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.