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.