Why Greece Is Doomed

Greece has about 10 million people living in a country the size of Alabama. It owes so much money that no one really knows how much it owes. Out of 127 countries with rated debt Greece ranks 127. It is also ranked dead last as being expected to pay back its debt.

Since its independence Greece has defaulted five times, Spain 13 times; and Germany & France eight times. But Greece has always been in, what is termed, perpetual default. Having spent over 50% of the time since 1829 rescheduling its debt or defaulting on money it has borrowed.

The problem is not with Greece owing money but the European banks who hold Greece’s debt. If Greece decides to leave the European Union and return to use their original currency (drachma) they will effectively be defaulting on all the money they owe. That they will be ostracized from the rest of the world will mean little to Greeks or the rest of us as they produce little in enough quantity that the world either needs or wants. It is the real fear of very large European banks going under because of the amount of Greek debt that they own. And, because it is in the nature of bankers to lie no one is certain how much debt each bank holds.

Any attempt to organize in Greece a strategic plan to increase taxes and reduce costs is doomed before it starts.

Corruption and theft are common. Doctors in Greece, who actually earn millions of euros, report, on average  12,000 Euros a year income, meaning they owe no income tax because they fall under the countries minimum income wage. Income tax fraud and avoidance in Greece is winked at and has no penalties. It is considered almost a sport. The people of Greece have never been forced to pay taxes. It is almost against their culture to pay taxes of any form.

When Greece’s new Prime Minister took over he wanted a complete understanding of the country’s debts. What he found was that in addition to the growing 400 billion Euro debt Greece owed about another 800 billion in pensions for a total of 1.2 trillion Euros. There did not seem to be any type of accounting system to keep track of what was paid, the total owed and who owed the government what. The Greek system was and is to pay the bills as long as they have the money with little governance as to the total amount they owe. In fact Greece was and is so backward regarding finances that it is not even on par with many third world countries let alone emerging markets or sophisticated Euro Zone countries.

The average government job pays three times as much as a private industry occupation. It is no wonder that most Greek people want to get on the public dole.

Public works are mismanaged. The national railroad has an income of 100 million Euros against an annual wage bill of 400 million Euros Plus another 300 million in expenses. This is due and payable each year! Yet, for years regulators and those with any oversight completely ignored this anomaly.

The average railroad worker earns 65000 Euros a year.

The Greek public school system ranks dead last in the Euro Zone but nonetheless employs four times the teachers as does the Best European school system.

There are three government defense firms that owe billions. The normal retirement age for men is age 55 and for women is age 50. The average lifespan is 80.2 years while in the U.S. it is 78.7. The annual funding for pensions is astronomic.

In addition to government spending and waste the biggest problem is that the Greek banks lent 30 billion Euros to the Greek government where it was squandered or stolen. Stealing is considered a perk or benefit of public service in Greece and stories abound of workers taking what they want by simply walking out with their arms filled. The banks in Greece did not get on the mortgage default express ride as did the United States, Iceland and other countries. Their only fault was lending to their own government.

In a nutshell this is a country that has been victimized by its government and nothing else.  The population has no understanding of taxes, budgeting or finance. The fact that Greece will default is about as sure a bet as anyone can make. The Greek citizens have taken to the streets and rioted their displeasure at any attempt at cutbacks. Some people have committed suicide in protest. They also blame other people for their troubles; the Turks, foreign bankers and even monks. The question is when and how the European banks who own the Greek debt are able to hold together during the cash crisis.

And from everything I have read the average Greek citizen has little interest in reform. 

I believe that the Europeans are finally opening their eyes to the reality that no matter how much money they toss at Greece it will be lost money. I don’t care what they eventually call it- an organized reorganization or simply a default the case is crystal clear. Now the question is how to save the European banks. Greece is a total write-off and only Greeks can pull themselves together from this nightmare. The next step in the possible contagion collapse is Spain and Portugal.

Much of this information came from Michael Lewis’ new book, ‘Boomerang’. Other bits and pieces were googled and formed the balance of this blog.

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 September

Fed up! If you had the nerve to peek out from under the bed covers Thursday you’d see the markets trampled as investors headed to the exits- fed up on  Euro No News and The Bernanke ‘Twist’. The latest Fed gimmick to stimulate the economy and this recent Fed game totally angered every investor, banker and business owner. The unintended consequences of The Twist (see below more on The Twist), according to Barrons.com.,  is to make making money almost impossible for banks, savers and businesses. In addition 1400 corporations would have to reach into the till and add money from profits to their pension liabilities as the lower rates plus inflation would mandate additional contributions. Also key in the panic was the Federal Reserve use of the word, ‘Significant’ to describe slowing economic conditions. Significant coupled with the word ‘slowing’ and ‘economy’ bodes no good winds and so the selling began as soon as traders parsed the meaning as being les than stellar.

 Gold was off for the week the most in 5 years losing almost 10% or closing at $1639.80 (this price was called by analysts this past summer if you remember and I reported it to you here!) and silver fell the most in 31 years as investors sold to get liquid. We could see gold fall back to around $1500. or levels of 2009.

If a 20% chance of a meltdown investors not waiting around and simply running for the exits. No Confidence in The Administration or Congress. None, Zip, Nada!  This is the first time in my lifetime that it seems as if the government has abandon the public good for political ideology.

Fear of the unknown sparks this week’s huge global selloff as domestic traders and investors Do Not Know what and if European large banks can sustain the Greek losses. Forget all the fancy gobbledygook spewing from the talking heads and focus on what you know and what the professional investor’s know. It’s what we don’t know that’s causing the fear- period. Large European institutions lie to investors, shareholders and regulators just as well as do our domestic banks and investment firms. Remember Lehman Brothers? Everything’s swell at the firm. Or, do you remember the now bankrupt but once bustling Hedge Fund country known as Iceland? This is where billionaires went from fishing  for cod and haddock to global banking without stopping to go to school? When Iceland crashed the bankers blamed lack of liquidity not that they had bought rotten investments and the worst of the breed.

Read last week’s blog for clues to where the S&P 500 index may fall- It could test 910. This should not be a surprise to clients.

The Ben Bernanke & Crew announced their ‘twist’,  to buy longer maturity Treasuries in order to lower ‘low’ rates even lower and stimulate investors to buy equities, which have a higher yield, to a peevish audience last Wednesday. Markets promptly showed their displeasure at The Fed and gave up a triple digit selloff in the last few hours of trading. (The Ben Bernanke wrongly assumed banks want to make long term mortgages for 3.75%!) In a nutshell Fed observers passed the ball to The President and Congress to create any stimulus to a moribund domestic economy.  The Fed can do no more.

The Deal is that the Fed would buy Treasuries with durations of 3 years or less and invest the proceeds in those with maturities of 6 to 30 years. Ze problem is that once the economy perks up no one will want to buy those longer maturities and The Fed will be stuck with them. The last time the Fed did ‘The Twist’ interest rates were twice as high as they are today so experts scratch their heads at any real stimulus this will provide the economy.

2011 had such great promise when the doors opened for business in January but a do nothing Congress and an overwhelmed President has squashed any incentive for business to hire or investors to buy this year. Tuesday a solid rally was cut off in its prime as uncertainty gripped investors and buying turned to selling as news leaked out that the Greek bailout wasn’t going well. The IMF and EU announced they would make a decision in October if Greece was to get another payment from the Central Banks.  Anyone know if any of these people took lessons from Nixon and his gang of scoundrels letting enemies and friends  swing in the wind..

Xmas shoppers expect more sale incentives as retailers are already turning bearish. Penny’s head of retail buying said he feared the chain would be stuck with more product than originally anticipated. It’s Jingless Bells for the coming Holiday Season as forecasters are pointing to a more….what’s the polite word? muted gain for 2011. Operative words are …muted..but linked to – gain!

Home Values will continue to fall, by at least 2.5% this year and then gain only 1% a year through 2015. Bill Clinton talked about getting the home market stabilized and shared ideas on how to get it moving again on NBC Monday morning. Further tightening by banks would shrink the pool of potential buyers even more. Homeowner’s equity has fallen to 39% from 60% in 2005. Washington, unlike the day of the S&L debacle and bailout in the early 90s, has no plan for today’s builders or homeowners. Home builder Lennar (LEN) said 3rd quarter profits fell 31%.

The Trade, in a short essay by David Weider, at MarketPlace.com. According to The David, the trade everyone should be able to see is to ‘short the Euro’. ‘Even a dummy,’ can see that, he wrote last Tuesday. He suggests doing that using the ETNs- DRR and/or the Ultrashort Euro Proshares EUO. The debt problem isn’t, he writes, as I did last week, about Greece, but the banks that hold the debt. Spain, he goes on, is about as manageable as the running of the bulls in an elevator. 

Not since the sock-hop & Sadie Hawkins Day has there been an opportunity in stocks as we have today, writes Mark Hulbert. It’s based on the Fed Model which is when the 10-year Treasury yield falls below the stock market index yield it signals BUY. David Kelly at JP Morgan Funds was quoted as saying that this is now a screaming buy. The 10-year Treasury is at 1.9% The last time this happened was in the ‘50s’.

S&P downgrades Italy uno notcho to A from A/A-1. Markets fell in disarray on that and Greek news until late afternoon Monday when they recouped over 200 points on the Dow and still finished down over 100 points.

Monday yakking with a client and I said there were 1 billion people in China. I was wrong-  it’s 1.3 billion. They have a billion more people than we have. A BILLION!  Quick someone sign me up for a Soft-Ice Cream franchise on any street corner in China. The reason I’m bullish on China is ONE BILLION CHINESE… General Motors is strengthening its position with China’s main car manufacturing firm SAIC. Ford is just getting its feet wet in China and India, where General Motors is well positioned. Did I mention ONE BILLION CHINESE potential consumers? What’s the trade? Find any global company with an exposure to the Chinese consumer…did I mention ONE billion people? Hello, Coca Cola…

Mo’ mentum Trades: Favorite Term by Wall Street traders – Mo’ –mentum trade. Means buy high and sell higher. According to Seeking Alpha blogger Kraken on September 18th the following Momentum trades the street loves:  Amazon.com; Baidu, Inc.’ Wynn Resorts; Green Mountain Roasters; Las Vegas Sands; Apple; and Visa.

 Oracle software sales were up as hardware was flat. Larry Ellison said the software was up 17% in August.

Bargain shopping for stocks? Wal-mart is trading at a depressed level, according to Barrons.com Weekday Trader. and shares have been dead money for way too long. The retailing giant’s forward P/E is a measly 10 times. Year to date stock is off 3% while Family Dollar is up 8% and 99 Cents Only Stores is up 27%. WMT announced a revival of its layaway program for electronics and toys.

Tyco to split into 3 companies.FBR market analyst expected the 3 could be worth $52-$56 a share while JP Morgan Chase said they split could be valued as high as $65 a share. The split would be tax-free to shareholders. Splitsville ain’t nothing new this year as Kraft, Sara Lee and NetFlix all did or plan splits Shares of Tyco jumped to $46.87 Tuesday last.

Black Swan author Nouriel Roubini says Greece should do the honorable thing and voluntarily move its economy off the Euro, give the drachma a quick cut in value, and then get back to the biz of rebuilding. Something, Roubini said to The Financial Times, that other emerging markets did such as Argentina. Nothing was said about all that debt in the European banks or what to do with it- which is REALLY the problem, Nouriel!! Hello?!!

Hewlett-Packard is got to be the most dysfunctional company- ever! Again the board firing their Third CEO and replacing him with Meg Whitman, the former E-Bay CEO. Okay-dookay, Mags, just make sure you polish that resume and C.V. before you plop into the executive office ‘cause you know you won’t be there for long. Shares in HP popped on the news and stock is about half what it was less than a year ago.

Gold & Silver fell Wednesday, Thursday and Friday.. The metal trade should have increased price if traders believed the Fed would be printing more money- but they don’t and it didn’t. Alan Zafran, at Luminous Partners, said, if you think The Fed is going to hold the line on inflation, not print more money, than gold and silver look overbought. Margins were increased for gold. Central banks sold gold for liquidity and traders followed the Mo’ mentum trade.  Remember when I reported that gold could retrace back to mid-$1600s. Opps, I already patted myself on the back earlier in this blog.

Investment Tips? Every day a list of upgrades and downgrades on stocks hits my desk and just about every broker in the land. The problem is weighing what one upgrade means against what another analyst’s guess. Just to give you an example, JP Morgan Chase upgraded Rovi Corp and gave it a $60 price tag. Morningstar said the stock was fairly valued at current price of $44.00.

 Safest stocks – an oxymoron like Jumbo Shrimp? Brett Arends asked Andrew Garthwaite, strategist at investment bank CSFB who came up with a list of stocks that are stronger than government bonds with multinational income sources. Novartis, British American Tobacco, Intel, Vodafone, Coca-Cola and MicroSoft.

Technical's are Ugly! This from The Street, Jimmy Cramer’s web site, on Saturday September 24th, where Michael Baron blogs, The S&P may find its way to March, 2009 lows. Also, cyclical are underperforming (You don’t need to be a chartists to figure that out!) as Ford and other autos are way off their highs of earlier. Information technology, the other cyclical, is holding well as is Apple.

In the Midst of This Week’s Mayhem…Ford Analyst  George Pipas sees September auto sales growing at an annualized rate of 12.5 million units from an August rate of 12.1 million. (Why is this man coming out of his bunker to give Good News? Doesn’t he understand the world is ending?) What is wrong with this person saying something positive when even chickens won’t come out of their coops?

While Everyone Panics… An eMail hit my screen from the folks at Franklin-Templeton to give me their evaluation of the markets after the huge sell-offs of Wednesday and Thursday last. Remember, this is not saying that stocks won’t fall further, investors won’t panic more or your portfolios won’t shrink more in the next few days, weeks or months. Here’s what Michael Hasenstab, Ph. D., senior vice-president, portfolio manager of Franklin Templeton International Bond Department (And winner of International Bond Manager of The Year) had to write, ‘…we continue to believe that fears that the ongoing recovery may be coming to an end are overstated and that the recovery, lackluster though it may be, remains on track even though it has slowed and looks likely to remain uneven. The classic signs of overcapacity, indicating that the economy has peeked, do not seem to be present.’

Question? Are there any responsible adults in Washington, DC? I am sooo disgusted….you?

Finally –Confidence?, James Altucher, blogging at MarketWatch.com has some words of wisdom: Investors have to understand what is real and what is not. There is a lot of fear being spread around out there. According to the Jimster here are some basic facts:

• The top 8 US banks have $1 trillion in capital and only $54 billion in exposure to the weakest Euro Zone nations – they could all default!
• In 1981-82 almost all of South America defaulted. The top 8 U.S. banks at that time had 265% of their capital exposed to South America. We had a 20-year Bull Market.
• We’ve had 8 straight quarters of GDP growth. Just the return of Japan to normalcy (from the tsunami and earthquake) will guarantee growth.
• Even if the US eliminates government jobs it won’t kill us. In 1945 10 million GIs came home and there wasn’t a depression.
• Housing starts are down but existing home sales are up 18%- plus rents are up 30% in some parts of the country – you do the math.

Plus here are the Jimster’s picks for investment:

• Apple with 12xs earnings and $80 billion in cash coming out with iPhone and iMac and iPod….stock is worth $1500.
• Exxon Mobil can now drill deeper and sideways; and bets are being made that the US is the next Saudi Arabia in the next 10-years and XOM is cheap.
• Wal-Mart- probably the best run company and will be handling shots, eyeglasses and colds and prescriptions at WalmartCare not Obama Care.
• Google- the best company in the world.

China-  over the weekend first said they would not consider helping the Euro Zone, President of China Investment Corp., China’s sovereign wealth fund, said they were not in the business of being saviors. ‘We have to save ourselves,’ said Gao Xiqing. A few hours later clarification from the same source said they would consider buying Euro Zone bonds as long as they fit the wealth fund’s risk profile. This is meant to assume that the Chinese would not be buyers of Italian or Greek debt.

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 September

Greek Default has been in the news for weeks and has battered and scrambled domestic and world stock markets. It’s almost as if investors never heard of a country going into default or having to have its currency or bonds renegotiated. The fact is, dear reader, that there are literally oodles of countries that at one time or another were just plain sovereign dead-beats.

This time, however, we may possibly be on the verge of  the real deal – .  A global depression. The problem is not just with Greece my friends but the Euro that binds them together. Add the politics of 17 countries  &  the fact that European banks have not recapitalized like the banks in the United States have and you have serious issues. Now mix in our domestic companies that depend on the world for business and a worldwide recession is possible.

Morningstar, last week, interviewed David Herro, manager of Oakmark Funds, who said there was no doubt that Greece would default at least on some if not all of its debt. The people of Greece and their government haven’t the propensity to go through austerity, is how Herro explained it.

Getting back to the history of sovereign defaults, we don’t have enough fingers and toes to count those nations that just in our lifetime had to restructure, at least once, their messy money spending.  And, this isn’t even new news but goes back to around the 4th century or so when Greece was one of the first to have to re-jigger their debt. For Greece this isn’t their first rodeo. In a way they are the European poster country for spending and default.

European Countries were isolated by their currencies. A Greek default in 1940 was substantially less risky globally than today.

Let’s look at a few sovereign defaults just in our modern times: In 1978 our friends in Turkey ended up in the soup line. They were no strangers to financial impropriety. That was the fourth trip since the 1800’s for them. The first in 1876. Today they look to be a prosperous leader for the Middle-East. In 1981 it was Poland and Romania that needed a hand- up. In 1982 it was Cuba, the Dominican Republic (a country that made going broke almost a national pastime with four visits to the debt line).  There was also Ecuador, and they came back and did it again in 1999, and that was number six for that  country. There was a slew of South American countries biting the bullet back in 1983. The big default we always think of was Russia in 1998 and everyone thought their default would create world ruin. Today they seem to be getting their act together, albeit slowly and crudely. In 2001 we had Argentina and 2004 Grenada. There were more defaults than the one’s I report here but none that drove the world to insolvency.

The problem with a Greek default will still be with the banks… and the cascading effect. So far European banks are loaded with sovereign debt of Greece, Spain and Italy. Those banks underwrote bonds in the same haphazard manner as ours did with mortgages. The difference today is that the big European banks do not have the liquidity to survive a substantial implosion. To give you an example imagine if the U.S. allowed Bank of America, Citi, Goldman Sachs, JP Morgan Chase and Morgan Stanley to fail. Just the bankruptcy of Lehman Brothers tipped the world into a global depression. The next six to 12 months may shift the world economies one way or the other. The stronger European countries, and their citizens, seem to be getting fed up coming to the aide of their weaker and less than frugal neighbors. According to the WSJ citizens in European country’s with solid economies are sick and tired of handing out their money in the form of higher taxes only to see no result from their poorer cousins. European leaders appear to be, as of last Friday, lackadaisical in confronting a possible explosive situation. Moody’s downgraded several French banks last week that are holding an extraordinary amount of Italian and Greek bonds. Treasury Secretary Geithner was in Poland last week and expressed his frustration with Europe’s lack of unity and action in the debt crisis.

The Treasury Secretary has suggested to the Europeans to create a modified TARP, used to bolster U.S. banks, and as of this writing no interest in the idea by European leaders. Given the circumstances and news, as we know it, the European situation appears to be more serious than we’ve been led to believe.

Doomsters such as George Soros see a cataclysmic end-game. Others, such as Howard Gold at MarketWatch see a painful drip, drip, drip, with odd moments of extreme panic. Fearful investors may indeed lighten up on European stocks and increase their bonds and cash. 

Greece Holds Emergency Talks Over the Weekend on Cutbacks: In a nutshell the Eurozone doesn’t trust the Greek government and their people to hold to their measures of austerity. At a weekend meeting European finance ministers took Greek officials to the woodshed and warned them that they may not get the next tranche of $11b billion in October if progress in cutting their debt is not seen by their financial inspectors. I’ll keep you informed as this unfolds.

 For the week markets up 5.35% on the hope of a European bailout.   Gold down, Oil up, CRB Index down.

Mary Ann Bartels,  technical analyst at Bank of America/Merrill Lynch, said that there is a chance that the S&P 1100-1020 holds but there is a 50% probability that the S&P 500 tests 985-910. S&P 500 closed at 1216 this past Friday, best week since July.

Markets popped in the last hour or so of trading Monday. The dollar continued its strength, which is historically bad for stocks and commodities. Worrisome is that analysts are split on either seeking safe haven for their clients or finding buying opportunities. One analyst on CNBC said the S&P could fall 20% and the 10-year Treasury hit 0%.

Global Arena’s Cohn said on CNBC.com, ‘We may see lower prices and it may be a thousand points on the Dow. But the fact is it won’t last long.’

Who doesn’t love Amazon.com, baby? In 2012 China’s answer to Amazon  360buy.com owned by Beijing Jingdong Century Trading Company, will have its USA’s IPO, expected to raise $5 billion.

Zounds! 50% of Europe’s Money Managers expect a recession in Europe within a year! According to MarketWatch.com reporter Barbara Kollmeyer, sentiment toward the U.S. saw an improvement, the latest survey also showed, with global investors restoring an overweight position in U.S. equities, and only 9% expecting the economy to weaken in the next year. 30% also saw a weakening in the Chinese economy, up 11% from a year ago.

Ford putts along. In August the first insider buying was reported and in Barrons.com  Chairman Ford bought more shares for the second time in a week. He owns more than 4 million shares. Shares are down 39% year-to-date. On Thursday the company announced paying down even more on their debt.

A Rogue Trader at UBS lost more than $2 billion in Unauthorized trades! No surprise but he was trading like that for 3 years before the bottom fell out. Bank compliance? The bank will survive, say insiders, but stock price damaged at a time when $2billion is some serious money. Investors, meaning you me and the candlestick maker, should always check confirms and statements for any unauthorized trades. -

Cisco rebounds and plenty of love for this stock as a fairly upbeat meeting Wednesday saw shares pop to close over $16.00 a share. Morningstar has had a long-time crush on this stock, giving it 5 stars and a $26 target. Barrons.com shares the feeling giving the stock a $25 price tag.

Pop Quiz – ‘ Name the CEO of PepsiCo.’  (get it- Pop?  Quiz?) She’s Indra Nooyi and recently shook up management for losing share to rival Coke. Wall Street has beaten the stock down and criticized management for paying more attention to PepsiCo’s snack biz than it’s beverage biz. Share price is 5.6% lower since she took over in 2006 while Coke has soared in the same period 56%. Pepsi is #3 in the USA behind Coke and Diet Coke. PEP has a 5 star rating from Morningstar and a current dividend yield of 3.5% with a fair value estimate of $76 a share.

China agrees to help Europe for a Price: The New York Times reported that China wants, in exchange for its largesse, to be renamed a market economy. The labeling is important because than China can dump goods and services at bargain prices and not be accused of doing so. It’s cash now- your economy later.  Ah, Ming, now I know why they call you Merciless.

Low Bond Yields are not good for savers but Great for companies that are refinancing their debt. No secret that the Fed plans on keeping rates low for the next two years and gives us all an opportunity of looking long (Go deep!) Hewlett Packard, Intel and others are borrowing and refinancing  at low long term rates whether they need to or not, according to recent Barrons.com article. Investors may well be served to begin looking for longer term fixed products to increase yield.

R word has been spoken. WSJ survey showed that economists now fear there is a one in three chance at the U.S. slipping into a recession. (Any betting man/woman will take the other side of that in a heartbeat.)

The Donald backs gold instead of dollars and just accepted $176,000 as a security deposit at 40 Wall Street from a precious metals dealer. Now that The Donald has accepted metal rather than cash Brett Arends thinks this may be signaling an end to the gold boom – for a while. The other reasons Brett shares are: Gold mining stocks haven’t caught up with bullion; Current price is waaay expensive relative to inflation; Wall Street is warming up to it; Options traders are also optimistic and finally a close proxy to gold is clearly overvalued sayeth Brett. He points out that TIP prices are silly and overpriced with the long-term yield barely 1% over inflation. ( all bets off if Greece defaults…you, betchum)

Steve Jobs gone and Apple stock $400!

Lose 33% of OPM and still Bullish… John Paulson, billionaire and hedge fund manager, in an interview with WSJ. In explaining his dismal performance Paulson said, ‘In retrospective, we were too confident in expecting the economy to rebound this year.’ But, he said, he expected his firm to be now poised to outperform. PS- OPM is Other People’s Money.

The Future is in Streaming…Netflix stock at $155 and as recently as July $299. Obviously the company’s core strengths don’t work well in a world where streaming is where the customer is and wants.  Can you say stock goes lower?

Going, going, going…Wrong! Since the time I was in short pants I was told that sooner or later the world was going to end up with no more oil. I was also told that the world had better wake up and smell the coffee and start working on a perpetual motion machine or something that operated on tomato juice because eventually The Middle East would be one big beach with nothing except big derricks pumping sand out of the ground. A big whoops!

According to Sunday’s WSJ the total amount of oil pumped out of the ground has been 1 trillion barrels with an estimated 1.5 trillion still available. This doesn’t mean that the cost of oil will be a lot cheaper- but new technology allows us to bring the oil to the surface. Plus, we’ll be using it a lot faster since other countries are quickly upgrading their standard of living. For right now the gasoline buggy should work just fine for the immediate and, maybe, long-term future.

Seven States align against AT&T deal to buy T-Mobile. Sprint still not finding investor interest. That’s the game and trade, dear trader. 

Stock downgrades –  Research in Motion by Raymond James, NetFlix by Caris & Company and MasterCard by Robert W. Baird.

71 banks closed so far in 2011. Sometimes we forget.

Finally- happy news as Jennifer Granholm announces that she would never again seek elective office.

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- 1st Week September

                             No Confidence by business with the Administration kept employment numbers at net zero.

Corporations did not hire in August and CNBC reports that a lack of confidence in the Administration is and was a compelling reason. Markets fell Friday before the Labor Day Holiday long weekend.

Before I get to the news of the week…share the wisdom of Citi’s Tobias Levkovich, ‘Valuation has turned positive as has sentiment (in terms of being in panic territory on our model) and most recently earnings expectations have been coming down to levels that are normally indicative of a market bottom….Thus, the outlook for an equity market rally into year-end is firming up in our minds as we are getting more bullish.’

More Bad News as the week of September 12th starts. Europe woes point to some sort of an orderly Greek default. Charles Aitken, managing director of Bell Potter in Sydney said, ‘It now appears that this situation in Europe is not going to end well and the now plummeting euro is trying to tell you that some sort of Greek default and subsequent European bank recapitalization program is imminent.” This after Friday’s European comments that any default was simply rubbish (see the bottom of my blog). German Economy Minister also said Europe could not rule out an orderly default for Greece as it struggles with its debt. The United States, we may as well add, cannot come to the aide of foreign nations as it is well distracted with its own set of economic problems.

Expect continued volatility in our domestic markets as both Asia and Europe down Monday morning on the Greek debt problems. U.S. corporations, according to this morning’s WSJ, will have their earnings weakened as 50% of business is from Europe.

And…now the market recap…remember this is news from the first of September…

The Twist may be a dance from the 60s but it’s also another tool for the Fed to lower rates by extending bonds to 4o years and buying the short-term paper. Expect this to happen sometime before November but announced this month. It’s a modified QE3. *Remember FDR created the first 30 year mortgage back during the Depression 1. Markets moved on the news but don’t expect it to generate much long-term enthusiasm.

AUTOS  continue being treated as step-sisters as GM, Chrysler, Nissan posted huge August sales over one year ago with Ford up 11% and the stock of GM and Ford fell in mid-day trading Friday, September 1st. Chrysler sales were up 31% – but I guess it doesn’t matter when computer modeled traders run the markets instead of fundamental money managers.  GM sales were up 18% and showed consumers have not gone away but instead are buying prudently.

Stocks that historically avoid the September slump: Nike,Flir Systems,BlackRock, NYSE Euronext, NetFlix, Google, Red Hat, Wynn Resorts. Salesforce.com CME Group and OME Group.  In September stocks, according to The Street, usually fall over 1% on average since 1896. The trick is to cull through the list and buy only those company stocks that have follow-through for the rest of 2011.

Sin sells!?

Some money managers advocate that during tough times investors buy shares in companies that manufacture, sell or provide such products as tobacco, liquor and gambling. These sin stocks are supposedly immune from depressions and recessions. Seeking Alpha blogger  Nick Pardini also adds gun stocks to the mix, saying they do well in bad times as people get more desperate. The sin stocks that Pardini likes include Diageo, Phillip Morris, Altria, Ambev and Boston Brewing. Gambling stocks that have a strong presence in Macau include Wynn, Las Vegas Sands, MGM  and Melco Crown. Macau does five times the action of Las Vegas.

 

FYI  STOCK AND BOND PERFORMANCE REPORT

 September started on a down note. 

 

 Factories throughout the world are slowing down, according to Tuesday’s WSJ. Manufacturing downturn made the first day of September a triple digit loser. Defense business has dropped 50% as military contractors see a pullback in federal spending.

Oil prices will be higher, Charles Maxwell of Weeden & Company. As the world slowly recovers and oil prices will increase as the world nears it full working capacity. Maxwell is and has been a senior energy analyst at Weeden since 1997.

Master Limited Partnerships are products that trade like stocks but have attributes of partnerships that distribute 90% of their dividends to shareholders along with substantial tax benefits. In the Barrons.com Weekday Trader Dimitra Defotis introduces us to Penn Virginia (PVR)  a Master Limited Partnership that has a current yield of 7.6% and is invested in America’s coal industry. This is an American MLP and not Canadian. Money manager at Neuberger Berman Doug Rachlin finds this a compelling story because of the company position in the much talked about gas-rich underground in Pennsylvania rock Marcellus Shale. The company projects 20% growth which is money in the bank to shareholders as most of this is returned to them.

Dow 13600 by February 2012 - Veteran stock analyst told Mark Hulbert at MartketWatch that the Dow will be at 13,600 by next February. Sam Eisenstadt has spent 63 years at Value Line Investment Survey. His projections have been, ‘statistically quite significant,’ writes Hulbert.

and…Advisor One blogger Ben Warwick at Aspen Partners reports that he expects markets to muddle through the 4th quarter and end with single digit gain. The reason is that P/Es are low and bank stocks are cheap. Lack of competition from bonds is another driver for Warwick.

The U.S. sues 17 banks for lying to investors about the quality of the mortgage paper they were passing around which was instrumental in the global collapse. The big losers will be shareholders and borrowers. Money used to bail out the banks will now be renegotiated to be returned to the government, profits will be slashed and fees raised to pay for what we gave them in the first place. ( If it wasn’t so sad it would make for a great farce. You just can’t make this stuff up!)

WHICH WAY FOR 2011? Ask the experts from the previous Saturday’s Barrons.com: Positive views from most.

if it was easy everyone would be doing it….

Pssst…3 oversold stocks reported by Ryan Fuhrmann at StreetAuthority Investor last Saturday. Ryan likes General Motors, Met Life and Petrobras (The Brazilian oil and gas giant). Morningstar gives five stars to GM and four to the others. He also warns that if conditions weaken in September all three could get cheaper so do your homework.

Dividends are the result of profits earned by a company and portion of those profits shared with stockholders. In 2011 nearly half the companies in the S&P 500 have increased or initiated a dividend payment. Cash coming back to shareholders in the form of dividends is estimated to increase by 18% in 2011 and continue to go higher in 2012,  according to Matt Andrejczak at MarketWatch.

 Warren Buffett is viewed as the ultimate investment manager. His Berkshire Hathaway stock is named after his biggest failure and a constant personal reminder. Recently The Buffett invested $5 billion into Bank of America, he says he thought of the trade while taking a bath. But Buffett is not immune to the down markets and his recent history is average at best. His flagship Berkshire A shares fell 32% in 2008, was up 3% in 2009, had a great year in 2010 21 1/2% and down  8.87% so far in 2011. In order to get the storied total return bragged upon by analysts & Buffett admirers an investor has had to buy and stick with the Buffett from the beginning somewhere in the mid-1960s.

Gold is an investment during times of inflation. We’ve seen the run-up in 2011 as it is being used as a currency hedge. How far will it fall when the dollar strengthen or the markets stabilize?

Buy Tech!   According to Hilary Kramer at GameChanging Stocks, she recommends that investors own Amazon, Google and Apple; those three for September 2011 and beyond.

Sprint remains in the wireless race, according to WSJ on Heard on The Street. With the iPhone coming on line Sprint’s margins will be tested through 2012 but the good news is that it will eliminate running two separate wireless networks requiring twice as many towers as Verizon and AT&T. This savings, according to Credit Suisse analyst Jonathan Chaplin should lift Sprint’s profit margins by 10% over the next few years. Morningstar gives Sprint 5 stars and a $7.50 target. Shares are trading under $4.00.

Blue Chip? In the book ‘Panic’ Michael Lewis compiles articles from various authors explaining how people reacted to market meltdowns. In 1987 one writer suggested that investors simply buy the bluest of the blue chip stocks, notably General Motors, Eastman Kodak and IBM. Following that advice an investor would have eventually lost 100% of their money in GM, over 90% loss in Eastman Kodak and earned just an average of 1.44% per year plus dividends by owning IBM. Today buy and hold just doesn’t work.

5 Concerns for September?

‘It’s always something.’

Ouch! The first day back from the Holiday stocks sank again on concerns over Europe as gold really popped to new highs, 10-year Treasuries fell below 2% and the Swiss central bank put the kibosh on the their franc, setting a minimum of 1.20 Swiss francs to the euro, the safe haven currency plunged by more than 9% against the euro and dollar, according to the WSJ. The Dow finally ended the session down 100 but other indices were up in mixed trading.

So far it looks like 1 Term but no one across the aisle fit to do the job. You, too? The speech the Prez gave Thursday ( and Yes, I did listen to him) didn’t remind me of The Gipper but it was the first time I heard some kind of a plan and seeing him use the office to urge a Do-Nothing Congress to do something!

Markets up Wednesday: Fear Tuesday- Ride the Optimism roller coaster Wednesday. Thursday The Ben Bernanke spoke and markets fell over 100 points.

Facebook the social network phenom doubled revenue in the first half of 2011 from $800 million to $1.6 billion. Social gaming, advertising and the sale of virtual goods accounted for the increase. The company is planning an IPO ( Initial Public Offering) in 2o12. Investors are awaiting in anticipation the public issue of shares. The company will begin to share information, they say, in April. Without a doubt probably the Most desired public offering in a very long time.

Google buys Zagat to continue to find new avenues to advertising growth. Without a doubt Google, Apple, Facebook and Amazon will continue to innovate and change the way the world does business. Investors fearful of tech just haven’t looked at it lately. It ain’t the same old day-trading tech of yesterday.

 Shopping for Stocks in September? Seems everyone has an opinion. If you plan to buy stocks in September Hilary Kramer, at GameChanger, suggests beaten down stocks that have sold off sharply but still have potential fire power. Names given by Hil include Goldman Sachs-GS and Cummins –CMI (the engine maker). She expects or suggests investors to rotate out of gold and bonds and also to avoid defense stocks such as Lockheed Martin, Northrup Grumman and General Dynamics. The worry for them is fear of deep government cuts even as the above three continue to thrive.

Mo’ stocks, mo’ stocks… Jeff Reeves, editor at InvestorPlace.com  in his August 31st blog suggests that the following are huge firms that can withstand troubled times… He likes AT&T, Cisco, McDonalds, Wal-Mart and Pepsi.

Friday I spoke with the Inside Fidelity Advisor rep and he mentioned that the S&P was in a narrow trading range between 1120 and 1220 and in order for it to break out it would need (1) jobs (2) more consumer spending (3 Europe to get its act together (my language not his). He also said advisors at the firm believe S&P 1400 by next March.

 Stocks fell Friday….  on renewed Greek default fears. But in Europe leaders there, according to Barrons.com on September 9th, called such speculation rubbish. On that news the Dow fell 2.65%. Go figure.

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