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.