That Was The Week That Was – 2nd Week August

                                   The new Gang of Six?

• Whenever a crisis erupts those that think they know better than anyone else come up with ideas as to what you  and I should  have done with our money. They don’t tell us ahead but always after the fact. Even with the downgrade experts still like U.S. bonds and the dollar because there is no safer haven.

 During the meltdown Monday I spoke with a few people and one thing I mentioned is that you don’t lose money until  you sell. The news has been horrific and that’s because newspapers, radio and cable news sell bad news. Don’t make a decision when things are in crisis. Its in the same Family of Rules as: Don’t grocery shop when you’re hungry (2) Don’t go swimming after you eat. There is too much emotion for anyone to make a sensible decision. If you have concerns, and who hasn’t, call me- there are avenues that may not have as much potential going forward but could be proper for you to rest easier in the future.

Looking Forward investors hope for some stability this week rather than the roller coaster of last week. Also, according to The Street, there are a lot of issues unresolved that may still disrupt the markets. Attention, The Street admonishes, should be on global austerity and some sort of credible plan to foster domestic confidence. (2) Watch the Fed and see if it follows through (3) Resolution in Europe in key markets Italy and Spain. (4) Consumers? Will they stop spending? Or, will they bounce back. even modestly to support the economy? Those questions and whatever answers hold the key to a modest but effective economic growth.

• Even though Events in 2011 have been fearful and costly, especially the political theater in  Washington, the last minute Debt deal, the lack of providing a reasonable budget, the nine percent domestic unemployment, the European Union crisis, the Middle East crisis including the Egyptian uprising, the Libyan revolt and civil war; and the Japanese earthquake/tsunami along with its nuclear reactor meltdown, global companies have done well. It is amazing the fundamentals have been as strong as they have  with domestic companies reporting record profits.

 

Has The World Gotten 10, 12 or 15% worse in the last 48 hours?

• High Frequency Computer trading programs and traders were accused of being responsible for Monday’s sell-off  by both Pete Najarian and Jim Cramer on CNBC. ‘You couldn’t get ahead of the  selling,’ said Cramer. ‘You knew it was orchestrated that way the selling was proceeding in lock-step.’ This was not retail selling or institutional selling. Najarian was visibly incensed  by the machines continued onslaught throughout the day and suggested that the SEC examine their use and perhaps curtail their trading during volatile times.
• While this was happening , European leaders were reportedly not worried about business but on vacation.
• There was some attempt at reasonable financial thought Monday as analysts made buy recommendations on a variety of stocks. It was laughable though as all the recommended stocks fell and that included Yum Brands, Wells Fargo, Royal Dutch Shell and Proctor and Gamble; to name a few.
• Billionaire hedgy John Paulson has lost another 11% in his Advantage and Advantage Plus Funds. It is rumored that Paulson is down approximately 50% year to date. He reports so far investors have not run for the exits.
• Marc Faber says the correction has been so vicious because investors have lost faith with politicians and current economic policies. Then Faber should explain why the retail investor is sitting still while the high frequency traders are running amok? It just isn’t so that the little guy is burning his own house down. Faber repeats what most of us know, ‘In my opinion, government bonds are the short of the century.’  Not so fast, Marc. The Fed just have put that tactic on hold for the next two years!

• On Tuesday angels sang, the sun shined and flowers bloomed. The Federal Reserve Committee met Tuesday and agreed to do nothing except inform us that interest rates would remain low until somewhere in 2013.  Discussions included the Fed acknowledging a slower economic growth and only gradually decline in unemployment. Additional tools to aide in the recovery could be to buy bonds as needed or lengthening the duration of the debt it holds. In other words a modified QE3 if the Fed needs it to boost the economy. (According to one guest on Monday’s CNBC the QE1 & 2 initiatives were perfectly acceptable as the U.S. was simply borrowing from itself). The big news on a possible QE3 and low rates did cause the markets to pop over 4%- the biggest jump since March 2009.

• With interest rate ‘guaranteed’ to remain at effective zero for the next two years investors have an opportunity of buying longer maturities. Longer maturity bonds provide higher yield. What has held back many investors from the higher yield has been the worry of sudden interest rate hikes that would cause loss of principal. The yield on the 10-year closed on Tuesday was 2.24% and the 30-year 3.61%. (There still remains the market risk of rising rates as bond traders can sell positions causing rates to rise and effectively principal losses).
• Heard at Bloomberg -Wilbur Ross, another billionaire but one who buys things others don’t like steel, textiles and stuff, said he was buying stocks Tuesday. Ross asked the question, ‘ Has the world really gotten 10, 12, 15 percent worse in the last 48 hours? I don’t think so. Buying stocks at today’s prices over a couple of years’ time period will prove to be a uniquely rewarding experience.’  Ross also said from Los Angeles, ‘ We bought some on Friday, we bought some more today, we will probably buy more when New York opens again tomorrow.’ Once risk adverse investors capitulate things can get back to being more normal after that.’
• Stocks fell Wednesday as worries over France and the slowing economy  shook traders.
• A bumpy ride as fear, fear and more fear drove markets to another huge down day on Wednesday. If you studied some stock charts you’d see there was spot buying as stocks popped in price only to be pummeled a few minutes later. Martin Senn of insurance giant Zurich Financial said, ‘Clearly we are in a selling climax.’
• Cramer on his Mad Money lectured that an investor could believe the sky was falling (or words to that effect) or believe central bankers on both sides would do whatever was needed to contain the mess, bring order to markets and keep economies from drifting into a global recession.  This was also the language used in Bloomberg Thursday morning.

 CNBC After the Bell gave strong endorsement for CISCO. Also -Analysts at Gleacher & Company have a buy rating on the stock with a $20.00 target. There is a lot of normal regular business being conducted during this sell-off.

• Good News Some clients have had orders filled on stocks they thought they’d missed and which fell back to more attractive and CHEAPER price per share.
• If the folks passing out the Jim Jones Kool-Aid were so darn sure of themselves why are they not rich?

Lack of confidence in Governments is the root cause of the volatility.

• Joy as Thursday brought stocks almost back to where they were on Monday. A modest jobs report and Cisco posting better than expected earnings set the stage for a good day. Gold fell back slightly as margin requirements were hiked. Paul Nolte, director of Investments at Dearborn Partners, said, ‘Its like a basketball game. It would be nice if markets could settle into a 4%-5% trading range instead of moving on a daily basis that much.’ This is Nick Nolte and not Paul, just so you know.

7 billion shares traded on NYSE Thursday

• Tech was the hot spot Thursday but so were the banks, although Bank of America is squarely in the sights of the short sellers.
• Fear drove investors to pull $14 billion from stock funds. That does not include individual stocks. Money market funds (that earn basically nothing, zip, nada) had inflows over $47 billion- breaking some records for sure. Cisco was up 14%.
• The S&P 500 yield closed higher than that of the 10-year Treasury. In other words if you owned the S&P 500 index you earned a skoosh more than a 10-year.
• Do you remember when I wrote of the ‘Death Cross’? This is where technical analysts warn the 50 day moving average line moved below its 200-day average. This is to indicate a short-term price decline and longer term market warning, or worse. It came and went and seems nothing happened. The S&P was up 3%.  Maybe we’re supposed to wait? It’s like on time release?
• Anyone wonder why banks don't lend? According to Texan Thomas Depping, chairman of Main Street Bank, he plans on handing in the 27-year old bank’s charter and selling all four branches to the competition because the new regulations are stifling business. According to the Independent Community Bankers of America, a trade group, state and federal agencies have gone to extremes now poring over each loan, including those to small businesses. Depping plans on setting up a new lender to do business the way he wants and outside the official banking quagmire of rules. Backed by Paul Allen of Microsoft Depping will set up his business immediately after leaving Main Street.
• The New World is getting investors to reach for higher yields, according to the WSJ, by extending the olive branch of certainty and keeping rates at current levels. Still there is a lot of angst from investors about parking their money into a 30 year fixed and be subjected to sudden whiplash. (Personally I’d be a investigator into corporate and certain strategic bond funds that provide more oomph for the buck plus the liquidity – if ya’ll know what I mean.)
• Value Trap? Class? Notes? Pencils up. You think you spot a stock cheap and getting ready to pounce and someone like me dashes cold water on your dreams of riches. As soon as you buy the cheap stock just keeps getting cheaper. So how do you spot a Value Trap? The Answer: The stock has dropped more than the average stock in the S&P 500 index during the previous 90 days and the earnings are being revised downward faster than its peers. Like the Man said, ‘Be careful out there.’

                        WELCOME

TO THE                WORLD OF     SOPHISTICATED                                    CONFUSION Larry Fink, CEO of Blackrock, the world’s biggest financial house, talked to Barrons and said, ‘The markets worldwide are unsettled because of inaction and really bad results from government. We did not see leadership worldwide. We lost one of the fundamental bedrocks of investing- the certainty of good government.’ Larry Fink recommend corporate stock dividends as income alternatives rather than bonds.

 

- ‘WE LOST ONE OF THE FUNDAMENTAL BEDROCKS OF INVESTING- THE CERTAINTY OF GOOD GOVERNMENT!

• Bargain Days:  Insiders are buying shares of beaten down stocks.  Here’s a list of stocks MarketWatch.com reported that some CEOs and corporate insiders have been scooping up: Corning, Chiquita Brands, Morgan Stanley, Chesapeake Energy, Microsoft and Krispy Kreme.
• Finally- it ain’t over till its over. According to some technical analysts lead by Howard Gold and Michael Kahn the market has further to go down. Gold reported that the clues are the Fed openly saying the economy is sick and we’re not going to raise rates anytime soon- like get used to it – and that the open rebellion by three voting Fed members means that there is unlikely to be as an aggressive QE3 as there was QE2. Mark Arbeter, chief technical analyst of S&P, said he thinks the S&P could fall to 1020 or maybe as low as 935 (this is another 15% below Wednesday’s close of the previous week). Michael Kahn says he too sees support for the S&P around 1010 to 1050 and after that 930.  Both suggest lightening of equities in portfolios during rallies. The S&P 500 index closed 1179 last Friday.

and the FDIC closed one bank on Friday bringing the total in 2011 to 64. In 2010 157 banks closed for the year.

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