That Was The Week That Was- 2nd Week October

  Forget Global! Jonathon Burton suggests investors to concentrate on buying domestic stocks that sell their products in the U. S. of A. only and have little exposure to the global markets. Forget anything to do with China, he says, even as it slows its commerce engine to a measly 8% estimated growth in 2012 from 10% estimated this year. The U.S., according to Savita Subramanian, analyst at Bank of America’s Merrill Lynch, is a better place to invest than the rest of the world.  Another negative, according to Savita, is the relatively strong dollar, which is a headwind for companies with large global sales.

As many of you know Equitas America, LLC has closed its doors. If you know of anyone who has lost their representative or not transferred assets to a broker/dealer have them call me.

It was a good week for the markets, with all indices up, including oil and gold. There are many issues still weighing on the economy both globally and politically and don’t expect a strong continuation of this recent rally.  We are still holding the same allocation in bonds and our only concession has been to increase the maturities. Here’s the play-by-play of last week…

The Lipstick Index – sales of the ‘perk me up’ cosmetic are up 14% in 2011 while nail polish is up 54%.  In the 2oo1 recession lipstick sales soared and today its nail polish, heir to the lipstick index which has shot through the roof. Roya Wolverson reported this and suggests someone has too much time on their hands…note spike on chart above. And don’t ask me what’s the significance.

Don’t Call It Junk – It’s High Yield! A few years back investors made a killing buying short term maturity junk bonds at significant discounts. Lately the junk bond market has taken a big hit and  now there are bargains out there. The spread, or yield gap, between junk and U.S. Treasuries  was almost 9% in September versus less than 5% at the end of April. You can buy junk bonds in an active managed mutual fund or individual bonds. With a default rate of around 2% we can expect more defaults to bring the averages around 4% for the year – which isn’t a bad bet for investors. Barrons.com reported that some of the junk holdings in funds include Ford Motor Credit, Ally Financial (aka GMAC), CIT Group and AIG. All yields are in excess of 7% as of the first week in October.

Who amongst us hasn’t bought something really awful? As a kid I got a Easter chick  that rapidly grew into the world’s meanest rooster that terrorized my block until a neighbor finally stewed it for Sunday dinner. Big companies make stupid purchases, that at first thought make sense, but were never meant to be. The Street reported on some of the worst mistakes including: Daimler buying Chrysler, TimeWarner being acquired by AOL, AT&T shelling out good money for NCR and Quaker Foods buying Snapple to compliment their Gatorade drink. None of those buys worked and worse the companies all lost money off- loading brands that just didn’t fit. The lesson here is that everyone makes mistakes. Sell your losers. Keep your winners. It’s a rule.

Social Security recipients to get a 3 1/2% COLA raise in 2012. This will mark the first time in 2 years that retirees will get a bump in benefits.

Jimmy Cramer labeled NetFlix a ‘Broken Stock’, on Monday’s CNBC mornings show before the open. He said that he has never seen a stock recover from the kinds of mistakes NetFlix CEO Reed Hastings has made. At one time Netflix was a leading indicator and followed closely by day-traders. Morningstar calls the selloff ‘panic’ and pegs shares at $150 fair value. NFLX closed at 108.10 Tuesday last after a 52 week high over $300 a share.

John Paulson, billionaire, made the right bets when the mortgage market collapsed, and is managing the Advantage Hedge Funds. So far he has been so wrong on so many bets that the icing on the cake was when gold fell 16% in September and ended up showing a paltry 1% gain in his gold shares for 2011. Earlier this year Paulson managed, according to Greg Zuckerman at WSJ, about $38 billion. After losses and redemptions that number is closer to $30 billion. Investors have until October 31st to ask for their money to be returned.

Longacre Hedge Funds will close. Once holding over $3 billion and bleeding assets now find themselves at less than $400 million. It’s been that kind of year for hedgies.

Bounce! Monday markets up over 300 points on news of EU getting a handle on the banking crisis. Don’t get excited. It’s only one day and more volatility due before the election. Gold up and oil tickling $85 a barrel.

China Sovereign Wealth Fund props up four biggest China banks with stock purchase on Monday. Tuesday domestic market makers in the U.S. said the pop in Chinese banks was but a temporary situation.

Jimmy Rogers, the hedge fund/commodity guy, spoke to a commodities conference in Frankfurt this past September, telling attendees that he is a lousy commodity investor but his favorite is agriculture and he buys it through indices. The best known ETF is MOO. Food will be the next big thing. In a separate article Barrons.com said the same thing last Saturday, but offered agriculture stocks, instead of indexes, that are trading at 52 week lows including: Archer Daniels Midland, Deere, Monsanto. Other suggestions include DuPont and the fertilizers Potash, Mosaic and Agrium. While agriculture didn’t provide the needed protection from the equity sell-off in 2011 Rogers, and others, say it is a long-term investment and well worth making. Not to be confused with singer Jimmie Rogers.

Slovakia aka The Slovak Republic put the kibosh on U.S. markets Tuesday by voting Nyet on forking over additional aid to beleaguered Greece. Before you think I’m making this up or its a skit out of a three stooges movie consider that this country is born of a dissolution with Czechoslovakia, four million citizens, and joined the EU in 2009. Slovakia is a sophisticated highly advanced economy and boosts some of the best landscapes and hotels in Central Europe. The Slovak legislature voted down Tuesday last adding $4 million of their hard earned tax dollars into the greater European soup pot.  Some pretty schmart Slovaks!  Expect this to eventually pass as additional pressure and arm twisting is brought to bear. Which it did Wednesday late contributing to our domestic rally.

Markets fell slightly Tuesday- ahead of the start of earning season (Alcoa didn’t make numbers after the bell and was slightly punished). Barrons.com sees  action in some oldies but goodies as the aging star stocks of years gone by stage a resurrection. Cisco, a five star stock of Morningstar’s, has broken technical resistance, as reported by technical analyst Michael Kahn, as has Wal-Mart and Amgen. Holding just those three in a portfolio would have been cause for celebration in the 90s and may be again.

Pepsi getting its you-know-what handed to them in their soda war with Coke may spin off their Frito-Lay division. This, says, Credit Suisse analyst Carlos Laboy, could potentially boost stock price to $85 from their current level of $61.

What’s Your Fund Investing In? Mutual funds are loaded with cash and lately taken the opportunity of pre-buying shares in non-public companies hoping to reap huge returns when their pick goes public. Opps – seems Groupon, the Chicago based on-line coupon company, may see shares cut back ruining the day for several popular mutual funds. None of the below funds should be substantially hurt as the amount invested, according to their reports, are or less than 1% of their asset value.

Investment News and whispers may not be to the best interest of mom and pop investors. Scary stories frighten the average investor and may be placed by those who desire certain stocks to fall in order to be able to buy them at a more attractive price. China stories abound and not all seems to be what it is purported to be. Investors are best served, before leaping in either direction, to checking all sources.

UBS, the beleaguered banking giant, raised guidance       ( that’s a fancy word for what they expect to happen) for the next quarter stating, as reported on CNBC Wednesday last, that the global economic news is not as bad as suggested.

Wha…the hell’s going on?….Ford and GM stock prices popped last week and had solid trading numbers to indicate the shares would be climbing higher. Checking my crystal ball to see what I missed I found that traders were just now getting to calculate lower commodity costs, such as aluminum, into the manufacturing biz which results in mo’ profit…! Shares of both companies have been trading at extremely attractive p/e’s for the last six months….

Rally last Wednesday cut short. Still markets gained triple digits and Dow at break- even for the year. Gold up1.3% as oil fell a fraction to $85.57 a barrel. Earlier Cramer called the rally in stocks real citing numerous reasons including commodities down and news on strengthening the European banking sector. Janney Montgomery analysts recommended buying Pepsi before management figures out what’s wrong and how to fix it.

Inside Europe Barrons.com interviewed billionaire European Francoise de Visscher who said it was not in the best interests of Europe for a banking or Greek default. Germany is calling the shots over there, said de Visscher. They have the money but also live on 60% exports to Europe. He went on to say that after Greek and bank restructuring watch the EU start the longer term work of bringing Europe closer together through economic and ‘political’ integration. Russia will cozy up to East European countries with its gas and oil stockpiles as bait.

 The Good Old Days when an investor could tune-in to CNBC and get a handful of stock picks from touts…er…analysts and make a bundle are gone. So where are those super analysts of yesteryear? Matthew Lynn asked storied investment manager Anthony Bolton wha’s wrong? Bolton came out of retirement to launch Fidelity’s China Special Situations Fund. Bolton is having a bit of rum luck and explains that the political side of investing has caused losses that even the smartest stock pickers can’t overcome or see coming. Today more investment decisions are made by governments than in any corporate boardroom.  Which explains why many of today’s investors are allocating over many funds, ETFs and stocks.

Thursday it was the banks leading the Dow lower, being lead by JP Morgan Chase, while the Nasdaq rose, gold and oil both fell. It’s always something….

Sell Sprint said the experts at Morningstar. While admitting that the company could possibly bounce off their lows of $2.78 on Thursday the risk of them going even lower was about the same as their going higher.  Best day ever as Sprint started selling iPhone Friday. so they reported.

Google keeps crushing numbers. Shares rose to close a tad under $600 Thursday last. Net income increased to $3.18 billion or $9.72 a share versus estimates of $7.64 a share for the same period. In the meantime Google Plus, the answer to Facebook, opened in September and already sports 40 million users.

Stocks trading in a narrow range. Michael Kahn charts the current rally and notes that rather than a breakout stocks will retreat. Volume, although high on the rally, has diminished. Investors can expect more of the same as we move through the year as the technical analysis would suggest a back and forth within a tight bear-bull range.

Ford workers on Friday morning at the Saline facility have voted against ratifying the UAW – Ford new agreement saying it doesn’t provide enough inflation protection and allows contract workers to remain for an extended period of time. This was the third factory to vote against the contract. A potential strike has been approved and only needs 72 hour notice before workers walk-out if the contract is not approved. Shares in Ford promptly fell off their highs on the news. late news Friday showed a reversal of the vote and by this time Monday results should be in.

Friday Closed higher giving the week and year to date a push into Bull territory. Analysts saying markets oversold, but we knew that. For the week the Dow gained 4.9%, Naz was up 7.6%- the biggest gain since March 2009- Apple, IBM and Amazon all jumped to record highs.

Google- Redux-after crushing estimates I checked Morningstar who likes the stock to a fair value of $720 and noted that Google’s growth story was faaaar from over.

First gone was golf ( Sold to the South Koreans) and now Fortune Brands is a stand alone pure play on liquor under the name BEAM. Cramer loves the stock saying it is recession proof and called it ‘The Google of Liquor’. It could be a great takeover for giant spirits factory Diageo. Shares trading near their lows at $47. 15 for the year.

China slows down as does the world. Seems the engine is starting to moderate its feed as its appetite for commodities has reduced. Global exports have fallen and purchases of copper and soybeans has fallen from 2010. But, say some, not so fast. China is a strategic buyer of key commodities and may be getting ready to gobble up needed resources as prices fall. Take for example copper which had fallen to $3.00 and seen a spike in price and demand.

Forgetaboutit…metals -lots more volatility a-coming… New Exchange Traded Notes launching Monday will increase the leverage to buy gold and silver. The new ETNs will offer up to 3 x’s leveraged plays and 3 x’s inverse bets on both silver and gold. Proshares will offer the double bet- straight and inverse while VelocityShares will offer the triple bet. Right-way triple bets will trade under UGLD and USLV while wrong way will be DGLD and DSLV.

Andrew Bary’s Commentary Barrons Cover recommends that investors buy….ta da..banks, of all things. He reasons that prices are fetching, attractive and pretty darn cheap. Matthew Lindenbaum, of Basswood Partners, said that a diversified portfolio comprised of Goldman, Morgan Stanley, State Street and Comerica could do quite well in three years or so considering where they’re priced today. Patience is the key.

Speaking of which - Four Banks closed Friday bringing the grand total in 2011 to 80 closings.

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