That Was The Week That Was – 2nd Week November

  Some traders are acting as if Greece and Italy are going to go out of business right before our eyes.  The gloomsters are trying to sell us the idea that one morning we’ll wake up and there’ll be just a blank outline on the map where Italy and Greece once stood. That’s not going to happen but what may happen is certainly serious enough for all investors to have concerns. The Dow fell pert near 400 points on Wednesday as banks unloaded bonds and other holdings to get liquid in case cash was suddenly needed.  Seems everyone is confused about exactly how the EU is going to fix what needs fixing; and with lack of global leadership and backbone this mess seems to go and and on. I asked one of my wholesalers at Fidelity Advisor Funds how long we can expect to be on this roller coaster and his answer was that according to Fidelity Advisor analysts we can expect more of the same up and down markets for three months, or maybe six.

The Week ended Up a fraction of a point! Down 100 points, up 100 points, down almost 400 and then up…investors were gobbling Xanax by the fistful by the time markets closed Wednesday as fear mongers were peddling their goods. Politicians seemed to understand the gravity of the world-wide repercussions of their inaction and in Greece they swore in a new caretaker Prime Minister while Italian lawmakers overwhelmingly approved a package of growth-boosting measures that, according to Friday’s WSJ, will pave the way for the resignation of current PM Berlusconi, which happened Saturday, and the appointment of an interim government.  Italy looks forward to a $2.6 trillion budget cut. It involves raising the retirement age and selling of state owned real estate.  Greece, meanwhile, appointed their own technocrat to lead them out of a 130 billion pound bailout. The EU also needs political stability and strong leadership going forward to stem any contagion due to investor fear. Both Europe and the US markets applauded the first baby steps in both Italy and Greece. Now for how the markets and others did last week….

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Risk Reduces the longer you hold an investment. But, you already knew that. It’s the short-term fluctuations that investors fear will turn into long-term market collapses that keep more meaningful money from entering the stock market. ‘Investors are still using the rear-view mirror as an investment track,’ Dan Genter, CEO and CIO, of Genter Capital Management said in a Bloomberg interview. Investors have withdrawn some $341 billion from equity investments since 2008 and another $61 billion in 2011. The average investor ignores the real probabilities of the market and focuses on the possibilities. Over any rolling 20-year period the MSCI World Index, considered the broadest measure of stock performance, almost never goes down and only drops 7% over any 10-year rolling periods.

Never Seen Markets This Mad, said Jimmy (The Mouth) Cramer both on air and on his blog last Wednesday. The Dow fell almost 400 points and Cramer scratched his noggin in frustration as he viewed inconsistencies in the sell-off and investor fear. His wondering includes: If Europe is so weak why does oil continue to climb (it was just about the only sector that did on Wednesday). If Greece is falling and Italy next why does it seem that the Euro has stabilized. Some American companies doing business in Europe haven’t seen much weakness at all.

 

Is it just me or are traders just bouncing from crisis to crisis?

Best Opinion Blog WSJ On the EU Debt and U.S.  Crisis from David Wessel. He writes it’s been 2 years since Greek problems surfaces and five for U.S. housing bubble burst and yet, he wonders, why haven’t the players done anything about either one? The answer is deciding who gets stuck with the tab. ‘In every crisis you have to allocate losses between debtors, creditors and taxpayers,’ said Anna Gelpern, an American University law professor and former Treasury official. ‘By definition,’ she added, ‘it’s a political problem. If it’s not politically salable, it can’t happen.’ Edward Kane, a Boston College economist summed it up, ‘Parties that have contractual losses try to shift those losses to counterparties, especially taxpayers, These crisis tend to drag on as long as there’s a chance of sticking taxpayers with the losses.’ And that, my friends, is exactly why we sit watching day-traders manipulate markets and politicians doing absolutely nothing while trying to find a way to stick us with the tab.

FYI-The Italian Problem is not because the outgoing administration and PM did a bad job it’s because Italy   has had almost no growth for the past ten years, according to Bloomberg BusinessWeek.com. Italy has a surplus- today- but with interest rates being hiked in order for the country to borrow the problem is that eventually it will not be able to repay what it owes or refinance bonds coming due. On Wednesday LCH Clearnet, a London based clearing house, was raising the deposit it demands for processing the trades of Italian securities. The deposit protects LCH in case a deal fails and it gets stuck holding Italian bonds. It’s these kind of changes that kill a country’s ability to do business.

Pension Trusts Strapped, according to Monday’s WSJ. The UAW Trust is underfunded  by nearly $20 billion and the union  is seeking to divert 10% of active workers’ profit sharing checks into the VEBA ( Voluntary Employee Beneficiary Association). With lousy investment results plus increasing health care costs the plans are hemorrhaging money. In addition to more funding the Trusts are expected to cut back benefits.  

UPS Projects a  Good Holiday. It forecasts 120 million deliveries up from 113 million last year. The company said it will boost seasonal part-time hiring 10% to 55,000.

Buffett buys! Warren bought $29 billion worth of stocks in the 3rd quarter, the most he’s bought in 15 years. According to Bloomberg he expanded his holdings in consumer and financial sectors. The S&P 500 index fell 14% in that quarter, which compelled Buffett to go on his buying spree.

 

MF Global is likely to be among the 10 biggest bankruptcies ever. It’s estimated the company will file with $41 billion of liabilities placing it #8 on the all star list. The biggest was Lehman Brothers with $691 billion. Enron was #6 with $65.5 billion. General Motors #4 with $91 billion. and their still looking for $600 million of other people’s money that MF Global somehow misplaced. The firm’s paperwork was so sloppy that auditors can’t make head or tail of what’s what.

Selling Your Pension: Investors are buying pension income from folks who need lump sum money to pay bills, catch up on mortgages and the like. Much like the TV ads touting structured settlements some financial advisors are putting together investors with needy retirees. The deal is that a retiree gets needed lump-sum while the investor gets a monthly check that is calculated to include payment of interest and principal. Advisors get paid from proceeds while investors are able to ramp up yields as high as 6%. The problem is that there is no guarantee that the retiree continues to sign over pension income once they’ve received their lump sum.

Yelp IPO –Next? Founded in 2004 Yelp is a internet site that combines social networking and local commerce and may seek an Initial Public Offering in 2012. The company may be valued as much as $2 billion. Seeing the folks at Groupon walk away with $12 billion may have been enough of an incentive to stoke the greed factor.

Yum Brands owns and operate such storied franchises as KFC, A&W, Pizza Hut and Taco Bell, and is also a player in China  and getting more of a finger(licken good) -hold on to 1.3 billion citizens. You have to love this story, dear reader. Yum, which owned about 20% of a local food chain called Little Sheep, Ltd., asked and was approved to buy the whole shebang. Chinese regulators gave their approval and Yum is the proud owner of one of China’s largest hot pot restaurant chains. This is the first time that a foreign country business has been able to buy and control a Chinese business. Like I keep writing- 1.3 billion customers. Can you say, ‘With everything.’, in Mandarin?

Chinese Inflation cools in October. Not only did the numbers for China come in better than expected but real estate prices fell while sales increased 18% from a year earlier, according to Chris Oliver at MarketWatch. Still inflation is a concern but authorities in China say that they are gearing for a soft landing and not the devastating scenario painted by some financial experts. The CPI rose 5.5%, slowing its growth for the third month in a row.

From the Department of It’s About Time:  U.S. District Judge Jed S. Rakoff challenged the S.E.C. on why the agency allowed Citigroup to settle a case while not admitting to wrongdoing? The S.E.C. answered that companies are willing to enter settlements more quickly and pay their fines if they don’t have to admit to the underlying allegations and then face that admission in separate private litigation. And in a nutshell is the one reason we’ll never see wrongdoing established against a large public company or officer as long as it’s settled and paid quickly and they can get ‘not admitting wrong doing’ language in the agreement.

Thursday Markets up. Gold down to$1767 and oil up $98.21.

Rare Earth once the darling sector of the investment world now being treated as if were a nasty relative showing up unannounced and staying for the holidays. Molycorp (MCP), the rare earth mining company, posted numbers three cents less than analysts expected and the stock crushed after-hours by eight percent. The company stated they were ahead of schedule on their recent mining project due September, 2012. Rate earth materials used in everything from cell phones to autos. China’s been buying the stuff and stockpiling.

A Forever Stock? Tom Benany, of TopStockAnalysts, wrote of his one stock to buy before its price runs away. His recommendation is Coca-Cola. He likes it because its P/E ratio is 12.5 and its price-to-sales ratio P/S is 3.4 a ratio higher than the industry average of 2. Earnings are expected to advance at 10% per year going forward. Plus Coca-Cola plans on investing by 2020 $20 billion in emerging markets, namely Africa, Mexico, Russia and China. Analysts, Tom reports, see the stock rising between $105 and $130 a share by the end of 2016. I keep thinking of 1.3 billion Chinese drinking a soft -drink…a day…!

Why analysts more pre-occupied with Price to Earnings than Profit number? Seems you can have huge earnings and little profit. If earnings are flat profit can increase through judicious reduction of expenses. Just one of those things that keep me up at night…

 

  Cheapest Stocks in the Dow: The folks at Fool.com did the math using forward 5 year P/E to come up with four stocks with less than 11 P/E. In order of cheapness they are: Hewlett-Packard, The Travelers Companies, JP Morgan Chase and ExxonMobil.  While there are those that look to buy Dogs of the Dow remember cheap stocks can get cheaper.

Let’s revisit yields from across the world: The 10- year in Germany at 1.871%, in the U.S. 2.09%, France 3.36% and Italy 6.514%.

Talmer Bank and Trust- folks over there keep me informed on what’s what and Friday an e-mail informed me that they believe a Euro recession becomes more likely.

Most of us measure personal wealth and self-worth that includes our homes. The New Yorker reported-We feel richer with equity in our home and spend more when we do.  Consumers have certainly been doing their share of supporting the economy and not been bashful about buying high ticket items. Now its up to government and business to prime the pump and get the business of business moving again.

Boeing  737 books $18 billion order from  UAE, Airline of Dubai. The country has options on another 20 planes making a possible backlog of $26 billion.  BA shares closed Friday $66.92 with Morningstar reporting fair value of $73.00 prior to the booking of this most recent sale. Prior bookings were in excess of $300 billion before the UAE deal was inked.

Friday huge! Dow up 260 points. Gold up $30 closing at  $1787 but oil sneaks up shy of $100 to close at $99.22.

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