That Was The Week That Was – 1st Week October

As this week opens gold and silver are both up this Monday, the dollar is down and last week’s employment numbers shoveled a recession down the road ‘whew’ to the next month’s number. For last week 3 good days out of five but damage done in September…here’s the recap:

Worst 3rd Quarter since…well, 2008-2009 and we can send ‘Bread & Butter Thank You’s’ to all the folks in Congress, The Administration, Rating Agencies, EU Leaders, Greece, Leveraged Traders, Dems, Tea Party Activists and the list goes on as more and more worry about ideology (Oh, waiter, I’ll have a plate of Ideology with a side-order of Being Right fries.), than getting the economy cooking, putting people to work and fixing the mortgage mess. Wha’s the damage at the end of the quarter? Dow minus 12%, S&P 500 index minus 14%, Germany’s Dax minus 25%, Oil minus 16% (gas isn’t down 16% but the price of oil is on a strengthened dollar!), and the 10-year Treasury fell 122 basis points year to date. European stocks were off 17% just in the last quarter and oil was off 11% in the same time period.

A September Massacre, according to Barrons.com. This is no recession or double dip, say many experts, this is for the most part investors getting liquid and stepping aside from a possible recession. Most give it a 50-50 chance in Europe and far less than that in the United States. But, like someone who watches too many doctor shows on television and thinks they have every new TV disease we could talk ourselves into getting sick.

Lack of Confidence in Leadership. ‘Put me in, coach!’, 5 more years of this or ? Looking over at the other side there is no savior. A President over his head and a Congress that hasn’t earned a paycheck. Jet Blue President David Barger told CBS News that it has taken Congressional resolution to keep the FAA funded 22 times in a row! This past summer the FAA had to furlough 4000 workers because of lack of money. This isn’t the way you’d run a business let alone a nation.

There is something drastically wrong with our government when they don’t take seriously the welfare of millions of Americans. Congressional bickering and lack of leadership poses more than a problem as the country meanders with no direction or leadership and none being offered from the other side. This is reflected in the manic stock market.

Emotion Driven Concerns about a slowdown in China caused a huge selloff in consumer discretionary stocks last Thursday and Friday. Morningstar investigated and came up with the view it was panic selling! The sell-off was driven by a ‘Poll’ of investors and not be actual facts.  The markets have gone from dumb to dumber. It’s been all fear motivated.

Not since High School (pre-1958 era) has there been such opportunities in stocks with the 10-year yield 2% with the Dow yielding 2.8% and the S&P 500 index about 2.2%. And The Bernanke Twist attempting to lower the longer-end maturities even further. Values being seen in global company stocks. With minimal chance of appreciation we may see a return to where the only return in stocks is their dividends.

Insurers get crushed in low interest environments. Many life and annuity companies have already lowered rates to almost their fixed guarantees.

Investment Soap Box Keep it simple, use dividends, check history for what performed well in previous set-backs, you’d discover that after the Dot Com Collapse markets performed in negative territory for two years. Utilities, small caps and mid-cap funds performed better for the 10-years starting in 2001 than the S&P 500 Index.

Barrons.com I read each Sunday for picks and pans and sensible outlook and a week ago Sunday it was doom and gloom and nothing positive or uplifting. Oil for the end of the quarter was less than $80 a barrel and that hadn’t translated into cheap gas, still hovering around $3.45 a gallon. Gold was $1627; and some were calling for it to reach $1100-1400. There was an article pointing to lower tech profits and another warning investors to sell banks stocks, if they hadn’t already. Yes, last week’s Barrons.com message could have haunted a four bedroom house with 2 1/2 baths– it was that scary.

Yahoo the search engine people use for everything but a search engine has no real personality like a Google or Amazon. It does its job well but no one says to ‘Yahoo’ like people say to ‘Google’. Folks who use Yahoo have a specific task in mind when they use it and ignore it for anything else. With that lack of knowing what it is that makes Yahoo a Yahoo the firm’s stock meanders about with no direction. News reaches us that Alibaba Group is interested in buying Yahoo. Yahoo owns 40% of the Chinese search engine Alibaba which makes this a very interesting story, and possible trade? Yahoo closed around $13 at the end of the quarter.  

America Cannot Afford To Wait! Did I mention that we are rudderless and leaderless as politics overtakes sensible government. Christie says ‘nyet’ but 63% of Republicans hadn’t a notion of who or what he stood for.

Confused? Join the Group! From several sources we get (1) Don’t buy on Dips (2) It’ll be 10-years before we get to normal (3) U.S. stocks look to be the pick of the litter for a 4th quarter rally. All that from some celebrated writers like Jonathan Burton and  Alan Abelson. Certainly Europe is in deep do-do (or is it ka-ka?) The word is that mo’ money being tossed to Greece is simply buying time for big European banks to spread their bad paper around;  and at some time the music stops and there are no more chairs.

 

Can’t gussy up last Monday. Wall Street insiders said when markets opened they didn’t know which way to trade but then someone said sell and so everyone did. It was everybody into the pool as all indices fell. Gold was up a eleven dollars at the close but oil fell to under $80 and some experts were warning of the markets falling to Bear Territory. It was all about the banks as BAC dropped under $6.00 and Tech was hit with another wave of selling (remember this is the land of Google, Amazon and Apple!); as the technology sector found its way to its lowest level in a year. Germany was off 2% and Hong Kong Hang Seng Index fell 4.4%.

Vrooooom even good news from the autos didn’t lift any boats Monday as domestic car makers saw big gains in September. Ford lagged U.S. autos but still posted a 9% increase from last September. GM was up in sales almost 20% and Chrysler, assisted by its FIAT association, saw a 50% increase of its sales of the Chrysler 200, 300 and Jeep Wrangler. All this and auto stocks still tanked across the board. Reid Bigland of Chrysler U.S. sales said, ‘We have now gained more retail market share than anyone in the country. There is no double dip downturn going on around here.’

  Grrrreat News! Wall Street’s getting more pessimistic. According to the contrarian indicator the more bearish the analysts the more bullish for stocks. Currently the indicator is in neutral territory but falling….fast!

The action on Tuesday was all over the place. Some investors moved more into cash to wait out the volatility.

It’s not like European Leaders don’t know what the problem is or what to do to curtail, or at least slow-down, the process. Unknown to many U.S. investors several large banks have already bellied up. On Tuesday Euro-Official worked on breaking up Dexia, SA, a Belgian-French bank that is one of Europe’s 20 largest. The agreement called for a separate entity that would hold the bank’s bond portfolio and other noncore assets. This has been labeled as the ‘bad bank’. Dexia is also expected to sell of assets including its investment management business. In Spain the government has taken over, recapitalized or restructured more than a dozen local banks that were exposed to the country’s real estate market.

Tuesday saw markets whipsaw and finally close up as the above chart shows. Gold finished down for the day- 

Palin announced late last Wednesday she would Not run for President. There’s more money in being a Kingmaker…

Protestors in Wall Street demanded jobs, showed support for the President, end to policies that serve only the wealthiest, demanded responsibility attached to those CEOs that created the global depression, a jobs creation program and restore the massive cuts to education, health care and social services that have battered New Yorkers ( and I would assume other citizens). Why did the news refuse to show this protest until it was 2 weeks old? As an aging hippie I love the smell of tear-gas in the morning…

Another Depression? Bring ‘er on! The WSJ   CFO Report said that, ‘The massive hoards of cash that American Companies have accumulated over the past 2 years as they waited for signs of s solid rebound might allow them to escape the worst impact of a massive contraction.’  Junk bonds, those holdings of company borrowings that are not investment grade, have not defaulted in numbers that would indicate a massive corporate capitulation. Only 2% default rate. Many companies have also paid down their debt as as example Ford Motor. The average industry default in junk bonds average 4%. Companies will still maintain massive cash hoards going forward as a lesson learned and less likely forgotten for at least several years.

The President’s News Conference Mid-Day Thursday was an opportunity for him to promote his jobs bill. He warned that those that voted against it would have some ‘splaining to do. He said this was a job program that was first suggested by Republicans. Those of that persuasion, however, were of the deny-deny party and you can expect nothing from this Administration or Congress.

Republicans, Wall Streeters and Businesses will sit on their hands until shortly after the election when it is expected a new Administration moves into the White House.

Secretary Geithner was quoted in various sources as saying that our banks not lending is a threat to the economy. No kidding! Anyone over the age of 12 knows that banks loan only when the person doesn’t need it and refuse when you do. It’s a law- somewhere.

SPDR University – The State Street SPDR ETFs are a comprehensive fund family and send to me the occasional note about current economic and investment conditions. This latest is on emerging markets, which lately have been under some scrutiny. Boiled down there is no immediate bubble in emerging markets but problems in Europe and the U.S. equity markets may create a shift in allocations toward ‘stretched’ emerging market valuations.

Steve Jobs left Apple in great shape! After his death shares did move down slightly but held their ground. Jobs, called The Edison of our generation, lead us into a new world with his innovative technical vision. Steve Wozniak, Job’s garage partner, said he wouldn’t be surprised if Apple continued on its path with a backlog of ideas from Jobs. The company has $76 billion in cash, a dominant position in Smartphone and tablet markets, technology in cloud computing along with delivery of software and computing power over the Internet. Analysts at Sterne Age noted that they were buyers of Apple on any weakness. Mr.. Wu said they have a $500 target on Apple shares.

Stocks gained Thursday- gold up $6.00- oil off .32 cents.

MarketWatch J.C. Parets wrote about the Market, ‘Maybe Not The Bottom but potentially the near term low is near.’

Funny thing about oil….will it fall to $50 or jump to $100? Experts see it moving to $100 before it’ll ever see $50. The reasons, according to Myra P Saefong, growing demand in emerging markets,  little spare production, Middle-East and Africa tensions- all point to higher oil in the near term. At some point investors may realize the world economies are not as bad as some fear and the price of oil will move to $90-$100 a barrel. This is called the ‘Not Getting Worse’ Trade, according to Mickey Cargile, managing partner at Cargile Investment Management.

30-year Mortgages fall under 4%! According to Freddie Mac rates fell to 3.94%, a new record. In other news – personal spending increased while personal income fell by 0.1%

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 Experts report the U.S. needs 150,000 new jobs per month just to stay even with 9% unemployment. September jobs report boosted early morning markets on Friday as jobs numbers came in as better than expected. But- the markets sold off as the numbers indicated that those numbers included 45000 Verizon workers coming back from strike. Friday’s stock market fell slightly except for oil. Gold closed $1642, off its feed by $11.

Sprint- price collapsed Friday as the company reported they may seek additional capital. The estimated price to sell and service the venerated iPhone estimated to be about $400 per unit. Morningstar has reversed its opinion on the stock saying they cannot recommend the purchase. There is some serious issues in the Board Room that investors are just getting a peek at.

Tight Trading Range: You don’t need to be a genius to figure that stocks continue to trade in a tight range between Bear and Bull markets- never getting too low or too high that they cannot be brought back down in a sell-off or up in a buying frenzy. Smart Money reported on some of the world’s biggest companies being treated as Dead Money. Included in the list were Microsoft, Pfizer, Wal-Mart, TimeWarner, GE and Ford Motor. Companies that are owned by millions but their stock price goes nowhere even though they are and have been earning machines.

Shopping   for recession proof stocks? WallStreet.com posted a list in the most recent blog. Included in their list: Coca-Cola, McDonalds, General Mills, Altria, Johnson & Johnson and Proctor and Gamble.

 The Rich continue to spend even as markets tank, according to a new report at Bloomberg.com. In the past the affluent spent according to the stock market but no more. When the Depression hit three years ago luxury sales plummeted by 9% but today luxury may be the shopping leader for 2011. Younger affluents were more apt to buy for bragging rights.

Paul McCartney 69 married New England trucking heiress last weekend. John Lennon would have been 71!!!! last Sunday. And Ringo still married to Barbara Bach. You tell me which is the most amazing.

Finally –2 banks closed Friday according to WSJ; one in Minnesota and another in Missouri. Since this summer the pace of banks failing has picked up slightly. To date the total banks closed in 2o11 is at 76.

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