, he reminds us, that investing is always about possibilities and never about certainties.

No Saturday Postal Delivery? Cutbacks would save about $25 billion over 11 years. Also pension benefits would now be paid on an accruing cost basis if the new plan is approved. The postal service said it lost $3.3 billion from October to December 2011, normally the most productive time of the year. The place is, and has been, run like the Department of Motor Vehicles instead of a business…why someone doesn’t clean house is beyond me.

Old News… Iconic Building a future IPO. The Empire State Building will soon be in investor portfolios as the owners are planning a realty initial public offering of $1 billion. The money raised will be used to pay off debt, repay current investors and outstanding loans as well as a fund for future acquisitions. More information on yield, etc forthcoming.

The Pew Report, ‘Safe Checking in The Electronic Age’. Key practices and fees from 10 largest American banks and 250 different types of checking accounts.

According to MarketWatch banks may now charge as many as 49 different fees to make up for other lost revenue.

Hedge Fund Manager Paulson cut loose shares in Bank of America, Citi, Wells Fargo, Gold and H-P.  This news from SEC for last quarter action.  Some say because of client redemptions Paulson was forced to cut his gold share holdings. Greenlight Capital’s David Einhorn loaded up on tech in the final quarter with Yahoo, Rimm, Dell and Apple to his inventory. Buffett sold Exxon and added more to IBM and Intel. He also bought more CVS Caremark and Liberty Media that owns QVC, among other things.

U.S. GDP +2.5% for 2012 this from Zacks.com which translated means less of a chance of a recession this year. Pity poor Greece as no chance of getting out from under restrictions set by the Eurozone leadership. The economy will be in  ruins for at least a decade, maybe more. The country has no chance of rebuilding commerce and unemployment for men under the age of 30 is a staggering 50%. For workers there is a cut of 20% in the minimum wage. The days of the Greek version of La Dolce Vita are forever gone. While the U.S. is able to stimulate the economy the Greeks have no choice but to follow an austerity policy dictated by Berlin and Brussels, writes Darrekk Delamaide for Dow Jones.

The U.S. Investor is Much Braver than their European counterpart. We’ve already had our European induced collapse last August said Michael Goldberg of ClientFirst Strategy in Woodbury, New York. British investors, however, are moving into cash and savings bonds and buying only defensive equities. As reported on CNBC, a flight to safety seems to be well underway with U.K. investors moving to cash. Jim Iurio of TJM Institutional Services said, ‘Our market is not ignoring Europe but hoping that our economy has sustainable momentum by the time the situation in Europe comes to a head.’ Tuesday Markets ended up slightly after fighting negative headwinds most of the day.

Lost Whitney but another singing great Dinah Washington never made it to 4o because of  addiction. She was one of my favorite jazz singers of all time. Some say second only to Ella Fitzgerald. -Us old timers remember  Dinah was married to Dick ‘Night Train’ Lane of the Detroit Lions.

Diamond Foods screwed up bad in their bid for Pringles ( see last week’s blog) but Kellogg steps in with a $2.7 billion bid to P&G for their salty snack. Kellogg states the acquisition will add eight to ten cents a share, before transaction costs. It’s expected the buy will dilute earnings by 11 cents to 16 cents a share and the deal will be done by this summer…..Great! Shares of K surged on the news.

Wednesday Fed Says ‘Maybe’ to QE3 and markets sank on Iranian news of cutting oil to six European countries and an unresolved Greek problem. Fed said in January minutes they’d consider more actions if the economy weakens. Gas rose again causing inflationary concerns that it would cut the recovery as it did in 2011. Higher oil prices because of the Iranian problem will not go away overnight. Wednesday saw the worst market day of the year. Dow off almost 100 points. Investors do say that the Greek problem is factored into the market.

AT&T still on the hunt for additional spectrum. With the T-Mobile deal dead AT & T is searching for a wide swath of unused spectrum and may be talking to MetroPCS, Leap and Dish wireless. Verizon also offered $3.6 billion to buy unused airways. Watch stock activity in the above if any deal is close to being made.

Dance Close to The Exit writes Michael Kahn Technical Analyst at Barrons. Frightening, he says, is that bonds, the dollar and stocks are all moving higher together. The rally that has been going since November still sees momentum. Technical’s, however, indicate, that the party may be getting a little late. Investors should dance a bit closer to the exits if and when the markets reverse suddenly. Kahn is also concerned about Gold which is holding firm even with a strong dollar, which it usually moves in opposite to. What is telling is shares of Apple on Wednesday moved to $526 but within the hour closed the session under $500, indicating market technical weakness.

Social Security Trustees predicted in 2011 the Trust would run out of money in 2036. Revised numbers today show the bank would be empty by 2034. Like everything else politicians will wait until the last minute to do something…there are simple fixes for social security. It’s Medicare that’s really a problem.

At Some Point This Will Be A Huge Trade… For the fifth month in a row home builder sentiment rose. Record low mortgage rates, cheap homes and a recovering economy all contributed. Stocks in Lennar, Toll Brothers and PulteGroup all advanced last Wednesday. Chief economist David Crowe at the NAHB said that it was the longest period of sustained improvement in Home Builders since 2007.

GM Failed to hit analyst’s expectations but the stock soared. GM earned historically more money $7.6 billion in 2011 than any other year in its entire history. The company will be eliminating white collar pensions, freezing pay on same and paring back white collar bonuses. Spokesman said on CNBC the company needs better efficiency worldwide.

GM stock rocked the markets Thursday. The Dow up 123, Naz +44 and S&P 500 + 15.

 Independent Analyst John Kinnucan was arrested by Federal Agents as part of an ongoing insider trading investigation, reported the WSJ Friday. In 2010 FBI agents tried to get Mr. Kinnucan to testify in their probe and he refused. Kinnucan then sent an e-mail to traders and analysts describing the agents as ‘fresh-faced eager beavers.’ The Lesson: You don’t tug on Superman’s cape. You don’t spit in the wind, You don’t pull the mask of the ol’ Lone Ranger, And you don’t mess around with Jim (or Fresh Faced Eager Beaver Federal Agents for that matter). thanks and a tip of the fedora to Jim Croce.

According to Game Theory- Investors often overcomplicate stuff.

Markets Closed Monday. Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

That Was The Week That Was-2nd Week February

Some Investors are still afraid of a possible Total Market Collapse. Trying to explain to some investors that the year is 2012 and not 2008 doesn’t seem to get traction. Talking cable & radio heads have created a unexplainable fear of a global disaster by some ubiquities global and domestic event. (Even Soros cries of a Euro-zone meltdown while investing money backing European sovereign debt.) There are ulterior motives from all these fear mongers to get people fearful, from selling  product such as insurance or metals to pumping program ratings. Talking common sense doesn’t work when minds and fears are made up so the good folks at Bespoke Investment Group provided Barrons.com a list of S&P 500 stocks with the smallest spread between their 10-year high and low. These are stocks that move within a short historical range during good times or bad. Without getting into detail here are the 10 stocks plus, on an equal weighting scale, provide holders of all the  shares a most respectful yield of 3.6%.

• Wal-Mart
• Kimberly-Clark
• Progress Energy
• Johnson & Johnson
• Scana
• Coca-Cola
• Consolidated Edison
• H.J. Heinz
• Kraft Foods
• Waste Management 

Worst Week of 2012 But S&P 500 Is Still Up 6 1/2%. Monday Greece Passed Sweeping Changes & Wage Cuts as tens of thousands rioted in the streets around the capital. This is, according to WSJ, the fifth year of a ‘grinding recession’ the Greeks have suffered.

Now for News & Market Recap of Last Week…

Top Fund Changes 2011

Barrons/Lipper study of best performing fund families showed that the perfect fund manager would have stayed in Treasuries until October 1st and then jumped into high yield bonds for the rest of the year. Lots of luck trying that without the benefit of hindsight…

Remember this was ONE year only.

Fearful no- Cautious yes. U.S. Trust reported to clients in December that markets will finally pressure policymakers to move past temporary measures. The years of kicking the can down the road are over and U.S. Trust feels that the ‘Can’ can and will kick back in 2o12. What they are recommending for their clients is U.S. equities, underweight international but they like emerging markets. In fixed income they are also suggesting corporates over Treasuries. The report also predicted a strong start to the year with headwinds emerging later in the year.

News From Las Vegas: Domestic Auto Dealers are selling cars at historically high prices. Consumers are paying 11% more on average for a new car $28,341 up from $25,505 from 2008 to 2011. Dealers expect to sell 13.9 million new cars and say 2012 should see cars sell closer to an average of $30,000. Toyota expects record sales in 2012. Domestically Toyota expects to sell 2.32 million cars and trucks and globally they predict 7.26 million. They are gunning to regain #1 car manufacture status in 2012.

G.M targets $10 billion earnings in 2012. This from a company that was bankrupt in 2008.

Thomas Huges writing for ‘Seeking Alpha’ predicts that Ford & GM are ready to break out. GM should trade for around $30.00 this summer, Huges writes. He warns that the higher shares go the more tempted Uncle Sam, who holds a substantial amount, will be tempted to sell. He does not give a price on Ford shares – sadly.

What is Amazing is Las Vegas Sands Chairman & CEO Sheldon Adelson losing 95% of his wealth in 2008, a hair breadths from filing for bankruptcy, investing his personal income and today worth billions. Las Vegas Sands was trading at $1.99 in March, 2008 and today over $50.00 a share. Source WSJ February, 2012.

No Time to Change Asset Allocation: Expect market slowdown-CNBC reporting Friday that this would be as good a time as any for the markets to regroup. While many investors are convinced the markets are heading higher the problems that were with us at the beginning of the October rally are still here. Investors are now overly optimistic; Greek problems remain and the U.S. economy is only a little bit better. Hedge Fund manager Uri Landsman said the S&P 500 could test 1100 before rebounding and ending the year higher. Friday the S&P 500 closed at 1342. Federal Reserve still committed to low interest until mid-2014. He said could not would….

Bob Dylan sings of social justice but has never attended a rally or march. Joan Baez-

Monday Profit Taking Coupled With No-Deal in Greece took the markets lower. Gold fell and the dollar rose.

Charles Schwab wrote an opinion for WSJ’s Monday readers & Bloomberg offered comments in last week’s BusinessWeek Bloomberg Magazine both on: Low Interest Rates their time has come and gone! Scathing can best described the verbiage as both assailed the Fed Policy of ‘No Confidence’ by keeping rates as low as zero. Bank profits shrink as insurers and pension funds face dwindling returns. For a lot of banks, Jason Goldberg at Barclays Capital said, the majority of their profits comes from net interest income. Charles Schwab wrote that the Fed policy is destroying the confidence of businesses and individuals to invest and the willingness of banks to loan to anyone but those whose credit is so strong that they don’t need loans.

 

Starbucks has 500 stores in China. It plans on opening 50 coffee stores in 2o12 in tea-drinking India. Room to grow, dear friends, lots of room to grow.

 

Fred Goodwin will for evermore be only known as Freddy rather than Sir Fred. The former CEO of Royal Bank of Scotland had his knighthood removed after he led the 285 year old bank into the world’s largest bailout. I didn’t know they could do that … sounds painful …

Private Industry Created The Money Market. Now regulators want to fix what they think is broke. The SEC wants to set up a 2-pronged plan to shore up money markets and they are to boost returns from corporate coffers, issuing stock or debt or  collecting more money from investors. Also the SEC would like to see MM float and not be $1.00. The SEC would like to see a 30-day period where investors could not get their money. The industry is howling mad. Client’s are buying, selling, sweeping funds into their money markets and would be penalized during a crisis, say those who manage funds.

Caesars Entertainment is breathing life back into an old IPO idea. The ticker is CZR and its a small deal, less than 2 million shares at a price of $9 a share. Caesars owns the rights to The World Series of Poker. While the brick and mortar of Caesars is in the toilet the next big thing is on-line poker. The on-line biz is separate from the other and could be extremely valuable if on-line gambling is passed this year. Shares went public Wednesday and opened to the public at $9.05 and quickly ran to $16.00 in the morning and closed at $13.91. Watch Paulson and others to sell shares now and possibly get shares cheap later. Barrons write that Paulson and others need shares to reach $40. before getting whole. Sucker bet, says experts.

Michigan is U.S. #1 Pickle Producer! 178,000 tons of the cute cukes for pickles. Ohio does 1/10th that amount and ranks 5th nationally.

Canadian Auction of U.S. dollar bond- a paltry $3 billion  was snapped up last Tuesday, with demand outpacing product three to one. The five-year bonds pay 0.08%. One of the few gilt edged sovereign nations the Canadian financial global footprint is so small that China and Middle-East money cannot effectively buy Canadian debt and or stocks.

Markets up modestly Tuesday anticipating a satisfactory conclusion to the Greek problem.

The End of the era of the Star Manager at Fidelity. Morningstar reported Tuesday that Fidelity is moving more toward committee type portfolio management style much like that at Capital Bank and Trust and Vanguard. Morningstar concludes that what made certain funds at Fidelity standouts was that their manager could ‘roam’ and do what he or she liked with no constraints. That freedom would be over in the new culture. The conclusion is that Morningstar would stay away from multiple manager funds until they had proven themselves in the marketplace. Those funds with multiple managers will be so indicated in Morningstar reports.

Doomsday Capitalism –Obsessed with the Mayan Calendar? Loading up on canned goods every time you hear North Korea struts its war games? Petrified of Iranian nuclear missals being targeted to your home address? Maybe you can profit by establishing a portfolio designed for a global Armageddon. Barton Biggs, former Global strategist at Morgan Stanley and now hedge fund manager and author of, ‘Wealth, War and Wisdom’, has ideas to share. He writes, ‘Think Mad Max and Swiss Family Robinson and buy stocks accordingly:’

• Food – think Monsanto
• Forests – think Kimberly-Clark
• Chemicals – think DuPont
• Energy –think ExxonMobil
• Population growth bubble – think Wal-Mart, McDonalds and/or Budweiser.

Facebook IPO- Jimmy Cramer on CNBC Wednesday morning called it the Holy Grail of Demographic Marketing. Critics say the price tag may be too expensive and early investors could get burned.

Nissan on track to gross more than Toyota,

Not Invested but think the markets going to run away? It may be a little too late to chase it, according to Teeka Tiwari. He doesn’t think stocks will continue to move straight up but thinks a correction is due. ‘That’s the time to buy,’says Tiwari. ‘Even in the greatest of bull markets pullbacks occur. The 20, 50 and 200 day moving averages were invaluable trade entry tools.’

China Inflation is Ugly. Food up 10% and the January CPI +4.5% from a year ago. Careful…

Cisco’s Profit Up Amid Restructuring. Tech Giant revamped decision making process, making it simpler, sold off Flip video cameras and lowered long-term financial targets.This from MarketWatch. Things paying off for Cisco as stock slowly climbs and the company gets to be more relevant.

Diamond Foods – The Nut Company- fired their CEO & CFO, announced the WSJ, because of accounting irregularities. The company had a cockamamie system of paying growers. First the amount paid was in secret and secondly they were paid quarterly and the last few years some growers were getting paid for not providing product while some were wondering what year the payment was for. The whole shebang blew up the opportunity of buying Pringles – or temporarily shelving it. 

Visa new buyback plan and shares beat estimates. Stock on a tear. Over $110 at the close Wednesday.

 

In Honor of Valentine’s Day             On-Line Dating Web Sites have gotten specific. From Veggie Date to horsey lover’s Equestrian Styles web site dating has tried to zero in on specific likes of people looking for other people. Here’s a few:

• Apple Fanboy or Girl (for folks who would die before they bought anything but a Mac)
• GK2GK (it’s geek to me)
• Booklovers (honest)
• Petlovers
• IvyDate (go Crimson)
• Farmers Only
• Treklovers ( I’m from Iowa, I only work in outer space, Captain Kirk)

From the Department of ‘Gee, I’m (not) Surprised.’ Talented actor Gary Busey, 67, filed for bankruptcy listing debts of $500,000 with $50,000 of assets. And you thought everyone in screwywood was rich as Croesus?

George Soros interviewed by Robert Johnson, director of the Institute for New Economic Thinking. Soros a billionaire hedge fund manager, leftist and semi-crackpot had closed his investments to outside investors last year saying the markets were too difficult. He publicly believes that in the Eurozone crisis there is no political will, that one or more countries will leave the union. He also doesn’t believe the Chinese economy will fall. (The Soros Family privately bought over $2 billion of European debt last year on the bet that the union wouldn’t crumble!) He believes there is rioting in U.S. cities as he speaks but the media is not giving it much attention. He also said that there would be a good chance of an outside attack on Iran but he cautioned the current regime wouldn’t last a year. On gold he believes it will reach $2,000 an ounce; but warns it can go in either direction.

Kodak closes camera biz. How does a company with an iconic monopoly on a sector lose it? Ask the ex-members of the board of K-Mart.Or, more recently the good folks at Blockbuster! Elvis called it, Taking Care of Business. Kodak and the others did not. Blame lack of leadership and especially the board for not being prudent stewards and 'taking care of business.’ you’d think someone would go to jail…

Markets closed mixed Thursday. Gold off $18.00 and oil closed off a $100 barrel just a smidge.

Worst week of the Year ended Friday with all indices off. Gold down.

The Ben Bernanke wants  to rent foreclosed homes. This would entail investors buying homes bulk, hiring managers and overseers. There are another million homes coming on the market this year and next. Regulators for Fannie Mae and Freddie Mac may employ government financing to attract investors to buy and rehab properties in bulk.

The Headline at WSJ screams missing $1.6 billion at MF! In reality regulators know where $700 million of investor money is parked so it’s only a $900 million shortfall. The bankrupt commodity firm MF Global Holdings is missing substantial client money. The funds missing are from farmers and middle-class investors who hedged their bets in commodities and were unaware their money was used by MF for betting on debt that went sour. Still, a lot of money is just plain missing that bad trades cannot explain.  You’d think someone would go to jail.

Two Banks Closed Friday bringing the total to nine in 2012. 

Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.