That Was The Week That Was –4th Week October

Rational thinking  entered Wall Street Monday as traders ignored Europe debt woes  and concentrated on  stock fundamentals as markets continued their upswing  from the week before.

A Skeletal Solution is appropriate description given the season as investors put The European Problem in the ‘rearview’ mirror. The EU deal needs filling in, reported The Street.com., but figure another week of a continued rally for stocks. 

Not so fast, writes Steven M. Sears for Barrons.com. The rally didn’t ‘feel’ right to the August Sears. The reason is that Main Street and Wall Street are not disconnected. Concerns that Middle-Americans are cutting back on essentials and the upper-affluent community finding themselves in exactly same pickle leads The Sears to conclude that both seem to be ‘teetering on the edge of insolvency’. This bit of social detecting leads The Sears to suggest that the time is to be anything but complacent. He suggests investors buy bearish puts on the iShare Russell 2000 to the beginning of 2012. He also suggests (probably looking out his Manhattan window) that social unrest is on the horizon and investors include in their shopping list both gold and guns. What a kidder, that Sears, a few days earlier (see the January Effect) he wrote that investors should be gearing up for a strong rally in January!

Fear mongers drove investors away from markets and Best October in 25-years!  It is expensive missing even a day let alone the best month of the year. Talking heads and scribblers with not so hidden political agenda made sure that the average investor lost significant money in October. They did that by manipulating basic fears of a coming global calamity and scared investors from the markets for their own political ends.

Market Veteran Jeremy Grantham said it best last September when markets were reeling. ‘This is no market for young men.’ What he meant was it wasn’t a market for those that did not experience bear market blows and sustained downward pressure by those shorting good solid stocks. Grantham went on to explain, ‘Policymakers and politicians have acted like children at play.’ Now lets look at the week as it unfolded…

The Street.com reported on the 26th of October that American business is Boooooming! The U.S. may be reclaiming its job as the global growth engine. Ford, UPS, DuPont and 3M all reported better U.S. business while international slowed. GE, Master Lock and Boeing have all returned production to the US from China for the following reasons: quality, reliability and technology piracy. This doesn’t mean, The Street wrote, that the economy is finally fixed. It does mean that things are not as bad as some economists and investors think.

 Netflix crashed and burned Monday after hours. The company announced  it had lost roughly 810,000  subscribers with their summer pricing change. Jimmy (The Mouth) called it right two weeks back when he said the stock was broken. Netflix  traded at $299.00 a share as recently as July before falling to $87.50 Monday. and spent Tuesday sinking even lower as momentum carried over from the close.

Gold up but so was oil, over $92. a barrel, on Monday. The week started with good news and lots of Mergers/Acquisitions as Oracle said it would acquire customer service software of RightNow Technologies. Health Spring jumped as Cigna announced buying the health care stock. Mattel entered the fray with a bundle of dough for Bob the Builder, Barney and Tommy the Train. Just in time for Christmas.

FedEx given the nod, by Lazard Capital, that the company can add 25% to share price given its China connection. This growth is expected to happen as the Christmas season gets into high gear.

The Maxim Group predicted the sound of music will translate into boootiful things for investors. They like Sirius XM Radio and Pandora; but they like Pandora over XM. Live Nation is confusing as Maxim sees concert ticket sales to fall and revenue to do the same. Still they have a buy rating on shares.

Sharing a Happy Birthday to Chevrolet! The iconic auto celebrates it’s 100 year birthday on November 3rd! My daughter shares the same date, but many-many-many-many years later. Happy Birthday, Jennifer! 

3 Billionth person to be born October 31st!

Old poops hanging at an online social network site called Player’s Life. The site (and I haven’t visited) is dedicated to those low rolling retirees that like the high life of slots and gambling. The site created a year ago is dedicated to squeezing more dough out of senior gamblers when they do come to play the real slots. No surprise that the site is the creation of WMS Industries, the second largest manufacturer of slot machines. This could easily turn into a real gambling site if and when the U.S. approves on-line gambling. Stay tuned.

Consumer Confidence weakest since March, 2009. No surprise, Sherlock, or whoever writes the MarketWatch headlines for last Tuesday. You could have saved a bundle in fees by simply walking into the local Target or Kroger and ask folks how things were going. Consumer expectations fell almost as far as Lindsey Lohan’s chances of playing Snow White in the next Disney pic. On the good side- home prices increased for the 5th straight month. Stocks were down for the day, gold and oil were up.

Amazon spent more than it made…well, almost. Jeff Bezos is the kind of executive that reinvests profits into the business. This has worked well as the massive on-line retailer grows its business and reduces (eventually) its operating expense. Shares fell hard Tuesday as investors were looking for immediate results and not what could Amazon do for them down the road. While net income fell net sales were up over 30%. The company should continue to do well going forward as Morningstar labels the company a disruptive force in the traditional retailing channel. Cramer on CNBC morning Squawk praised the job Bezos has been doing. Plaudits continued as investors stressed that the long-term view was essential for the company to grow and if the United States adopted the same business attitude we’d be long out of this Depression. Yo, anyone for drafting Bezos for President?

Ford may…reinstate a dividend.  The company will have to do more homework but the basic plan leaked to the press is that shareholders may once again taste some of the profits by owning shares in the auto company. Barrons made the case that investors punished the stock on Wednesday because they missed profit numbers but revenue grew. The company had reduced debt and Morningstar analyst David Whitson reiterated that he saw nothing that would reduce or question his $23 fair value on the stock. Moody’s upped the company’s financial rating.

On of the first stocks that I bought and traded ages back was Gentex Corporation. What made me buy it was their technology in rearview auto mirrors. The company started its business by making smoke detectors and morphed into this high tech rearview mirror giant that has its products in virtually all high-end makes and models. Today it manufacturers much more than smart mirrors. Bob O’Brien in the Barrons.com Weekday Trader revisited the company and made a compelling case for investors to rethink owning this profitable auto parts company. As the entire global auto manufacturing industry gains traction this may be a stock investors want to add to their portfolios.

Oil closed $93.30 and Gold broke $1700 to close at $1717 Tuesday. Coal is also making a move.

MetLife is trying to get out from under the thumb of government regulators. Seems the company wants to increase paying a dividend to shareholders and regulators nix the idea. The reason is that Met owns the 7th largest banking company and the government wants Met to do nothing until it goes through another round of financial stress tests. Now the insurer is trying to sell its banking arm to be free of oversight.

Dow Jones Industrial Average:

Chart above just goes to show where we were and where we are in 2011.

Anticipating a Euro Deal stocks rose across the board Wednesday. The Dow was up 162 points.

Celebrating  the EU Deal was done, as promised. Guarantees in the neighborhood of $1.4 trillion plus banks shaving Greek debt by 50% and increase net capital by next year were agreed to- sort of. The haircut of Greek bonds applies only to private holders and not to public investors. The concerns turn to Italy as the game of musical country  defaults continues. First the world economies need a breather and you can expect markets to move higher – for a bit.

Gambler? Steven Sears writes that now would be the time to play The January Effect. The JE is when small caps rise higher than any other sector at the beginning of the year. Professional investors know this and that’s why you may want to take advantage of it now instead of waiting. However, The Sears writes, this is a trade only and for investors with money to lose. The suggestion is to buy an  at-the –money call option on the iShares Russell 2000 ETF (IWM). No one knows why small caps rise in the beginning of the year, or even if they will. They just have a history of doing so. Old Sears can’t make up his mind- on-off- whatever strikes his fancy. See his comments on owning guns and gold at the beginning of this blog.

Too  expensive even for the government- and I’m talking about long term care insurance. Any thought that the U.S. would get into the long-term care business can now be put aside. The premiums keep escalating as more old poops queue for either institutional or home care. By 2020 some 15 million people will need some form of long-term care. Those that have some insurance to help pay for the increasing and staggering costs of long term care are less than 3%.  Some folks can’t afford the insurance premiums, others won’t and still some cannot get it at any price.

Ron Insana- On CNBC Thursday afternoon said, ‘Expect this rally to continue and interest rates are committed to remain low.’

What a Day! The markets opened up over 2oo points Thursday and never looked back. Short sellers had to cover and buy shares, which added to the upside. It was all Bulls as a deal in Europe capped a stressful weekend. No news from the naysayers as they had to hide. This was a rally that some say may end up with the best October market month ever. What took all summer to drip down seems like most, if not all losses, may possibly be recouped in this one month. The Dow closed up 340 points, S&P 500 +43 and both oil and gold up for the day. Oil closing over $94 a barrel.

Negative comments on China Markets were squashed as Dr. Burton Malkiel said Chinese equities are extremely undervalued. Malkiel is the author of, ‘A Random Walk Down Wall Street.’

Recession? We ain’t got no stinking recession!

From The Department of: We Don’t Know What The Hell We’re Doing But We’re Getting Paid Lots of Money Doing It.  Hewlett Packard now deciding to keep its PC business rather than selling it. Company officials announced Thursday what deep analysis was involved in this latest turn of thinking. Just a few short weeks earlier the company announced a new CEO and a selling of their PC bidness. Shares of HP rose on the news or it could have been a rising market lifting all boats. The fact is that PC’s and printers are big business to HP.

Baidu net profit nearly doubles. The Chinese internet giant that is the equivalent of our Google saw its shares increase to close $148.90.

No mas! From Big Banks awash in cash the bigs say they won’t impose debit card fees. The public and economic backlash severely created a public relations and stock problem for all of them. Being greedy just didn’t work this time for the bloodsuckers and they decided to throw in the towel – at least until the economy gets on firmer ground. You can bet this will be revisited. 

 

QVC the home shopping channel is owned by Liberty Interactive and has an outstanding Ebitda of 20% beating out such brick and mortar giants as WalMart, Penny’s and even Amazon.com. The WSJ reported that shares of Liberty look cheap as 1/3 of all business the company does is in Europe and Japan. With Christmas coming shares may pop.

Casino stocks in Macau are raking in the dough. Morningstar loves Las Vegas Sands and predicts earnings per share at a 50%-plus compound rate for the next five years. They give the stock a fair value of $73 a share up from current $48.00.

Robert Arnott predicts investors will soon be facing what he calls the perfect storm. He defines these as the 3 D’s – deficits, debt and demographics and on top of that wealth eroding inflation. Now is the time, Arnott wrote in his newsletter, for investors to build protection for portfolios.

Still doubts remain on Europe. Next in line is Italy, paying over 6% to borrow money the country cannot long afford paying more than other countries. Critics charge Italy with not doing enough and failing to deliver on promises to reform its debt and spending. ‘It’s only talk –chiacchiere in Italian,’ said Alessio de Longis, portfolio manager at OppenheimerFunds.

Finally- in September Barrons asked professional investors…what they thought of the markets. This at a time when stocks were at their annual low. Surprisingly professionals responded by stating they planned on allocating more money to domestic and emerging markets while laying off developed overseas markets. Also 50% said that some sort of European conclusion would cause stocks to go higher. In a not so stunning prediction investors said they would be buyers of large cap stocks over mid and small caps. The best performing sectors were thought to be in the next 6-12 months energy and technology.

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 October

Wake me up after the election….

Stocks closed on an upbeat Friday, slipping above the trading range they’ve been stuck in. Still concerns continue as investors worry that lenders are not showing the same confidence at investors, fears of the European debt contagion problems, and how much support we can expect from Washington. 

Asset Allocation doesn’t work in 2011 any more than it did in 2008. Oh, it’s alright to own bonds and cash,which will not stray too far off the mean when equities fall apart, but don’t try building portfolios with emerging market, small, mid or large cap equity funds or stocks in 2011 and expect a reverse correlation. The actuality in 2011 is that when one goes down so does the other. It works in reverse, too. When one goes up they all do. Which is a shame because it’s not supposed to work that way.

Bonds will go boom. Eventually. Sooner or later yields have to go up and principal down. And when rate do start climbing-eventually- they will continue for years and years, according to Bill Gross, of Pimco.

Volatility is causing a lot of the Big Boys from playing in the sand box.  The problem creates a wider than normal gaps in stock/bond price. One trader of a well known hedge fund tried to buy a stock and found that the price ran away from him as he was placing an order. Another saw his trade go sour even as he placed his order. According to Tuesday’s WSJ many investors, fund managers and hedgies, are staying on the sideline. With fewer investors, including banks, taking either side of a trade, air pockets develop where a 5% drop in price is common. Jeffrey Kronthal, co-founder of hedge fund KLS Diversified, said, ‘Any reasonable sized selling is driving individual bond prices down quite a bit.’ This chicken and egg syndrome is driving the big boys out of the market. 

  Euro Crisis drives markets lower as the Germans put the Greeks and European banks on the back burner Monday. Last week’s rally bespoke of our understanding of a new sense of urgency among European leaders. Monday illustrated that was not the case as markets swooned on a less than positive news that German Chancellor Merkel said discussions would most probably continue into 2012. Monday markets fell, including oil and gold. Out of 500 stocks in the S&P 450 were lower at the end of the day.

Another Day… and markets rose Tuesday! Bank of America was the largest beneficiary gearing up 10% as the banking giant reported 3rd quarter earnings that exceeded expectations. A triple digit Dow kinda day with gold and oil down slightly. Wholesale prices up- giving nudge-nudge to inflation. The positive mood and move was buoyed by news that Germany and France agreed to 2.7 trillion pound rescue package. The Dow climbed as high as 254 points on the news before settling under 200 for the day.

Blame Recovery on us. Old time spenders are now savers and hurting the recovery, according to Jon Hilsenrath and Ruth Simon, who seemed to have nothing better to do at the WSJ except throw stones at the non-spending, non- debt building middle class. The Federal Reserve and economists have a word for us paying down debt and its called deleveraging. From 1997 to 2007 household debt ballooned from 66% of economic output to 98%, and now is a paltry 89%. 

One point three billion customers….every time I think of China I think 1.3 billion people. And Apple says that China is their second largest market and the Apple CEO says the sky is the limit for sales in China. Sales in China for Apple popped to $13 billion from $3 billion just one year ago. The fastest growing middle class in the world. Shares of Apple fell Tuesday as the company missed numbers and after hours shares fell under $400.

Domestic Autos taking it to the Germans and Japanese because of increased quality and…ta-da…the cheap dollar. Yes, dear reader, Americans are able to compete because the foreign manufacturers cannot sell their cars here at a price less than what we can. The difference is more so in the small car market which is down 20% for Asian car builders. The price gap is the widest, according to Bloomberg, since 1999.

Tip…from the Weekday Trader…who likes cheap shares of Alcatel-Lucent (ALU). Shares are trading where they were 2 years past and are ‘incredibly cheap’, according to Michael Genovese, communications equipment analyst at MKM Partners. According to WT shares should be in the vicinity of $5.00 a share, or 70% higher than where they are today. The five dollars is using a modest 9x’s earnings versus a more normal 13-17 times earnings. Shares closed at $2.85 and had a 52 week high of $6.63. Morningstar likes shares at fair value of $3.50 but haven’t reported on them since earlier this year.

Wednesday the markets back down….as confidence lost in European leadership, Apple didn’t make numbers (a temporary situation), and the government’s ‘beige book’ on economic activities showed investors did listen to the Fed and pared back risk as suggested. You could have stayed in bed for all the day did for you. The numbers about the economy tell us we’re in a holding pattern making big circles in the sky and accomplishing not to much. Gold was down also oil (a smidge) but like everything else just hanging around for someone to toss a softball across the plate.

Coffee prices set to rise. Unexpected rain storms in Central America, where 10% of our java comes from, is experiencing more than unusual rains. Prices have already popped 5.7%.

Some stocks shouldn’t have been bought after the crash of ‘87’.

 

and I haven’t mentioned General Motors….

Experts at 24/7 WallStreet predict that there are other tech stocks that should do better than Apple going forward. Apple has a consensus price of $500 a share. The outperform list includes: Corning, Juniper, Micron Tech., EMC Corporation and Baidu, Inc.  

Barrons’ Cover proclaimed same such comments about tech Saturday, reporting that today’s tech doesn’t command much respect from investors. Barrons believes that companies in the wireless arena should do Great in the next 12 months and prospects for social networks bode well. Their top 10 includes: Ancestry.com; Apple; eBay;Electronic Arts; Fortinet; Fusion-io;Hewlett-Packard; Nuance Comm; Oracle; Tibco Software.

Slight gain Thursday…on a mixed market day for the Dow. Goldman Sachs Chairman Jim O’Neill thinks the US is doing a better job than people realize. ‘There seems to be this mood of inevitability…we’re back in a recession. I don’t really buy that.’

Joe Terranova on CNBC Fast Money…said Thursday to beware of paralysis from analysis. Stephen Massocca of Wedbush Morgan probably said it best, ‘It’s a ping-pong game- people have been burned by reacting to individual news stories only to have them refuted, withdrawn or contradicted.’

The Ben Bernanke told Senate Democrats that the European Crisis is Solvable. He also said that the Fed has done all it can to stimulate job growth and now it would have to be taken up by Congress. 

Time to Buy stock in Home Builders? FBN Securities thinks that several stocks have been beaten up good and tender enough for some investors to add them to their portfolio. FBN states that they think that the ‘space’ is offering the most inefficiencies since the beginning of 2009. They offer the following as long term holdings: M/I Homes, Ryland Group, PulteGroup, Beazer Homes and D.R. Horton.

Gold trickling down. $1623. on Thursday. Remember trading just weeks earlier close to $1900.

The Federal Reserve may be ready to buy mortgage backed securities –maybe. We’ll have to wait until the Fed meeting beginning of November but some argue that the ‘plan’ would be met with ‘fierce’ opposition. The argument for buying mortgages stems from the fact that interest rates on mortgages have not fallen as much as have Treasuries and refinancing existing mortgages is a way to take advantage of lower rates and offsetting a host of bank fees. The Fed action of pushing down rates may actually stimulate more refinancing even with odious bank fees.

Leap Wireless fell like a stone starting the first of July 2011 from a high of over $16 a share the stock plummeted and closed Thursday a penny over six bucks. Hot Research analyst Brigantine Advisors writes that the stock can pop 50% if….subscriber growth improves. Seems Leap has an improved subscriber growth through the company’s Premier stores, which sell only Leap products but the stores are not owned by Leap. Brigantine Advisors sees store growth around 500 for 2011 and more in 2012. The upshot is that by year-end 2012 shares could trade as high as $9.00.

Ford Upgrade by S&P and Fitch and shares responded by 4% pop on Friday. Ford also had new contract ratified by union which didn’t hurt the move on shares. Just a few days back Ford traded under $10 a share and closed Friday over $12.00.

Be still my heart…markets roared on Friday! What’s better than the Lions going 5 and 1? Having all indices shoot up to close the week so we can forget about stocks and savings and enjoy college football, Fall foliage and a hot bowl of chili. It’s 3 weeks of gains and Friday closed out with Dow up 267 and the S&P 500 index was plus 23 along with gold up $30., and oil (watch this) closed at $87.53. We could end up even for the year at this rate, or match our April high. Trading was big. This was an across the board rally predicated on Europe doing something by next Wednesday. Volume on the NYSE was 1.1 billion. So far in the 4rd quarter 75% of all reporting companies have earnings in excess of estimates.

The Big European Plan? Greek debt will peak at 186% of GDP in 2013 and decline to 152% by the end of 2020, even with all the austerity measures. The German plan is to have banks who hold Greek debt to reduce what the country owes them by 50-60%. Currently European banks have agreed to a 21% haircut. That’s the plan and I am not making this up….

Hedgies cut their positions in gold and silver, slightly, according to Murray Coleman. But, the managers increased their positions in heating oil plus crude oil, soybeans, gasoline and sugar. This has been the biggest push into commodity futures since the end of August.

Finally- 4 more banks closed by FDIC on Friday bringing the total to 84 so far in 2011.

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