That Was The Week That Was-4th Week February

A rising tide lifts all boats including the electability of an incumbent that only a few short months back was assuredly and most certainly staring at defeat. In Up and Down Wall Street, Randall Forsyth writes that as the stock market recovers so does the stock of the president. According to the ‘bettor’s line’ the President now has a 60% chance of getting re-elected. The fact that the Dow ended up before President’s Day at its highest level since May 2008 has made all the difference.  

UBS Wealth Management polished its crystal ball and predicted that the president would win a second term. Citing improving economic conditions and firming job approval as keys to his victory.

One of the five longest streaks of all time! Michael Santoli, of Barrons.com, wrote that as of last Thursday the market has gone 44 trading days without even slipping to its 20-day average. Wayne Whaley, a market analyst who does this kind of investigation, found that there were only 7 years before this year that a January rose at least 4% without a single 1% loss. Investor’s Intelligence found that 22% of those publishing investment newsletters were expecting a correction, 51% being bullish and 27% determined bears.

Consumers still shopping for deals even as food companies hike prices. General Mills reported that volumes are falling and earnings could disappoint. J.M. Smucker’s also announced last week that 4th quarter volume fell 10%. Those defensive food stocks may not be that defensive.

Sell in May and Go Away…? Ed Pawelec, Creator of Price Shock Trader, writes that the traditional sell in Spring and come back in September may be moved up to March 20th, the same day Greek debt is due. He cites an overbought market and that Greece will ultimately default. This shouldn’t surprise investors but will anyway.

Iceland Upgraded by Fitch! The country has managed to rebuild and stabilize sovereign creditworthiness after the 2008 banking scandal that involved all three of the countries major commercial banks. The entire country was a step away from bankruptcy. Their stock market fell by 90% and had to seek help from the German government. According to Fitch a promising economic recovery is underway. Icelandic women took over the reins of business and government immediately after the collapse. The U.K. newspaper Guardian, in 2009, proclaimed Iceland the most feminist country in the world.

 The Business Insider Provides The Following Insight to Rising Equities with Falling Yield of the 10-Year Treasury.

If investors moving from bonds to equities the yield should be moving up but according to the charts this is not the case. In 2011 both equities and yield moved closely together.

Larry Doyle, an ex- Wall Street Insider, publishes a blog, does a radio show and manages the money he’s earned … lately he wrote that he understands how and why Wall Street takes advantage of customers once in a while. But on the missing $1.6 billion from MF Global he says with conviction, ‘ We need a MF Global grand jury. Money does not vaporize. Money is misappropriated. Money is stolen.’  MF Global was a commodity trading firm that ‘supposedly’ made wrong sovereign bond bets that went sour. Regulators have been unable to account for almost $2 billion of investor money. It wasn’t lost trading, no records of where it went!  

According to Alan Abelson, The current Sports Illustrated Swim Suit Edition has an American model on the cover. Since 1978 that indicates the S&P 500 index averages a total return of 14.3% on average 88.2% of the time. When a non-American was on the cover the market was up 10.8% and was positive 76.5% of the time.

Katie Stockton of MKM Partners appeared on CNBC a week ago and speaking about the market volatility said,’ the price percentage swings have compressed.’ It implies that the markets will feature a ‘slow-grind’ higher. She went on to say that if the markets gathered support around 1371-1379 on the S&P that it could go to 1440.

Jim Rogers hedge fund manager and commodity guru said in a recent interview that the markets will fall apart in 2013-2014, His recommendation is commodities, especially silver since its price is more attractive than gold. Roger said, ‘In 2012 we have elections and many governments pumping money into the economy spending and printing money. It’s 2013-2014 we have to worry about.’ Jim sounds confident about 2012 but still owns no domestic stocks. He also believes the President will win re-election.

Wal-Mart Ups Stake in China E-Commerce.  The company announced over the weekend last that they plan to buy a majority stake, 51%,  in the Chinese company Yihaodian.On-line shopping is booming in China. In his recent book ‘Greedy Bastards,’ Dylan Ratigan wrote that Wal-Mart’s trade with China was equivalent to it being the 8th largest country in the world.

Ridiculously High Gas Prices Expected to Hit US Cities By Memorial Day…The Mercury News, as quoted in BusinessInsider predict prices to be  $4.50 a gallon, or more, on the West Coast. Others have ramped up estimate to $5.00 a gallon.

Readers were warned in 2011 of increasing price of gas for 2012. This shouldn’t be a surprise. BUT Economist Joseph LaVorgna of Deutsche Bank said that consumers may have seen about 1/3 of the increase offset by cheaper natural gas and lower winter utility bills. Meaning it won’t hurt as much as if it were a normal winter. ….spin,spin, spin….

So What Are The Reasons For The Increase? (1) The Iranian Situation is Volatile. (2) Other Geopolitical Risks Include Nigeria, Syria, Libya, Iraq as flashpoints. (3) Lack of Refining Capacity and the refiners are raising prices. (4) Summer is Coming and American Love to Drive. (5) Supply Risk & The American Recovery. (6) Speculators Are Piling On –some estimate $20.00 a barrel in crude is spec money.

How To Play High Gas Investment?  Zacks.Com reports that investors can buy the ETF UGA that directly invests in gasoline futures. On Friday the ETF spiked 80 cents afterhours. Shares have moved in the last 52 weeks from $44 to Friday’s close over $57. a share. This is the only ETF that allows investors to buy gasoline direct. Want more info call or e me….

Who Got Hurt In The Financial Meltdown? It wasn’t the rich, or those looking to buy a home. It was the middle-class and especially those workers who were on the cusp of retiring- the Baby Boomers. According to The Pew Research, the unemployment rate for workers age 55-64 increased from 2.9% in the final quarter of 2007 to 6.9% in the same period in 2009. Not only did those workers lose jobs but their homes lost value, many became underwater. Those that bought oversized homes as a method of funding their  retirement were especially hurt. Whatever savings they had was essentially used up in early distributions. To this day CEOs of banks and financial organizations that created the mess have not been prosecuted. No high ranking board member who supposedly signed off on corporate policy has been charged for a crime.

Small Cap Stocks  Up Big 2012 but investors pulling $15.9 billion since last April.  According to Jonathan Cheng at WSJ, investors have been ignoring small caps and there has been little trading in the sector. There are small cap Bulls who expect the sector to move up 20% this year. Bill Nasgovitz, founder and portfolio manager with Heratland Funds, says the small caps have rallied so far this year due to corporate buy-backs and investors reversing their bearish bets on small-caps- not pouring new money in.

Too Early To Celebrate A Greek Deal This Tuesday? Ministers and the ECB agree now its up to investors to take a 70% haircut on a new bond exchange. The deal must have 100% of all bondholders on board. In early morning trading the European markets were slightly down both Tuesday, Wednesday and Friday.

Domestic Markets Took Charge & Hit 13,000 On The Dow ….but couldn’t hold. This was the first attempt in 4 years. The Bulls say that stocks are at attractive levels. Bears contend that the markets are overbought and say key indices are signaling a modest rest. According to WSJ and other publications, including the talking heads on CNBC, a momentum trade may take place if the retail investors that have been sitting on cash think they are missing out on a rally decide to participate. Still others are taking risk off the table.

 

Silly stuff….

Baseball Fans know that players select ‘at bat’ music. Last year Tiger Ryan Raburn’s music was Hicktown by Jason Aldean, Brandon Inge chose anything by Kid Rock and Miguel Cabrera picked Fuego by Pitbull. Now the web site Spotify announces the ‘playlist’ for the coming Obama campaign (no joke this). I’ve downloaded many of his campaign manager’s choices to my iPod for my personal liberal driving experience and those sounds include: Keep Me In Mind, by Zac Brown Band; We Take Care of Our Own by the Boss; Mr. Blue Sky by ELO and Your Smiling Face by James Taylor. In all 29 songs approved and ready to rock at a campaign nearest you. You don’t get that kind of rock with Tea-partiers….

Pimco’s Mohamed El-Erian & Joe Terranova appeared on CNBC Tuesday, at different times and roles, but with identical message- ‘Take some risk off the table. El-Erian said the the contagion risks from Greek as well as disruptions to energy supplies from Iran and Syria pose even more economic risk, ‘We have less economic flexibility – that’s the bad news,’ he said, ‘The good news is that central banks are doing all they can to limit the damages to the payments and settlements system.’ Terranova commented that risk should be taken off the table as the markets are weakening. He also said Google had reached a price that was unsustainable based on current spending and leadership.

Meg Whitman, CEO, Hewlett-Packard, has a tough road ahead rebuilding what was once a well run machine. The stock HPQ, has fallen from the low $40s to $28.59 in less than a year. She provided Barrons Tech Trader Insight to her ‘Three Bucket’ approach to getting the company back on track. The company has seen its net fall 44%. Morningstar offers a 4 star rating offering that shares could be bought anywhere around $28.00 and gives a $40.00 fair value.

Brazilian Mining Company Vale is the world’s largest iron ore producer and second largest nickel producer. If you’re looking to bet on China continuing growth buying Vale ( VALE) is a good bet, according to Alex Crooke, portfolio manager of Henderson Global Equity Fund. Shares have fallen from the neighborhood of $35 a share to $25. The company boosts 6.5 x’s forward earnings, fattest profit margins of all competitors and boosting a 4.7% dividend. The company expects exports to China to grow over 4% in 2012. Morningstar likes shares at $15.00 and values them to $31.

SEC Chairman and Meg Whitman Look-alike Mary Schapiro wants to curb High Frequency Traders. Schapiro said that while high frequency traders provided retail investors with lower costs and greater liquidity, a large portion of their trades have nothing to do with the fundamentals of the company being traded. The process is worrisome and also includes greater volatility a a huge number of buy and sell orders that are later canceled. While Schapiro does not want to eliminate the HF traders she does want some control over their methods. One idea is to charge them for cancelled trades. An estimated 95-98% of all HF trades are cancelled. Critics say that the excessive cancelled trades are straining the ability of the markets to handle trading activity. ‘Like looking in a mirror, eh, Mary?’

Schmart Money Heading For Sidelines? According to CNBC institutional investors are slowly creeping to the exits. In February about $9 million has been tossed back into money markets, while a small amount CNBC admits, the amount has been slowly growing. Insiders are also unloading shares of company stock as retail price levels increase. So far in February they’ve dumped about $4.2 billion in stock, or double what was sold in January.

S&P strategist Sam Stovall sees  resistance for the ‘500’ in the 1360-1370 range, where a pullback of 5% or so is likely, sending the average down to the 1270 range. For the full years he expects the S&P to hit 1400, which would constitute a 9% or so run from the pullback levels. The Index closed Thursday a tad above 1363.

Bloomberg News Reports the S&P 500 gets cheaper as profits of individual companies rises. The analysis estimates that the index is 9% less expensive now that corporate profits have beaten analysts expectations 12 quarters in a row. Analysts also predict that earnings in 2012 will rise 69% from 2009 prices.

A Technical Indicator For Apple…It’s called an Outside Reversal Day. This is when a stock’s high and low for that day exceed those of the preceding day. That’s a Bullish Indicator. A Bearish Outside Reversal Day is when a stock closes below the prior day closing but also lower than the prior day’s intra-day low. It happened to Apple on February 15th, which means that the stock can make new highs but is susceptible to some corrective move lower. This info thanks and a tip of the cap to Costas Bocelli, CIO, Profit Skimmer.

 

Markets tried climbing over 13,000 again Friday and closed at 12,963. FDIC closed 2 more banks Friday bringing the total to 11 in 2012. For a short week there was a lot of stuff….

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

That Was The Week That Was – 3rd Week February

Troubling signals as ‘Dow Theory’ shows signs of a possible market tumble. The Theory holds to six principle tenets with two of them closely adhered to by traders. One is transports, a gauge of shipping activity, and another is trading volume. According to CNBC volume has been down since the market rally beginning in October.  On the other side the transport index- DJT have hit what technicians call a triple top – meaning its tested current levels three times, and not fared well the first two. This has some traders nervous and considering selling into the January rally. That plus an overall bullish sentiment have contrarians worried.

On the Good Side many still see 2012 as a year where stocks and gold are driven higher. The Aden sisters, who publish the Aden Forecast, named investment newsletter of the year in 2010, report that sentiment drives the market and not necessarily reality (anyone remember 2011?).  They go on to report that with some measure of a deal in Europe calm seems to have returned to the markets but the fundamentals have not changed. Stocks have moved up significantly but the Aden’s warn of keeping trailing stock stops close. They like the markets going higher but not without corrections.

 More Room to Run sez Zacks.com. On Thursday 2 out of 3 indices made new closing highs and the S&P 500 will soon be joining them. Reason that markets are moving higher: Greek bailout moving ahead – Jobless claims down and better than expected – Housing starts up and Philly Fed shows surge in regional activity, topping estimates. Zacks believes that S&P will reach 1400 before a 5-10% correction takes place. That should take  six to eight weeks to trudge to that point. Oil spikes and war drums can put a kibosh on this scenario that sounds plausible but not guaranteed.

 

Gene Epstein writing for Barrons last week predicted that based on cyclical patterns of market history the odds are better than 2-3 that the DJIA will reach 15,000, or higher, over the next two years. There is also a 50-50 chance the Dow could spurt to 17,000. This is based on 141 years of equity performance from which, Epstein writes, a fairly straightforward cyclical pattern can be discerned. This is explained by the rubber-band cycle. The following chart of those cycles created by Wisdom Tree Asset Management.

The conclusion is that the worst 20-years eventually leads to the best. Investors examining five and ten year returns, including a strong 2012, find that those returns fall into the lowest quartile. Meaning that performance will need to improve immensely for the completion of the cycle. There’s a lot of math that goes along with this but I just want to know if things are going to get better and by how much.

Quantum Leap British Investment Guru Quentin Lumsden dummies it down a bit writing that Bull Markets often begin in a year ending in 2- 1982, 1992, 2002/3. With the notable exception of 1972. It’s like betting on the #5 horse in every race. But Lumsden has more signs of an imminent bull market:

• Bull Markets start when unemployment is high.
• Negative sentiment is a good indicator.
• Equities are cheap.
• Economic policy is switching from squeezing to easing.

News that the U.S. is burning off natural gas as too cheap to market is taking a turn. Recovering from the nuclear disaster of a year ago Japan is now transforming their energy scene as is Germany (see blogs in January).  Natural gas price is at the low point while LNG imports in Japan have climbed 12%. The problem is cost as natural gas has to be liquefied for shipping, hence LNG and then turned back into gas at destination. It isn’t cheap but exporters believe at current price levels domestically the U.S. can compete effectively with other exporters. Investors can buy energy mutual funds, exchange traded fund UNG. You can also buy stocks such as Exxon Mobil ticker XON an oil and GAS company, and even an ETF that shorts the long symbol UNG exchange traded fund.

The Detroit News Monday wasted a lot of paper and ink printing 5 basic rules for a couple’s money management:

• Talk
• Plan
• Commit
• Pay off Debt
• Plan for Emergencies Just in case you missed it…

Apple hit $500. when markets opened Monday. Experts say more room to run. According to CNBC  this latest surge in share price is on the possibility that the company will declare a dividend or even split its shares.  Apple has almost $100 billion in cash and that equates to about $105 a share, still making the shares in Apple rather inexpensive with about 9.3 xs estimated earnings going forward. At these levels you don’t use the word cheap…

If it isn't in the charts some investors are not going to buy or sell… At the same time if the fundamentals are not there than other investors walk away… Mixing technical and fundamental analysts is like mixing an oil & vinegar salad dressing- eventually they’ll separate. Marc Lichtenfeld writing ‘Can Technical and Fundamental Analysis Coexist’, sums it up by concluding that Technical analysis allows him to know entry and exit points while Fundamental analysis whether a company is worthy of investing.  Investors need both. Unsure what’s what call for more information.

Moody’s Cuts Ratings on Italy, Portugal and Spain. It also cut the outlook on France, U.K. and Austria to negative but kept ratings at triple –A for the time being. Busy as bees these ratings companies that couldn’t tell a good mortgage from a bad a few years back now slashing and burning sovereign nations….

Emerging Markets a safer bet than some traditional investments, so sayeth Jerome Booth, head of research at Ashmore Investment Management. Just 3.2% of U.S based open ended mutual fund assets fall into emerging markets. Booth reports that those countries labeled emerging markets have fewer fiscal strains and political risks than many other sectors that American investors hold. Booth holds 90% of his money in emerging markets and considers that prudent. ‘People need to get their head around the fact that 85% of the world’s population and 50% of the economic activity is in the emerging markets,’ he said.  Twenty years ago you couldn’t get the average investor to buy a foreign mutual fund….they all thought folks living in London lived in huts and caves.

Invest in European Countries With Low Debt: Matthew Lynn’s London Eye suggests the following countries have low debt should garner your investment dollars over the next decade: Russia, Turkey, Bulgaria, Sweden and Estonia.

Stocks with Expanding Dividends. Peter Vanderlee, Managing Director at ClearBridge Advisors, said that we can expect another great year for dividend paying stocks. He goes on the explain that investors need to diversify their holdings along with targeting those companies with a history of increasing their dividend payments. His best picks include: Kimberly-Clark, Lockheed Martin and NextEra Energy. Vandeless insists investors need both dividend yield and increasing dividends in their picks.

Europe Foreshadowing A Rally?

Michael Gayed, Dow Jones writer, peeks into the crystal ball and writes that we indeed could be heading into a legitimate Bull Rally. He compares the charts of 2009 before the markets started their  run with the same chart today. He illustrates the European small cap chart that preceded a strong market run for domestic and foreign markets. But, as always, he reminds us, that investing is always about possibilities and never about certainties.

No Saturday Postal Delivery? Cutbacks would save about $25 billion over 11 years. Also pension benefits would now be paid on an accruing cost basis if the new plan is approved. The postal service said it lost $3.3 billion from October to December 2011, normally the most productive time of the year. The place is, and has been, run like the Department of Motor Vehicles instead of a business…why someone doesn’t clean house is beyond me.

Old News… Iconic Building a future IPO. The Empire State Building will soon be in investor portfolios as the owners are planning a realty initial public offering of $1 billion. The money raised will be used to pay off debt, repay current investors and outstanding loans as well as a fund for future acquisitions. More information on yield, etc forthcoming.

The Pew Report, ‘Safe Checking in The Electronic Age’. Key practices and fees from 10 largest American banks and 250 different types of checking accounts.

According to MarketWatch banks may now charge as many as 49 different fees to make up for other lost revenue.

Hedge Fund Manager Paulson cut loose shares in Bank of America, Citi, Wells Fargo, Gold and H-P.  This news from SEC for last quarter action.  Some say because of client redemptions Paulson was forced to cut his gold share holdings. Greenlight Capital’s David Einhorn loaded up on tech in the final quarter with Yahoo, Rimm, Dell and Apple to his inventory. Buffett sold Exxon and added more to IBM and Intel. He also bought more CVS Caremark and Liberty Media that owns QVC, among other things.

U.S. GDP +2.5% for 2012 this from Zacks.com which translated means less of a chance of a recession this year. Pity poor Greece as no chance of getting out from under restrictions set by the Eurozone leadership. The economy will be in  ruins for at least a decade, maybe more. The country has no chance of rebuilding commerce and unemployment for men under the age of 30 is a staggering 50%. For workers there is a cut of 20% in the minimum wage. The days of the Greek version of La Dolce Vita are forever gone. While the U.S. is able to stimulate the economy the Greeks have no choice but to follow an austerity policy dictated by Berlin and Brussels, writes Darrekk Delamaide for Dow Jones.

The U.S. Investor is Much Braver than their European counterpart. We’ve already had our European induced collapse last August said Michael Goldberg of ClientFirst Strategy in Woodbury, New York. British investors, however, are moving into cash and savings bonds and buying only defensive equities. As reported on CNBC, a flight to safety seems to be well underway with U.K. investors moving to cash. Jim Iurio of TJM Institutional Services said, ‘Our market is not ignoring Europe but hoping that our economy has sustainable momentum by the time the situation in Europe comes to a head.’ Tuesday Markets ended up slightly after fighting negative headwinds most of the day.

Lost Whitney but another singing great Dinah Washington never made it to 4o because of  addiction. She was one of my favorite jazz singers of all time. Some say second only to Ella Fitzgerald. -Us old timers remember  Dinah was married to Dick ‘Night Train’ Lane of the Detroit Lions.

Diamond Foods screwed up bad in their bid for Pringles ( see last week’s blog) but Kellogg steps in with a $2.7 billion bid to P&G for their salty snack. Kellogg states the acquisition will add eight to ten cents a share, before transaction costs. It’s expected the buy will dilute earnings by 11 cents to 16 cents a share and the deal will be done by this summer…..Great! Shares of K surged on the news.

Wednesday Fed Says ‘Maybe’ to QE3 and markets sank on Iranian news of cutting oil to six European countries and an unresolved Greek problem. Fed said in January minutes they’d consider more actions if the economy weakens. Gas rose again causing inflationary concerns that it would cut the recovery as it did in 2011. Higher oil prices because of the Iranian problem will not go away overnight. Wednesday saw the worst market day of the year. Dow off almost 100 points. Investors do say that the Greek problem is factored into the market.

AT&T still on the hunt for additional spectrum. With the T-Mobile deal dead AT & T is searching for a wide swath of unused spectrum and may be talking to MetroPCS, Leap and Dish wireless. Verizon also offered $3.6 billion to buy unused airways. Watch stock activity in the above if any deal is close to being made.

Dance Close to The Exit writes Michael Kahn Technical Analyst at Barrons. Frightening, he says, is that bonds, the dollar and stocks are all moving higher together. The rally that has been going since November still sees momentum. Technical’s, however, indicate, that the party may be getting a little late. Investors should dance a bit closer to the exits if and when the markets reverse suddenly. Kahn is also concerned about Gold which is holding firm even with a strong dollar, which it usually moves in opposite to. What is telling is shares of Apple on Wednesday moved to $526 but within the hour closed the session under $500, indicating market technical weakness.

Social Security Trustees predicted in 2011 the Trust would run out of money in 2036. Revised numbers today show the bank would be empty by 2034. Like everything else politicians will wait until the last minute to do something…there are simple fixes for social security. It’s Medicare that’s really a problem.

At Some Point This Will Be A Huge Trade… For the fifth month in a row home builder sentiment rose. Record low mortgage rates, cheap homes and a recovering economy all contributed. Stocks in Lennar, Toll Brothers and PulteGroup all advanced last Wednesday. Chief economist David Crowe at the NAHB said that it was the longest period of sustained improvement in Home Builders since 2007.

GM Failed to hit analyst’s expectations but the stock soared. GM earned historically more money $7.6 billion in 2011 than any other year in its entire history. The company will be eliminating white collar pensions, freezing pay on same and paring back white collar bonuses. Spokesman said on CNBC the company needs better efficiency worldwide.

GM stock rocked the markets Thursday. The Dow up 123, Naz +44 and S&P 500 + 15.

 Independent Analyst John Kinnucan was arrested by Federal Agents as part of an ongoing insider trading investigation, reported the WSJ Friday. In 2010 FBI agents tried to get Mr. Kinnucan to testify in their probe and he refused. Kinnucan then sent an e-mail to traders and analysts describing the agents as ‘fresh-faced eager beavers.’ The Lesson: You don’t tug on Superman’s cape. You don’t spit in the wind, You don’t pull the mask of the ol’ Lone Ranger, And you don’t mess around with Jim (or Fresh Faced Eager Beaver Federal Agents for that matter). thanks and a tip of the fedora to Jim Croce.

According to Game Theory- Investors often overcomplicate stuff.

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