That Was The Week That Was-End of August

It’s that time of year to hope for a market rebound and at MarketWatch writer Jeff Reeves has a few words  about investing as we work our way through the rest of 2011: Investors should understand that- (1) There is No Expert that can tell which way the markets are going to move. (2) Both Good Times and Bad are fleeting. (3) Success is a personal thing. If you’re deal is to preserve principal don’t cry when markets soar. (4) Pay attention all the time. Don’t ignore and think all is well. It’s your money! (5) Understand there is a time when to take a little something off the table.

Dunkin Donuts was a successful IPO but Andrew Bary at Barrons.com thinks there are better and cheaper buys in the restaurant biz. He likes Starbucks, McDonalds and Tim Horton's over Dunkin Brands. On the flip side Bulls believe that Dunkin will grow from its eastern base and expand services, which now remain breakfast oriented.

Wal-Mart scores with Vudu! When the company released numbers Hollywood partners called and asked if the company made a mistake. Vudu charges two rates one to rent and one to buy the downloaded movie, different than NetFlix.

Five Triggers to Ignite the Next Bull Market

MarketWatch Dorothy Zhang reported before the Holiday the reason for the summer swoon was that investors were repricing equities to reflect earnings growth expectations. And, before we get our hopes up, remember that stocks don’t fare that well in September. Here is what we need for another step up: (1) U.S. deals with its debt (2) Europe resolves its debt problem (3) Retail sales strengthen (4)  Gold and the Swiss franc weaken (5) Bank stocks strengthen.

Mutual Funds have been lagging their benchmarks by a significant amount in 2011. The numbers given on Strategy Sessions on CNBC Monday were astonishing: 47%  of all funds lagged their benchmark by 250 basis points year-to-date and 25% lagged by 500 basis points. Either funds have been playing it safe or their investment acumen is in serious need of new blood. Perhaps once the A team of fund managers is back from vacation we may see the markets start to perk up as bonus time is right around the corner.  ( It may also spur higher markets.)

Markets! Popped Monday! On news that folks were spending – a 0.8% gain- the strongest since February. The problem, my dear friend, that the market will eventually factor in is that this was accomplished at the expense of savings and not from income alone. Core inflation also inched higher to 2%. Wiser and cooler heads cautioned that there could be a relapse if gains in payrolls and vehicle sales are not seen in the next two weeks.

Autos stagnate and it could be as UAW membership is itching to get lost bennies. Leadership seems to understand the fragility of manufacturing but a cadre of members doesn’t get it and want more. Bob King, current UAW president, said in a speech at the Detroit Economic Club, that members would go along with a new contract even if it meant no new wage increases. But, some old members want restoration of benefits lost, arguing that management has done well and time to start sharing. Auto shares could remain depressed until this is sorted out.

The Biggest & Brightest Guessed Wrong He gets paid millions for guessing which way fixed income is heading. Early this year Bill Gross, head of PIMCO, sold his stake in U.S. Treasuries and was wrong! So wrong that BlackRock (the world’s biggest money manager) had the other side and said  there was more to the U.S. Treasury market and they were the big winner. Gross has been adding Treasuries to the Total Return - the Flagship Fund of PIMCO since his flub and is now net positive but still underweight for the first time in months with U.S. Treasuries. Gross then goes on about Europe and U.S. are both in a recession.

When I get e-mails pushing Gold sales training

courses I know the party is just about over.

 Tuesday markets had a slight gain across the board except for oil.

Home Builders up. KB Home crushed in the last down cycle. Morningstar reports it will not reach break-even until sometime until next year- gives the stock 5 stars. Fair value of $16.00. Shares are under $7.00.

Dryships- once a $125 – a share darling of the trading set now fallen to under $3.00 as the company missed expectations. Hot Research in June 2011 from Barrons raved about the stock and said the company was ready to capitalize on the Ultra Deep Water business. This stock cannot be leveraged and probably not on the radar of hedge or fund managers until it reaches a better price.

‘Who loves ya, baby?’ Ford and GM may double by next year, according to blogger at Seeking Alpha Brian Nichols. Both companies have strong earnings and are prepared to out-produce 2010. Both companies are trading near their 2011 lows.

Angie’s List just filed for IPO (initial public offering)-according to Heard on The Street – shares will be pricey but The Street suggests investors keep an eye on. Personally I used the service once for plumbing and the referred drove up in a beater, dressed in scuds and appeared to be a refugee from a chain gang.

When BP exited the Russian market Exxon slid into the vacant seat. A big concern is the Russian mobster method of doing business of which Exxon has had a taste of recently as did BP. The Russians are in need of partners and want to change their methods. The deal initially wouldn’t add much to Exxon’s bottom line but in the long-term there is a prize of 108 billion barrels of oil which makes the gamble with the Russians once more appealing. It is also in a part of the world where Westerners are finding it difficult to gain a toe-hold.

Vermonters learned from others  –

Get the job done first and then request aide. Unlike Louisiana politicians that sat on their hands waiting for the government to help after the BP spill – Vermonters moved the river, patched roads and in true New England ethic started repairs as soon as the waters receded before asking permission. The reason is that they only have 10-12 weeks before winter and if repairs are not done some people may be stranded.

Factory orders jumped 2.4% in July- this was a huge surprise and contributed to the markets posting a late rally Thursday.

U.S. Department of Justice is stepping in to block the AT&T merger with T-Mobile. Those who feel the deal is dead include Morningstar and Craig Moffett at Sanford Bernstein, saying it was a shock to execs at T-Mobile and AT&T. Still others feel that the deal isn’t dead and as the WSJ reported Friday it depends on what judge AT&T draws to hear its appeal. The supposed winner is SPRINT (S) shares up 6% on the news. Morningstar cautions that this bodes well for S as long as it doesn’t do something stupid like chase T-Mobile for a partner. For AT&T this is bad news as they now need to spend more on capital investments.

August ends… thankfully and finally…

Dow down 4.4% but it could have been worse if not for a sterling 7.4% run in the past 8 trading days. Gold popped 12% enjoying its best month and Treasuries were still the place to be- the 10-year was yielding 2.216% late August 31st.

September –a cruel month, generally for stocks (except for last 2 years, ‘member?’) can be another bad month for stocks and make August appear as a walk in the park. This from Michael Kahn at Barrons.com Getting Technical.  He sees that in the charts but as one experienced trader once said, ‘There are a lot of ships on the bottom of the ocean with good charts.’

Have a safe and fun filled Labor Day.

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-4th Week August

Wall Street opens for business Monday.  Hurricane misses downtown and best wishes to our friends and clients on the East coast! Now here’s the market recap:

A small hike in  Jobs will solve just about all the domestic problems including  getting the President re-elected! He plans on announcing a new jobs creation plan after the Labor Day weekend. Word leaked out it’ll be a $109 billion road and bridge rebuilding spending package that’ll put American’s to work. Even the rating firm Moody’s likes the idea, stating that for every $1.00 spent the spending package will return $1.40. Only the Tea Party members will oppose it.

Rally Monday last fizzled but held onto gains and closed 30 some points on the Dow.

Banks being trashed on Monday & Tuesday. Bank of America under $7.00 and venerated Goldman Sachs being punished for past sins to close at $106. a new 52 week low. CEO Blankfein has hired an attorney to represent him regarding mortgage improprieties the firm committed causing the economic meltdown.

On Wednesday Analysts said, ‘No Mas!’ and came to the rescue of Citi and Bank of America stating that the recent selloff was due to rumors. Also Citi does not have the mortgage exposure that does BAC. It has exposure to the higher growth markets in Asia and Latin America, writes analyst Glenn Schorr.

Bank of America David Reilly of WSJ Heard on The Street wrote that there is opportunity for investors in the bank’s debt. Shares of BAC jumped 68 cents on Wednesday.

Pension costs weigh heavy on the autos, and Deutsche Bank lowers pricing stating costs could be significant. They put GM at $36 and Ford at $15.50 and neither firm is within hailing distance of those numbers as investors view autos as toxic. On CNBC Friday one talking head whispered that there were insider buying of the stock but not as much as you’d think.

Bet on aluminum as Davenport and Company upgraded aluminum giant Alcoa to a buy from a hold.

Argument continues on the viability of Hewlett Packard’s turn to the software patch.

HP shares popped as the company got an upgrade Monday last. Ex-CEO Carly Fiorina said the company was doing the right thing in dropping nominal PC biz for software.  CF oversaw the $25 billion merger with Compaq.

Sign of our Times – when entertainment is reality shows Lizard Lick Towing- about repossessing vehicles.

Gold = $3,000 an ounce! Here’s the deal in 2 weeks gold has shot up from $1500 to $1900….and so-called experts are saying No to Buying Gold at these prices. Still, from what I read, there is more money invested in APPLE  than there is in the entire ETF GLD, which invests in gold. The vertical climb by gold seems to follow the boom of the NASDAQ and housing and, according to  Brett Arends, if that is the case and gold is a bubble forming it has another 60% to go before crashing.

Gold’s Bubble is Bursting! So sayeth Dennis  Gartman, after gold fell more than a $100 on Wednesday. Fundamentals will create selling pressure. The public owns gold at high prices and now any rally will be met with sellers. In addition Gartman believes that gold can be at $1650 in the next six weeks.

And… the fall of gold prices is but temporary and the current situation has been the uncertainty about what the Fed will do.  BNP Paribas wrote, ‘ gold will peak with Fed tightening …in our current forecast tightening will occur in 2013 but a move in rates could take place should economic conditions improve more quickly that currently expected.’

The Collapse of dictator Qaddafi’s reign may be the best economic news for Europe, according to Matthew Lynn at MarketWatch.com.  With the combination of Egypt, Morocco and now Libya there are 100 million new customers and an entire new labor pool right in Europe’s back door. Lynn writes, ‘If Turkey can make the transition maybe so can North Africa.’

Jackson Hole holds hope for….? The Ben Bernanke speaks….and the whispers say that the Ben Bernanke will say nothing of substance…

Tuesday last markets rocked up 300 plus points on the Dow! It was all about betting that the Fed would do something. Stock investors, according to WSJ on Wednesday, are coming off some of the most tumultuous weeks in history, having been alternately bruised by a downgrade of the U.S. credit rating, worries over a U.S. recession and the continuing European debt crisis.

  Whispers by people familiar with the matter reported in Wednesday’s WSJ said that SPRINT would get the iPhone 5. Sprint has stopped the bleeding of customers and this would be a huge boost to the bottom line. It would also strengthen AT&T’s case for its purchase of T-Mobile.  Shares of Sprint fell Wednesday but that was more on their loss on a lawsuit than the possibility of iPhone5.

 Why is this man smiling? Paul Jones ll, hedge fund manager, has recently offered second tier prices for investors into his hedge fund. Think stock and fund commissions are expensive? Jonesy currently charges 4% a year and a 20% slice of the profits. His new fee will be 2.75% a year plus 27% of the profits. (and this is no guarantee he makes ya’ll money!)

401(k) investors didn’t lose their cool in the wild ride a week ago. According to Investment News retirement plan participants didn’t panic. Only 0.25% took action on the day the Dow lost 5.5%. 

Didja know Scwab plans on franchising its brokerage offices. The fees are rumored to be split 50-50 with the franchisor and franchisee. Up front costs a minimum of $100,000.

 

Catching up on my reading and who better to revisit than Michael Lewis author of Liar’s Poker and The Big Short. His topics are money and I ordered  4 I haven't read – Moneyball, Money Culture, Losers ( about the 96 election) and Panic. When you read Michael he informs and entertains.

Wonder why we can’t get down to the business of business? John Sununu, son of the former White House Chief of Staff - ‘Aka Window-Seat-John!’, wrote a commentary in last week’s Time, explaining that the admiration's new rules on ozone pollution, fuel efficiency, collective bargaining, derivatives trading, carbon  emissions, lithium battery transport, bank capital standards, financial protection and of course, should we forget, health cares, stifling business. The NLRB is still quarrelling on whether Boeing can or cannot open a new facility and build part of their new airplane.

David Wessel’s commentary…see the chart for details…

got it?

Steve Jobs resignedas expected the CEO of Apple will step down and Tim Cook, currently COO will step in. Shares of APPL down 5% Thursday morning on the news. We have to wait and see if shares drift lower. Jobs is also the single largest shareholder of Disney through his acquisition of PIXAR, bought for $10 million and sold to Disney for $7.5 billion in stock. Jobs share-$4.4 billion. (experts still like Apple shares).

CIT shares hit a low of $29.55 a share in the mess a few weeks ago and John Thain, CEO or CIT,  bought $1.2 million of the company he heads. Thain was CEO of Merrill before the economic depression of 2008.  Shares were rated by analyst Henry Coffey, Jr. a buy on August 11th with a $50 price tag.

Oil Bulls have a grand opportunity owning the company that makes the stuff rather than the stuff itself. Liam Dennings writes in WSJ that Brent crude is above $110 a barrel, or 15% higher today than it was a year ago. Better prices are being found, he reports, in the oil companies themselves.  Shell Oil, according to Credit Suisse, commands less than 7xs earnings and yields 5.3%.

MARKETS shot up 144 points on the DOW Wednesday.

UGLY Thursday as markets fell, Bank of America took a $5 billion dollar handout from Warren Buffett (he did the same for Goldman Sachs if you remember). The stock popped on the news but short traders are waiting in the wings to knock the stock lower. The question remains what did Buffett pay for BAC, or what kind of a deal did he get? You know Buffett doesn’t share the same method of stock buying you and I do. He always wrangles better deals behind closed doors. Folks think they can buy what he bought and find out differently.

Retiring Kansas City Fed Chief Tom Hoenig  appeared on CNBC and said he gave it a 20% chance of the US falling into a recession- but, he said, people don’t see a clear path. And, you can talk yourself into a recession and lack of confidence is contagious. He also doesn’t like The Ben Bernanke keeping rates low. He talked about how common sense tells you something is amiss, like when a 10-year bond is yielding less than 2% – something is wrong.  Hoenig is against the too big to fail thinking. In June he said, ‘In the 1980s the five largest banks held only 29% of total banking assets and 14% of GDP. Now the five largest control half the assets and 60% of the GDP.’ Hoenig disagrees with Merrill and others who predict a 60% chance of recession.

Stocks fell Thursday and gold perked up a bit. How do you explain 2011 when so-called smart investors get beaten up. George Soros lost 6% and got out of the business of managing other people’s money before the latest bit of volatility. John Paulson, who made billions betting against mortgages in 2008, has lost 31% and that is including the fact he holds a huge position in gold!

No Solutions or Ideas! For a nation of really smart people no one has stepped up with ideas for solving the real estate dilemma. 51 Million Homes have mortgages. 14.6 million are underwater. 3.7 million are seriously delinquent. 5.2 million have been foreclosed or sold in distressed sales. Only a small percentage of home mortgages have been modified; or, just 750,000. In 1933 FDR halted the foreclosure mess by inventing the 30-year mortgage and created the Home Owners Loan Corporation, which issued long-term government backed loans to 4 million Americans. Today Washington talks about bulldozing homes instead of keeping people in the homes and stabilizing prices. With millions of empty homes and more being foreclosed every day values of real estate will continue to be suppressed for years. Why not (1) Keep people in their homes with modified mortgages – even if it means no payments for the next five years as long as they pay their taxes and insurance. (2) Provide housing to the working poor with existing vacant real estate at the same attractive schedule. Neighborhood and home values would stabilize, taxes and upkeep would be provided in most cases.

Barrons.com in the Weekday Trader suggests pharma Teva, an Israel based company that has fallen 27% and a maker of generic drugs. Barrons estimates that the demand for low cost drugs will double over the next five years. The company boosts a 2% dividend.

Here’s a chart of the S&P 500 Index – where we were and where we are – just in case you forgot.

STOCKS CLOSED UP FRIDAY – BREAKING A FOUR WEEK LOSING STREAK!

 The Ben Bernanke soothed markets Friday by saying the Fed would do whatever it had to do but added the Fed could only do so much. The markets were down 200 points but recovered as traders realized the Fed was simply putting pressure where it belonged on the Administration to ‘ institute both long-term fiscal restraint and pro-growth economic policies.’

Finally, The Best Buy Signal in 53 years, according to Alex Green of TopStockAnalysts. He reports,’ that in the first half of the 2oth century investors discovered that if they bought equities when the market’s yield exceeded that of the 10-year Treasury they would have been in for every single major rally.’ The system worked until 1958 and for the next 50 years stocks never yielded more than Treasuries. Currently the 10-year Treasury yields 2.07 and the S&P 500 Index boosts a dividend yield of 2.17%! Green concludes, ‘Stocks are a screaming buy and Treasuries a table pounding sell.’

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-3rd Week August

•  Get used to it. Traders are tuned to selling first and sorting it out later. Last week there was no good news just rumor and lots of questions. Congress and the President went on vacation and let investors swing in the wind- the Prez refusing to call Congress back from vacation and lamely explaining in a campaign speech before leaving, ‘…maybe constituents could talk some sense into them…’ and all the while I thought it was the reason he was hired…
• What do all these folks have in common?

The Dow is off  15% in the last 4 weeks and down 6.6% for 2011. And, according to Rod Smyth on Friday’s Market Wrap on CNBC, ‘The direct result of policy makers!’

Here are the rest of the usual suspects… 

• With the 10-year Treasury at or close to 2% investors don’t sell equities here and buy bonds.

I expect it will take years to correct the damage done by this administration and Congress.

From The Street -This coming week expect global uncertainty to continue to over shadow equity fundamentals. The worries about Europe falling into (or being driven to) recession are real as Euro politicians are immune to the threat of weak banks and no real plan except patching economic cracks as their appear. Fed Chairman Bernanke will be delivering his annual speech at Jackson Hole this coming Friday. He is expected NOT to announce any new Quantitative Easing. Also, the Chicago Fed announces economic activity Monday, durable goods orders on Wednesday, job numbers on Thursday and Friday revised consumer sentiment and GDP numbers.

Be More Like Buffett and buy on Fear, the problem is that investors are not buying on the dips anymore. They are not only disgusted but frustrated at everything and everyone – from the do nothing Congress to the European laggards and U.S. global corporations sitting on oodles of cash.

• Here’s some good news: For investors who didn't sell in 2008 did the right thing: Here are the facts: For those investors (from Oct. 1 2008 and March 31 2009) who reduced equity positions to zero and stayed out of stocks through June 30 2011 saw an average increase in their account value of 2%. (2) Those who exited equities but then returned to ‘some’ level of stocks after the market decline, their average account balance (same time period) increased by 25%. (3) Those who didn’t sell and stuck it out had their account balance increase by 50%. –Fidelity Investments source.

Banks are verboten to investors as Bank of America slowly sinks in value and investors have lightened positions in financials this past week. Reported in the WSJ.

Tech remains hazy and HP especially has become toxic as their reorganization to sell off their PC business. According to The Street’s Cramer the board of HP should be to blame for their mess.Still Morningstar has it as a five star stock and likes it going forward saying they give credit to HP to cut their tablet and PC business quickly and concentrate on their long term software acquisition.

Software is Eating the World! Marc Andreessen, billionaire investor and HP board member, insists no bubble exists for tech and gives his reasons why software growth is here and growing. He especially details the lack of qualified individuals to work in the area of software since the companies themselves are being run by software programs. Opportunities, Andreessen explained in Monday’s WSJ, are where the USA excels and growth will be.

Jack Bogle, Vanguard Indexing Advocate: Jack, in a telephone interview, said that stocks offer the best possible return over the next 10-years when you consider the yield on the 10-year bond and inflation. Stocks offer the same yield plus growth.

Gold bubble brewing….right now a flight to safety but what happens when the real need for metals occurs during inflationary times? Watch gold this coming week and see if it hits 2000 or pulls back. Gold crashed nearly 69% after hitting its peak in 1980. Today uncertainty in Europe and the United States is propelling gold higher. In three years it may well trade lower than it is today. – source Economic Times. August 22nd 2011.

Green Light to emerging markets after a 20% plunge in just the past 3 months. Cover story for Barrons.com reported that EM currencies held up remarkably well against their European and American currencies.  China, India, Brazil, Taiwan and South Korea offer strong economic growth at a discount price.

OIL with the fall of Libya prices may slip. But, according to Thina Saldvedt, senior oil market analyst at Nordea Bank Norge, could be a short term reaction. Libyan oil is especially prized but a lot of the initial production may be needed for domestic use and it could take three years for the country to resume normal output.

Stocks will save your retirement, writes Andrea Coombes for MarketWatch. The stock market is your only hope going forward to overcome the bite of taxes and inflation for retirees. You cannot get to your retirement goal earning 2%-3% in bonds when inflation is running 3 1/2%. The average recent volatility based on the annualized standard deviation of monthly stock market returns of 14% to 15% is only slightly higher than the 13%-14% levels of the 1970s and 1980s. Since 1831 the average is 14.5%. We just don’t like it all crammed into one week or month…

Finally- Abby Joseph Cohen, senior investment strategist at Goldman Sachs (and one of the smartest in the game) said to CNBC Friday, ‘The Market may be pricing in a recession but such as severe slowdown in the  U.S. economy is an unlikely scenario.’

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