That Was The Week That Was- 3rd Week in December

As 2011 wraps up one thing is very clear – keeping your savings locked into fixed money market, certificate of deposit or savings account for the long term is a guaranteed loss of use of money. ( It’s like buying a U.S. postage stamp in 1970  and keeping it in your drawer. You have a stamp that cost a dime still worth a dime but you can only buy 25% of something today than you could back then.)

U.S. interest rates are not expected to climb anytime soon. The Federal Reserve reiterated last Tuesday that interest rates would remain low through the middle of 2013.

For investors seeking growth & income consider  a mix of blue chips paying dividends, utilities or simply the Dow Jones Industrial Average.  This is called getting paid while you wait. For investors where income is more important than principal preservation next week’s blog will illustrate how using a mix of Master Limited Partnerships, High Yield Bonds and Closed End Funds can bump yields to more than satisfying levels.

Barrons put out their top 10 stock holdings for 2012. The list contained some of the usual suspects like Exxon Mobil, Wal-Mart and Cisco along with a few surprises such as General Motors and PepsiCo.  (Hmmm, no Cocoa Cola or Ford?) They also recommended Barrick Gold and United Continental. Both stocks well beaten up in 2011 as was General Motors. Overall the Barrons list was down in 2011 through December 10th by 6.9%. Barrons is doing what seasoned investors do and that is pick up those extreme losers and integrate them into a portfolio.

Markets fell for the week-down about 3%. With the holiday season on us don’t expect much from the next two weeks as Wall Street empties. Oil fell 5.5% from the beginning of the week to the end. Food prices slightly higher. The last few trading days couldn’t overcome the sting of losses suffered at the beginning of the week.

A Rule Some Investor Breaks: When cleaning out the portfolio the amateur investor usually sell their winners and replace them with what they hope will be other winners while keeping their losers, thinking that they’ll turn around in their lifetime. The rule is sell your losers and hold your winners. It’s easier, more efficient and gets immediate and possibly long term tax benefits.

Bloomberg’s BusinessWeek Calls The New Triple Hedged Exchange Traded Funds ETFs on Steroids! I first warned readers a month or so back when the new triple hedged funds were introduced. While some investors think this could be a quick way to make money it works the other way just as quick. I warned that the Gold ETF triple would cause greater volatility and since the introduction of the ETF gold has fallen off its highs.  That isn’t the only reason. Lots of money fled to the dollar when the Euro crisis raged. If you’re buying from another broker check if their employing a triple hedge ETF.

Chrysler Marketing is the Bomb! Paris born Olivier Francois sees Detroit as Exotic and selling it and the cars the company makes here as just that.  Chrysler sales hit a 10 year low in 2009 as it exited bankruptcy. Cars the company makes are selling at a greater percentage than the competition because the company didn’t sell that many cars the year before. I haven’t driven a Chrysler product in decades and asked a woman who was driving a new Chrysler 200 what she thought of her car and she gushed raves for fifteen minutes. Wonder if in 2012 there will be a Chrysler IPO? The company –Fiat- nixed the idea (good thinking!!) for 2011.

Warren Buffett Bought IBM. The Oracle scooped up shares of IBM at their highs of, and we’re estimating, in the neighborhood of $185 a share. Now Morningstar reports shares in IBM fair value right at $182.00 and investors should buy at $145.60. On the other hand Apple, trading under $400 a share, has a Morningstar Fair Value of $530 and suggested Buy at $318.00. To the best of our knowledge The Oracle does not own shares in Apple. So investors wonder who was right? And, since Buffett is one of the world’s best value investors (buying stocks at their cheapest) was he insanely wrong on IBM?

Gold fell Monday- as printing presses across sovereign nations ground to a halt. Michael Kahn’s column ‘Getting Technical’ reported the trend for Gold was still favorable but if the price falls below $1600 an ounce, all bets, he wrote, are off. Gold closed Monday last $1665. Tuesday gold fell again to close $1643 an ounce. And, later in the week Gold did fall below $1600. The trend is down for the metal simply because there are too many sellers and little buyers, according to Gold aficionado Matt McAbby of Oakshire Financial.

 Criticism of The Euro-Deal Caused Stocks to Fall Monday . Worries that there is no mechanism or entity that could step in with force when the next blowup hits the headlines. (The critics are demanding the ECB European Central Bank forget the 1920s and step up as did the United States Federal Reserve to back Sovereign and bank debt.) James Surowiecki in the New Yorker of December 3rd, The Financial Page, with his column entitled An Avoidable Crisis, wrote, ‘The E.C.B. is concerned that becoming a lender of last resort could threaten its much prized price stability, but there’s no point in price stability if the euro vanishes as a result. If the E.C.B. isn’t careful, someday we’ll talk about how a great job it did of protecting the euro right out of existence.’

Tuesday The Fed Took No Action & Markets Gave Up Triple Digit Gain. New Voters for 2o12 May help The Ben Bernanke’s Agenda:

Oil Price at Highs – Last Blog I asked, why? The answer du jour from talking heads was that the Iranian Problem hovered over oil prices. Domestically we are using less oil, Europe certainly has slowed down and so the question is what is motivating the price of oil. According to WSJ the U.S. is no longer in the driver’s seat as far as oil prices, says James Hamilton an economics professor at the University of California, San Diego.  Growth is coming from emerging markets. No matter what the reason every $10 increase in the cost of a barrel of oil will shave a few tenths of a percentage off the growth of the gross domestic product. Oil, along with other commodities, fell across the board this week.

Schmart Too Late- Old Too Soon….Boomers are the growing target of financial thieves. Retiree Keith Grimes sank every penny he ever made into an investment that ‘promised’ him a return of 14%-24% a year, and was marketed especially to seniors. At the end it was nothing more than a Ponzi scheme. Stealing from one person to pay another. Today Mr. Grimes lives in a borrowed trailer in Florida and runs an industrial fiberglass business after losing most of his savings. Boomers are the number one target either through Free Lunch or Dinner seminars for these pitches, or through cold call phone solicitations. The amount of enforcement actions against these financial predators is but a drop in the bucket to the total amount of thefts occurring in the real world. However the amount of actions is expected to hit a record in 2011. In Macomb county a 44 year old man with no security license was able to con over a million dollars from seniors by simply saying he worked for Goldman Sachs and promised a 48% annual return. The seniors wrote a check payable to the conman and he simply deposited it in his personal checking account. No one even thought to call Goldman or double check on their account statements. A local lawyer smelled something fishy when it was brought to his attention and called the Macomb police to investigate.

Is It Just Me or Is Everyone Fed Up With The See-Saw Market?  Fund Manager James Dailey said that he thinks the DJIA could break 14000 in 2012. The lows of October, he said, will hold and the markets could move up with a ‘Santa Claus’ rally in the coming weeks.

 Gold lost more ground Wednesday as the dollar strengthened and the Euro weakened. The Street’s Jimmy Cramer said not to give up on Gold even as it fell to close under $1600. He pointed out that every time the metal retracted it also rallied strongly. Chiming in was Teeka Tiwari of the Tycoon Report who suggested investor buy on the dips and picked $1550, $1500 and $1480 per ounce as the three entry prices. His rationale if the metal rallied off one of those prices an investor still had some skin in the game, Still others called the price fade on Gold a sign of deflation which Jimbo Cramer poo-pooed.

The European Problem won’t have an answer for investors until 2012. The fix will take decades. The Euro, according to Pimco’s Gross, will have parity with the dollar which spells trouble, to our way of thinking, on exports and multi-national corporations. The Swiss are gearing up to fight any strengthening of their dollar the Swiss franc.

Book Lovers will remember George Whitman who owned and created iconic bookstore ‘Shakespeare and Company’ in Paris passed away at 98 this week. Whiteman was born in East Orange, New Jersey and brought up in Massachusetts and opened his Left Bank shop some fifty years ago. The store was a Mecca for writers and students. His daughter will take over managing the store.

Blue Chips moved modestly 45 points on Thursday. Jobless claims were the least since May, 2008. The Dow had a triple digit gain until International Monetary chief Christine Lagarde called the global economic crisis quite gloomy and urged international help in resolving Europe’s debt crisis.  I guess having the ECB step in is out of the question. Howard Ward, portfolio manager at Gamco Growth fund said, ‘It’s important for people to understand that we will certainly be impacted by the slowdown in Europe. But that doesn’t mean that we’re going to have a recession as well.’ Gold closed still a tad under $1600 an ounce.

Silver closed under$29.00 and this from a high of $50.00 an ounce earlier in the year. Myra P. Saefong wrote that the metal’s a bargain under $30.00 but investors best watch volatility. James Carrillo, senior portfolio manager for Swiss American Trading Company said he would be a buyer of both gold and silver at these levels. Stating that gold was massively supported at $1500 and silver at $28.00. Investors are cautioned of heightened volatility and silver futures dropped 7% last week and gold 5%. However if silver falls below $25.00 it could fall to $20.00 an ounce.

Reverse Convertible Securities are being sold to seniors because they don’t know what the hell they are; and even if told couldn’t tell the difference between straight fixed savings and a swindle. Wells Fargo was fined $2 million for unsuitable sales by the SEC for one broker and his pals selling clients these products. The investment is a yield based product where the principal is tied to an underlying stock. If the stock goes down prior to maturity the difference from where the stock price was when the investor bought it and where it is at maturity is deducted from the return of principal. If the stock goes up the bank reaps the difference between the price bought and the mature price. It’s almost the perfect ‘Head’s I Win-Tails You Lose’ product.

Motley Fool has Ford Motor on its top five best performers for 2012 list.

Two Thoughts from Different Folk: Barrons panel of financial experts believe the markets will bounce 12% in 2012 but with most of the gain in the second half. Retired Value Line research director Sam Eisenstadt forecasts a 10% return in the markets for 2012 but with the majority being in the first six months.  If we could only combine the two….what a year!

Zynga – the highly anticipated IPO fell on its face Friday. The shares were priced at $10.00 and opened at $11.00 and promptly fell below their IPO price within 10 minutes of trading. The stock closed at $9.50 a share. It could have fallen further if it hadn’t had the support of its Wall Street underwriters. This was a big disappointment for Morgan Stanley, the lead underwriter. Cramer and his friends on CNBC based the stock prior to the open on Friday saying The Street didn’t like the stock or its connection with Facebook.

Finally FDIC Closed two banks in Arizona and Florida. The total bank closings in 2011 is 92. Bah -Happy Holiday?

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