retirement interruptus: That Was The Week That Was

Something funny happened when the government reported the private sector added 216,000 jobs in March and the jobless rate fell to 8.8% a full percentage point in as little as four months – no one got that excited! You’d expect the markets to really pop and they did for a bit and then reality set in as traders realized this is only a small step to barely keeping even and the economy is still fragile. A 50 point gain on the Dow after the report was announced is not an indicative of a stunning market number for the jobs report.
The President reiterated his so-called energy policy and said the United States should be using its natural resources like….natural gas. We got trillions of cubic feet of the stuff, if not in fact jillions. Most of the resources are trapped in shale – a dense rock- and can only be extracted by going down 8-9,000 feet and using a technique called fracturing. In the 1990’s it was developed but with the prices then nothing was really done but now the price is up and the US is a major holder of the commodity. Energy companies are bidding up dirt in Ohio to the tune of a billion dollars as the state sets over a huge pocket of shale. A plan presented by the president to have 10% of all new autos to be fueled by natural gas in 7 years would require at least one natural gas pump at every gas station by 2018. (Lotsa luck, I can’t find a new window squeegee at my local gasateria let alone believe they’ll have a new gas pumping gizmo!)
When I was teaching Money Management I called it ‘The Dog Eating It’s Tail’, as low interest earned on savings and a fixed amount of money needed to live collided. The end result was a retiree dipping into principal to make up a difference when the interest failed to provide enough income. The result was there was less principal to earn the small amount of interest and so a bigger chunk of principal was needed the next month and so on and so on. Eventually folks went broke. In 2009 data from the Labor Department illustrated the average annual investment income for the 24.6 million households headed by people 65+ amounted to $2,564; this is 34% less than the number in 2007 and the lowest since 2003. The result is that one out of every three retirees had dipped deeper than they planned into their savings to pay for basic expenses in 2010. –EMPLOYEE BENEFIT RESEARCH INSTITUTE.
Be thankful you are not Super Rich as the IRS is targeting the uber-rich as part of a multiyear crackdown on tax avoidance. The 2 most common questions, according to WSJ April 4, 2011: Mortgage interest and charitable giving deductions.
Six Degree of Separation won’t get you to Kevin Bacon if I said Mount Rushmore but more probably Warren Buffett’s favorite investment bank which happens to be – Wells Fargo- located just down the road apiece in Sioux Falls, South Dakota. Wells bought Wachovia back in 2008 in a panic sale for less than $20 billion. Now the SEC is preparing to bring civil charges against Wachovia for allegedly overpricing those mortgage bond deals everyone on Wall Street seemed to love at the time. According to a former Wachovia controller the banks hid losses when selling its commercial-mortgage backed securities to investors. Settlement of civil charges would seem to be the end result but years down the line. And I mean – years.
Rebalancing is going to whack Apple stock as the NASDAQ announced the upcoming event of its NASDAQ-100 Index. Apple, you see, comprises 20% weighting of the index, more than Google, Microsoft or the other 97 storied stocks. And as the Index is rebalanced, making Apple a less weighting, those funds that mimic the Index will sell Apple in order to keep the index in the same perspective.
Credit Suisse upgraded Ford to Neutral from Underperform. The stock was downgraded on a poor 4th quarter (compared to the previous three), but with debt down to $2 billion from $15 just a year earlier the stock has very reasonable valuation. General Motors, writes the same analyst Chris Ceraso, sees a 20% upside in the stock over the next 12 months and has a Buy rating on the stock. Commodity prices may hurt the two going forward.
Oil up as Libya fighting continues. 108 a barrel at the close Monday last. The DOW was up 23 points and closed at a 34 month high.
Welcome to the land of mergers and acquisitions as CHEAP money allows companies to go shopping. Yes, boys and girls, and dear readers everywhere, rather than hire people corporations are on a deal making spree. Over $2.4 trillion in corporate cash and a fear a rival may one-up them is making companies fight for position. The latest was Texas Instruments $6.5 billion bid for National Semiconductor.
Only because I like you, don’t tell anyone- stock in McDonalds has been upgraded by Teresa Rivas at Barrons.com in her Barron’s Take column. Mickey Dees plans on hiring 50,000 people and folks at Barrons believe that shares could climb to $90 from their current $76.
Pssst….hey, Comrade, there is a new plan afoot floated by the Russian state bank, Vneshekonombank, aimed at attracting private investment to the tune of $60-$90 billion over the next five years. This plan will officially be kicked off this June by current President Medvedev and be labeled as the Russian Direct-Investment Fund to overhaul Russian’s outdated industry and infrastructure. The Russian government plans to invest $2 billion this year and each year thereafter for five years as good faith or seed money. The fund plans to invest across the Russian economy except its natural resources. A partner at a major US investment fund (after he stopped laughing) said that it is highly doubtful that anyone would commit billions of dollars on this. It is called the Wild West (Russia) because there is no law there. (Referring to the Russian gangsters and murders of foreign businessmen.) That’s a strong Nyet, Boris.
Markets stumbled Tuesday ending a 2 day bull. Indecision marked the day with low volume as traders tried to sort out rising gold and oil along with recent M&A activity and Naz rebalancing. Only so much can traders keep juggling.
Lots of demand for Junk – as in bonds and LBOs- leveraged buyouts-There is a huge stockpile of cash in the Tech sector and in sovereign wealth market. Expect a huge wave of corporate buying and selling as companies reposition themselves into the marketplace. According to MarketWatch that’s a good thing for lawyers and bankers. It may also be a rising tide that lifts all boats even though a recent study showed that 90% of all deals didn’t meet expectations and KPMG found that only 17% created any real value.
Build a better mousetrap and the government will open a antitrust investigation into your dominance. Google lost a few dollars as share Tuesday as news of the U.S. Federal Trade Commission is considering such became public.
Squeaky clean is the image you get of Warren Buffett and he has had in place at Berkshire Hathaway a policy regarding trading and procedures that all his (well, ok, he’s only got a few people working for him) employees have to follow. Breaking rules blatantly was his heir apparent who did so in such a way that he was shown the door quickly and we’re still curious as to the noise from Omaha when the Buffett discovered the infraction but publicly said no one did anything wrong. (and I have a bridge I’d like to sell you…)
Wednesday markets shook off their doldrums and with the help of Cisco made a late rally and the Dow finished over 3o points, as oil, gold and silver all made new highs.
Oil falls but need in Japan is still there.
I have good news and bad news. The good news is that you can get a solid 9% on a 10-year bond. The bad news is that you may never see your principal. Portugal, home of Vasco de Gama, threw in the towel Wednesday and asked for a bailout from the European Union and the latest world piggy bank- The International Monetary Fund. The Portuguese government failed to pass austerity methods and rating agencies downgraded the country to almost Junk status.
Morgan Stanley gushed and googly-eyed over Toyota joint venture with electric car Tesla reported that shares were targeted for $70. The shares moved up a bit on the news but since have settled. Tesla is developing a $30,000 mass market electric car.
On the flip side Microsoft announced a working relationship with Toyota using the Microsoft cloud computing technology. Shares of Microsoft edged up a smidge on the news.
There are Real Estate mutual funds that invest in REITS with good cash flow and management. The problem is that Malls and Shopping Centers are facing 11% tipping point vacancies. Not all have suffered. Simone and Taubman have trimmed their vacancies to 7% and lower. Still more people are shopping on-line, saving on the cost of gas. The loss of Borders and Blockbuster stores have not helped landlords. Other landlords are shying away from the big box stores, that used to bring in the customers and now look to add restaurants, entertainment venues and fashion boutiques not available on-line. A contrarian play as the job market warms up and as gas prices either are assimilated into the budget or fall.
Bank of Japan puts up $11.73 billion cheap interest money for rebuilding. It won’t be enough.
According to CNBC the latest rally is courtesy of Bear investors giving up and this, according to the experts, is the biggest switch in sentiment in 7 years. Bullish investors make up 57% of last week’s survey but the worry is that this survey is used as a contrarian indicator. For example in October 2010 the Bulls were as few as 29.3% to buy and at the end of October 2007 they were at 62%. Yogi just may be coming back sooner than expected for his picnic basket.
Another quake but worldwide markets remained bullish, taking a small Dow loss. Oil on Friday morning topped $111 a barrel. Gold and silver found new highs- silver at $40. CNBC reported on Thursday night that oil’s true price is around $80-85 a barrel and markets need to reign in the speculation and algorithm's that create the volatility. The fact is that the world wide trading of oil may be too big to contain. Get thy short oil ETF ready –United States Short Oil –DNO.
Smart money or scared? GE Asset Management selling risky assets on fear of a downturn. The wise ones at GE have been selling off commercial mortgage securities, emerging market debt and high yield corporate bonds in anticipation of a reversal in investor sentiment on the economy. Paul Colonna, CIO, (chief investment officer), said he didn’t think it would amount to a double dip but some assets like commercial mortgage bonds are up 20% and it’s time to sell and put more of GE’s money into ….( are you ready?) the longest –term Treasuries! IS THIS A HEAD FEINT OR ARE THEY FOR REAL?
WSJ report the U.S. has targeted HSBC Holdings, PC to disclose the names of U.S. customers who have opened secret bank accounts. Seems some U.S. taxpayers of Indian origin have opened accounts in recent years with HSBC. The bank has been quietly seeking customers with the supposed intent that their accounts would remain secret in India. (It’s like Vegas – What happens in India- Stays in India- Unless Someone at The IRS Wants to Know!)
Rates hiked in Europe – The European Central Bank was the first developed economy authority to raise rates a signal that cheap easy money is over.
Here’s a dandy! The Federal securities regulators are considering easing decades old constraints on shares issued by private companies as part of start-up capital. In a nutshell a lot of the disclosure and reporting rules would be eliminated by start-up or growing companies and allow venture capitalists, hedge funds and investment banks to provide a lot more capital. This would allow companies to remain private much longer before they went public and allowed both large and small investors to buy shares. The winner in all this would be those most successful of start ups such as Facebook and Twitter and their deep pocket fat cat investors. Shares at the IPO stage would be bid up to reward them and provide little incentive for the smaller investor. Basically this would eliminate any chance at the most lucrative IPOs for the smaller investor. (It’s all about an even playing field – and I have another bridge I’d like to sell you.)
Friday closed with another slight up week but markets down for the day lead by Cisco? and Alcoa. Oil was up as was gold and silver.
Farm subsidiaries by the U. S. government are being taken off the table. The once sacred cows are being trimmed or eliminated and consumers can start getting used to higher produce costs- especially corn-as the farm economy has been booming while other parts of the labor market have not.
Yikes, check out this chart of gold versus the dollar/euro as investors have been bidding up the metal versus currencies. Investors who believe that inflation can be held have been buying currencies in countries where central banks are raising interest rates to control prices – this isn’t happening, by the by, in the USA.
Finally – On-line poker gets the nod in Washington, D.C. Opening the district to gambling will finally legitimize on-line gambling as Florida, California and Nevada are debating bills to allow and control intrastate on-line gambling. The reason: Its the tax dollars, dear reader, the almighty tax dollars.