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.