That Was The Week That Was – 3rd Week March

Cicero was a brilliant politician, statesman, philosopher and orator. He also had many enemies that were responsible for his death at the age of 63. When he first ran for political office he asked his brother, Quintus for help. And, as Phillip Freeman, recounts in his WSJ article, Quintus set the stage for all future politicians with his words of wisdom on running a winning political campaign. Here, is the election plan ala Quintus that got Cicero elected:

• Promise Everything to Everyone.
• Know Your Opponents Weakness & Exploit Them.
• Flatter Voters Shamelessly.
• Give People Hope.

 sound familiar?

Our domestic Markets gave up a little last week. Not enough to cry over but enough to pull out the beads and say a quiet ‘Hail Mary’, or two. The good news, looking forward, comes from Avi Gilburt of Dow Jones, writing technical analysis in MarketWatch.com.on Monday morning. He discusses patterns, Fibonacci and bullish sentiment. His conclusion is that the market may not see a top until the end of May, and possibly as late as June. Not to say that we couldn’t be surprised before then, but probably not.

Thursday Precious Metals Fell! From Palladium to Silver the metals fell – palladium down 5.5%, silver off 2.7% and gold lost $7.70 an ounce. Bad news from China and whispers about Indian consumers slowing their gold purchases as news that the government may tax gold holdings. The country is the biggest per capita buyer of gold in the world. In 2011 over 900 metric tons of gold was purchased.

Insurance Agent Glenn Neasham of Lake County, California was sent to the pokey last week for selling an 83-year old woman an annuity. The State’s Insurance Commissioner charged  Glenn with taking advantage of a ‘confused’ woman and selling her a product with a 12 1/2% first year redemption charge and a 14% commission. The annuity in question is a fixed product that goes by the unlikely name of Equity-Indexed Annuity and protects principal and earns interest depending on what stocks and bonds do in the marketplace. Regulators have not liked these heavy commission products, and especially agents who sell them. When the ‘client’ went to the bank to withdraw her $175,000 to buy the annuity the bank manager called adult protection services, saying the 83-year old woman appeared to be confused. Eventually the insurance company un-wound the policy and made the client whole, returning the entire $175,000 to the client. Regulators still took Glenn to trial where he was found guilty and sentenced to prison for felony theft. You can bet your bippy that the bank manager when he saw $175,000 walking out the door was more concerned with his loss of commission than the mental well being of his customer. On Tuesday a judge released Glenn on bail while he appealed his conviction.

Monday All About Apple! Things got just a bit better at Apple. The company announced a $10 billion stock buy-back plus an annual dividend of $10.60 a share. Shares are up 50% since the first of the year and some folks like them even more. The new dividend will be a hefty $9.9 billion distribution or a 1.2% of total dividend income. Imagine!? Our friends at Barrons.com put pencil to paper and calculated that if the entire amount would be taxed at 15% the government would get $1.48 billion! Create a few more Apple-like companies and you can see where the U.S. debt can be significantly reduced.

Ze Problem With Apple’s Success…As goes  Apple so goes the Nasdaq and herein lies the problem. The Fed has pretty much decided not to provide any additional stimulus, i.e. QE3. The stock market has had such an incredible run so far in 2012 that the Central Bank is less likely to provide any help. Barclays has said that in order for stocks and other risky assets to continue to rise stocks need to fall in order to elicit Fed help. In other words the market has gotten used to the Fed’s helping hand and is in fact counting on it…stay tuned this may yet turn into a roller coaster…

Tuesday China Worries Caused Stocks to Pullback Modestly. Apple kept on running, with the Naz down 4 points and the Dow off 69. The broader index down  4 also. Oil was about even and gold off t0 $1647. an ounce. Importantly the Dow held above 13,000, giving credence to support at that level.

Meena Krishnamsetty @ the Dow Jones reported on the most owned stocks by billionaires. For those interested the top holdings by the most billionaire portfolios are: Google, El Paso Corp., New Corp., Medco Health, Microsoft and Wells Fargo.

Glencore International, a commodity powerhouse in oil, coal and sugar just added grain. This another step to control vast amounts of commodities across a wide spectrum. The company announced it was planning on buying Canadian grain company Viterra, Inc. If the deal passes Canadian official’s muster some 40% of the world’s wheat, barley and canola crops will pass through Glencore’s hands. Glencore recently formed an IPO, but not in the U.S. The firm was originally  created by Marc Rich, international commodities trader and fugitive. He was pardoned for his crimes by Bill Clinton.  Share in Glencore trade in the U.S, under GLCNF. Rich is no longer associated with the company.

It’s Getting Serious & No One Is Listening! The Ben Bernanke spoke Wednesday and warned folks that the European Crisis isn’t over….and no one seemed to be listening, or else, as the WSJ pithily put it,  ‘The collapse of the Euro is so widely expected that Bernanke’s comments are blinding obvious.’ Our domestic markets moved down slightly Wednesday- still holding at support levels. Meantime millions of Investors are fleeing stocks. Ma and Pa, according to the Investment Institute, have pulled $2.84 billion out of mutual funds the last week and some $30 billion out of bond funds. Analysts are suggesting that as earning season arrives that companies will not meet estimates and disappointed investors will claw their way to the exits. Already, according to the Prudent Speculator, are we seeing sector rotation. Asian Markets have softened as news from China is mostly not positive. Manufacturing has fallen and new orders have fallen to a four month low. Credit Agricole, senior economist and strategist for Asia, Dariusz Kowalczyk, called the data ‘pretty bad’.

  Goldman Sachs made a major call to buy global equities in a report to clients last Wednesday. The banking giant called this ‘a once-in-a-lifetime’ opportunity to buy stocks after a 20-year period of relative underperformance versus bonds. The report went on to state that their projections show the next decade to be a peak period of global growth.

Bullishness exists at Schwab. 51% of investors who make regular trades are now Bullish. Bank of America analyst said that now the smaller investor is getting back into the market, and that was good news. Still, mutual fund outflows are continuing. But, a recent poll found that a majority of Schwab’s customers planned on investing more in April when they got their tax refund. I’m trying to make sense of all this, just the same as you and for every negative story there’s one for the other side.

The Hartford Getting Out of The Annuity Biz. In a move to appease major shareholder John Paulson The Hartford is leaving annuities and life insurance to others. No word who they’ll sell that side of the biz off to but they’ll concentrate on the most effective, aka profitable, side of the business.

Krispy Kreme Donuts getting into the coffee biz…a tad late…

India Taxing Gold? Stories coming out that Indian regulators mulling ways to have gold stored in banks, interest paid to clients. Gold sales have stalled. Thoughts also on installing special vending machines to dispense gold. Jim Rogers said he’d be a buyer of gold at $1600, more at $1500 and load up the truck at $1000. He said that on Friday’s CNBC.

Thursday Markets Fell. Gold to $1612, Oil closed at $106. S&P 500 Index couldn’t hold 1400 and closed at 1393. According to Mark Hukbert @ MarketWatch a correction has begun and he blames too much bullishness and complacency.

Most of our oil comes from Canada. About 16% we import from the Middle-East. That may all be a-changing as reports surface that the U.S. may double its production of oil, natural gas and biofuels. A Citi report labeled, ‘North America The New Middle East,’ said that the pipe dream may be a reality by the year 2020-2o22. What makes this an even grander reality is that energy will create an additional 500,000 jobs and put the U.S. on a firmer footing of economic growth going forward.

Bagel King Murray Lender Dies. Back in the 60s I was living in Texas and no one in that country knew what a bagel was (do what?). It wasn’t until Murray Lender took frozen bagels and made them a part of everyone’s breakfast that you could live in Texas or Macomb and get a supermarket bagel. For folks in this part of the world, back in the 60s, bagels were special- only for the weekends….remember?

Friday Markets Higher. Mark Hulbert repeats his warning that a correction is due. The Dow hovers slightly over 13000 while the broader market indicator couldn’t keep 1400, and fell three points. Oil is a quarter of $107 a barrel and gold rallied to $1661. Hulbert argues that there is too much complacency and bullishness to go forward without first going lower. He state that indeed we may be higher by the end of the year than we are today but first that path would take us lower.

Expect Bad News on Earnings. But, says Cody Willard, the news may already be priced into stocks.

Treasury Sale 10-year TIPS with a negative yield were snapped up Thursday as investors accepted negative return for the first time ever. This was a statement of confidence of the U.S, economy. The negative yield also said that investors expect an inflation rate of 2.38% going forward.

Mary Ann and Pamela Aden, publishers of The Aden Forecast, for 30 years these Costa Rican dwellers have kept a pretty steady pulse on what’s happening economically in the world. Rarely wrong their latest bit of advice is that as long as the Dow and Nasdaq hold above 12050 and 2700 they recommend staying in the market.

Bad News Couldn’t DeRail A Higher Market Close Friday…KB Homes reported a bigger than expected loss and the stock was pummeled, falling 8 1/2%. This caused concern about the vital spring home buying season. KB said that their financing from Met Life was pulled from under them as the company left the mortgage biz.Also difficulties getting mortgages from other sources caused a greater number of applicants to cancel their order.

Matt Nesto in Yahoo Breakout reports that the rally continues and the past week was a modest pullback on China worries and means little going forward. The argument that while Europe is in a recession and China slows the U.S. economic engine is alive and well.

John Buckingham at Prudent Speculator Offers the following choices for investors:

• Buy Dividend Producing Stocks
• Go Against The Grain-Europe is something a US investor should be considering.
• Embrace Emerging Markets
• Tap Large Cap Technology
• Follow The Laggards

The 2012 Barrons List of Bestest CEOs Published Over The Weekend. Here’s The Old, The New and Those That Didn’t Make The Cut…

Shopping For Stocks- Good Leadership Goes A Long Way…  

Finally, FDIC Closed 2 Smallish Banks Friday, bringing the total to 15 year-to-date. Last year FDIC had closed 25 at the same time of year.

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 – 2nd Week March

Not the time to Act Silly. Last week’s Barron’s on-line repeated an article that warned investors to keep their extra cash in cash and wait out  the expected correction. It was the Randall W. Forsyth article I reviewed last week that warned investors that it was the wrong time to put new money to work buying stocks, and to wait for the correction that was inevitable. Barron’s.com also put in a side-bar that read, ‘While many market watchers, including Barron’s, thinks that the recent rally still has legs, a confluence of signals suggests that we could see a sharp pullback in the next few weeks or months.’

Don’t expect gas prices to fall any time soon. As summer driving approaches gasoline prices increase an average of 3%.  The U.S. Energy Information Administration reported that even as the U.S. becomes a net exporter of oil the global demand is outpacing supply. China’s demands will continually push up the price of crude even as the we use less. We can expect an average of $4.00 a gallon rather soon. Making matters worse refiners are under pressure to process lower grade crude: Their facilities are not set up to process the cheaper grade and pipelines are insufficient to bring the raw product to them. Still, a fall in demand may bring the price down although analysts are at disagreement on when and by how much.

 The consensus is that any stock market pullback could be mild and nothing like the steep drop experienced in 2011 by the markets.

Most professionals expect that markets to move up substantially after the correction.

Good Times, Very Good Times for  Companies…Cheap money though bond offerings has yield- thirsty investors snapping up deals. Hedge Fund KKR refinanced or extended some $56 billion in debt in 2011 that cost them very little because of today’s (or yesterday’s in the case of 2011) low yields. They are not the only one.  Refinancing is the game so far in 2012- allowing weak companies more time to get their ‘game-on’. Recently we’ve seen Caesars Entertainment, Clear Channel (I did a radio show on their network), First Data and Realogy Corp drink from the well and get great rates extending their debt.Realogy just sold 8 year bonds to replace an issue that was coming due in one year. The CFO of Realogy said the deal was snapped up in six hours after it was launched.

From the Department of Surprising New Stuff- Dunkin Donuts plans to open 100 new Dunkin and Baskin Robbins stores in China. Currently the company has 150 up and running. No word on the time line for the new stores but insiders offer that the Dunkin stores will be selling pork donuts and will be endorsed by LeBron James. I cannot make this stuff up.

Speaking of China….has the largest Trade deficit since 1985. The data, as reported in Bloomberg, along with lower than forecast inflation, industrial output and retail sales; has raised the odds of easing policies to be implemented to support growth.

In His Book ‘Backstage Wall Street’, ex-stockbroker Josh Brown warns investors of ‘Murder Holes’, where money is invested by unwary customers and the deals blow up. He write that so much product is being churned out by Wall Street that he hears about many of them first from customers. Here he warns about  a few:

• Oil & gas limited partnerships –(if you’re being cut in on them the wells are dry).
• Insurance brokers selling asset management.
• Principal protection funds (They always come out after the markets been killed).
• Currency brokers and forex sites. (Fees are over the top and the returns are nothing like what’s being advertised).
• Financial advisors who self clear or self custody client funds (Get another pair of eyes on your money, preferably a large corporation).
• Private Placements- Just two private placements (that went bad) were responsible for the closing of 21 well known broker/dealers since 2010.

Jon D. Markham wrote Monday 12th, ‘Stocks rebounded last week with about as much sincerity as a six-year old eating broccoli.’ There’s too much worry on the Street. Brazil reported growth last year of 2.7%, or less than 1/2 the government predicted. ( Last week the Brazilian Index funds and small caps fell as the Brazilian real fell against the U.S. dollar. The fall was created by the government to stop the rise of their dollar in a global market where major currencies are fighting to reduce their value.) A possible trade war with China looms in the background. Europe is choking on a lack of consumer and corporate credit. Investors have been shrugging bad news off. Other pundits explain the markets may keep chugging higher for one or two more months.

On the Flip side -Zacks calls for a Melt-up, or a Break-Out and that little by little stocks move up until folks finally figure out a break-out has occurred. Zacks expects stocks to climb to 1400 –1420 and then make a decision based on earnings reports.  we’re theeere….on Thursday now what?

Monday last Dow was up, Naz down and S&P dead even for the session. Gold fell and oil closed up a smidge.

Psst…Looking for an investment that could pay off big on a trade? Myra P. Saefong in MarketWatch Commodities Corner explores the natural gas sector, warning that now is not the time to buy but probably some time this summer. Prices for NG are at the lowest since 2005 and futures have fallen this year more than 20%. Oil and gas producers have shifted focus to oil production. Some rig operators are burning off the gas a nuisance. This year there were high inventories along with a mild winter that caused the glut and price reaction. Wait until product gets depleted and play the sector with one possibility of buying the First Trust ISE Natural Gas ETF – FCG. 

Tuesday Early Boost From Consumers started the market off on the right foot. A market analysis by Fidelity confirmed that ‘technically’ the market trend remains strong. The S&P 500 well above its 200 day average. However….there is evidence of technical divergence for stocks. …it suggests that a correction may be in order.’ The Fidelity analysis reminded investors of China, Iran and the high price of gasoline. Not to forget, the summary went on to say, ‘Don’t forget Greece.’ The consensus was that while Fidelity wouldn’t recommend a full hunker down mode it wouldn’t rule out taking some risk off the table.

A sunny day Tuesday as J.P Morgan Chase scored by announcing it would increase the bank’s dividend and buy-back shares. The news caused the Fed to release information early (They planned on releasing the news on Thursday) on their latest stress test  (t0 see if buy-backs and dividends would damage bank’s capital buffers). Also the test was to see if banks would have enough capital on hand to keep lending if another economic or financial crisis erupted.  Buying back shares is what investors like to hear and want to see more and more of. They know there will be less shares on the street and a ready continuous buyer of stock. This usually results in share price to increase. This bit of news caused markets to rally to close waaaay over 13,000 on the Dow and 3000 on the Nasdaq. the Naz is still 40% off its highs from 2000.

Not All Banks Passed Stress Test. MetLife, Ally, Citi and SunTrust failed. They test showed that if in an economic crisis the above financials could possibly find themselves strained.

Sell Bonds! Investors have been looking for any excuse to exit bonds said Doug Kass at CNBC. This may be the time when bond traders signal the Fed to start raising rates ahead of their proposed- possible 2014 date. Kass suggested shorting Treasury bonds and investors can do so by buying the ETFs. Kass gave five reasons for his view:

• The flight to safety will likely have a diminishing half-life.
• Flows out of stock funds into bond funds seem to be at a tipping point.
• Confidence is recovering as economic growth reemerges and risk markets improve.
• Inflation remains an issue.
• The failure to address fiscal imbalances could come back and bite the bond market.
  • You can do this but call me for the best etf for you.

Thursday Bond Yields Broke Up! The steep rally in stocks this week saw investors sell bonds and yields moved inversely to price as shares fell. With a view that stocks may be heading higher bonds are finally in trouble as the following chart from technical analyst Michael Kahn illustrates:

And-Michael Gayed wrote that ‘scared money’ was not so much in stocks, although it’s there, it’s in the bond market.

War or No War- The Iranian Nuke Question

Bloomberg-Businessweek examined the consequences of a war to eliminate Iran’s nuclear capabilities. Here is the precise:

• Israel could eliminate the Iranian threat for about 3 years. If the U.S. attacked it could knock the Iranians back about a decade.
• Oil could jump up an immediate $23 a barrel.
• If the Straits of Hormuz were closed the price could jump $60+. Over 40% of all oil exports move through the Straits.
• Any price over $150 a barrel would lop off 2% of growth of the U.S. economy and put the country into a recession.
• The alternative is worse. A nuclear armed Iran would cost us more in defense spending for all time; and the world, and especially the Middle-East, would be less stable.
• The really worst outcome would be a nuclear armed hostile Iran.

Thursday rumors that the U.S. & U.K. had agreed to coordinate on releasing strategic oil reserves was deemed just that – a rumor. In the meantime oil prices fell before moving back up. According to the WSJ the strategic oil reserves can supply 1/2 of the U.S. need for up to five months. Most talking heads agree that the leak was intentional and a message to Tehran.

The S&P 500 Index closed over 1400 for the first time in nearly four years on Thursday. Gold was up to close at $1658 and oil finished the day at $105.45

Does The Street Love Apple Too Much? Customer lines waiting for the new iPad were 75% shorter than they were with the new iPad, but you’d expect that. Still at CNBC the talk was if the run-up in Apple stock was too much too soon. The stock is up 45% in the last 12 months. Traders are concerned and some are vocally cautious of the stock. Apple is key for the Nasdaq, much like IBM is for the S&P 500 Index. Right now Apple is 1.5% of the global market value, according to index analyst Howard Silverblatt.

Consumer Sentiment drops for the first time since August… Households are balking at the price of gasoline. The U of M study showed consumers are positive on jobs and stocks but the price of gas has increased from $2.72 at the beginning of the year to $3.88 in March.

There are few things you can feel good about and (1) bond yields going up is one and (2) home prices soon bottoming is another. Investors should be able to take (see below chart) advantage of both conditions- mark your investment calendars- Buying the inverse Treasury ETFs is one way to take advantage of rising yields on bonds and home building stocks and ETF up substantially the last five months. Barrons.com reports that Beazer Homes (BZH), Toll Brothers (TOL) and the SPDR S&P Homebuilders ETF (XHB) have all seen substantial moves to the upside. Home values probably have another 5% downside which is estimated to hit by spring 2013.

Finally: No Bank Closings for this week. The scoreboard: 2011 - 61 banks closed 2012 -13 banks closed.

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