That Was The Week That Was – 1 Week May

We May Be Seeing More of This…. for the last few years it’s been two camps: investors who have either stayed the course or been on the sidelines. But, now, here and there, amateur investors are slowly deciding that they should manage their own money. We may be seeing a return of the amateur do-it-yourselfer. The last time we visited this was in the middle 1990s. It ended in the year 2000 with a bang and whimper. There is absolutely nothing wrong with a do-it-yourselfer except that many (not all!) are not fully educated to manage money. Few can read a stock chart or understand fundamentals. (Back in the 1990s the Bible to self-managing investments was simply picking up Money Magazine at the checkout line at the supermarket.) The  investment management tool du jour  is a financial web site to see if it posts numbers that coincide if the stock or fund is acceptable to buy, or not. Which brings me to my point. I just read that Ford Motor is possibly waving a pension carrot to about 90,000 employees, in order to reduce the company’s retirement obligation liability. Employees will be given a choice of either electing a lump sum pension distribution (roll over to an IRA), or allowed to leave the money with the company to receive a guaranteed monthly income. Those that decide to take the lump sum instead of income should view the money as sacred, and to be used only to create a lifetime income for themselves and their spouses. Unfortunately, in many cases that won’t happen.

Before anyone decides to take the lump sum they need to prove to themselves that they have what it takes to manage their money prudently. This is money that has to provide an income for thirty years, maybe more.

Retirees also have to know that Individual Retirement Account rules are slightly different than the rules of a defined benefit pension.

In 1987  I was involved in helping employees of a family owned Detroit engineering firm roll over their ESPOP shares. It was shares in the company earned over 15 or more years of hard work. I did manage to help a handful of people. The rest of the employees decided to do their own thing or contact their own broker. I wish I had the actual numbers out of the other 300 plus employees who decided to self-manage their accounts but I don’t. I do know that over the years I’d hear reports from clients how poorly those that did their own investment management ended up. While many viewed the money from the ESOP with all good intentions the fact that they had so much money within easy reach proved to be too great of a temptation. The ESOP savings for a good many was eventually used to pay bills, vacations and ill advised investments.

I am of the opinion that the vast majority of workers shouldn’t take the lump sum. If they do, and if they only have middling experience and knowledge regarding money management, they should also team up to use the expertise of a qualified money manager or registered representative to assist them.

Before anyone makes that decision call or write me, or a trusted advisor, for an analysis to best determine the course of action.

Elections in France & Greece Have Sent European Shares Tumbling in early hours Monday. Asian markets were also lower on U.S. market’s Friday performance. Socialists in France were victorious on a ticket that included tax & spend. The dollar was up in overseas action. We can expect more volatility until clarification from European elected leaders is provided and things are allowed to simmer down. Now for news on what happened last week…

Where To Invest If The U.S. Economy Is Stalled in Low Growth & Low Interest For The Next Five Years?

1. Put everything into cash and wait things out.
2. Buy intermediate Treasuries.
3. Spend it all because eventually inflation will take everything anyway.
4. Buy funds that invest in high-yield bonds and dividend producing stocks.

 Not knowing what you should do could be costly!

April squeaks out a gain on the Dow! The S&P 500 index and Nasdaq both were down for the month.

 

Treasury is contemplating a floating rate note.   This is the first time in 15 years the Treasury has thought of doing something new. The floating notes will allow the Treasury to not keep issuing new bills every few weeks. There has been no lack of demand for U.S. government debt, as a measure of safety. Buyers would be money market funds and state and local governments looking to manage their cash.

  Sell in May….2011 Redux? According to the smart folks at Minyanville stocks may be okay this May. Going back, the Minyanville writes, to 1998 the May through November results for the market has been lousy. But the growth picture in 2012 is much better. The writer says we should concentrate not on GDP or the government indicators but instead on personal consumption and residential fixed investment. These are in much better shape than  at the same time last year.

Abby Joseph Cohen, chief investment officer at Goldman Sachs, said Monday on ‘Squawk on the Street’, the U.S. will avoid another recession. Even though growth has slowed in the second half the trend is still up.

Harold Dent told CNBC that a default in Spain could impact the U.S. economy and markets by 10%-20%. Spain, he said, is Greece only bigger, and with one of the highest percentages of debt owed to foreigners.

Markets Soared Tuesday on Better Than Expected Manufacturing Results! The Dow was up triple digits from late morning on. We’re at a four year high! It wasn’t until the last hour that it started to give it up and ended up 66 points. Gold was off $7 but oil was up and closed over $106 a barrel. Markets have been up on the first day of the month every month since the beginning of the year. The worry is that the economy is slowing but not enough to have the Federal Reserve step in and add stimulus. The market likes it when the Fed becomes a partner in their trading and adding support.

Michael Kahn @ Barrons.com ‘Getting Technical’, posed a troubling thought on stocks in his column Thursday last. ‘It’s a troubling sign when a stock drops significantly after beating Wall Street’s estimates. And when stocks behave this way, then there is something may be wrong with the stock market.’ Kahn points to Ford Motor which came out and crushed numbers and promptly fell. Oil producer Hess jumped on earnings and then fell. Western Digital was another that did the same, falling 14% the next day! Still, not all stocks fare the same. Some get huge jumps in share value like Amazon and Expedia. Kahn surmises that there is a great amount of instability in the markets and warns investors to view it as such.

The Mariana’s…those who have watched WW2 movies or know someone who served are familiar with knowing where the Mariana Islands are and what a vital territory and war zone they represented. Located in the Pacific the island’s retirement system is the first pension fund to seek bankruptcy, according to last week’s WSJ. The fund had been managed by a Merrill broker who reportedly fell overboard while fishing off waters in Hawaii and has not been found. In September 2007 the fund had $510 million in assets. It now has $256 million to cover $1 billion in liabilities. Retirees of the fund have sued Merrill but the pension board refused to go along, saying that overly generous benefits and the governments failure to make substantial contributions as the real culprits. But…a Superior Court Judge in Saipan ruled that the trustees and the fund’s administrator had an ‘undeserved reverence for Merrill.’ The judge added that the trustees ‘merrily allowed Merrill Lynch to think for them and subject the retirees to a heart attack every month when the value of the fund is published.' Merrill’s history as the fund’s advisor dated back to the 1980s.

‘What a Country!’  Green Mountain stock tanked Thursday, thanks in no small part to the questions put to the CFO of Green Mountain Coffee Roasters by hedge fund manager David Einhorn. The company is the main producer of the single serving coffee/tea/cocoa cups.  It has deals with every major coffee brand including Starbucks and Dunkin’ to produce the K-cup portions. Einhorn has made a very nice living picking certain companies to short their stock and then asking some tough financial questions in an open stock holders meeting. In October  Einhorn accused the Green Mountain company of poor transparency and over-spending. The stock has crashed from over $100 to close Thursday at $25.87. Last week Einhorn was responsible for another stock to drop, namely Herbalife, by insinuating the company only made money through selling distributorships, not by selling vitamins.  Herbalife, a 32 year old company, went on the offensive as the stock cratered by losing one-third of its value, stating they would buy their stock if no one else would. Einhorn, pictured above, is also an amateur poker player.

Detroit Getting It’s Act Together. It’s been stock ugly as the autos produce great numbers and the Market punishes the stocks of the car companies. Still there is light at the end of the tunnel as the auto companies have finally learned how to take a small car and make it profitable. The average new light vehicle in April 2012 sold for $30,303, according to TrueCar.com.   And, higher prices are not weighing on sales.Used car prices are rising as there is a pent-up demand with the average car on the road about 12 years old. Share price will eventually catch-up.

Friday the jobs report came out at worse than expected. The Street expected around 168,000 jobs created last month and actually there were 115,000. This set off a stock selling spree that may certainly continue into this week. The good/bad news was that the percentage of unemployed ticked down to 8.1% only because 342,000 people left the labor force.

The above chart in Saturday’s WSJ with material supplied from the Department of Labor.

 

This could be the summer stock slowdown. A few analysts expect 4%-7% maximum downside before stocks continue their move upward.

Facebook May 18th…’ ‘nuff said?

The Real Good News for Consumers and not investors Friday was that the Gasoline ETFs, exchange traded funds, pulled back significantly and that means relief at the pump. Oil also fell closing under $100 for the first time in…shucks…a long time. Okay, 12 weeks! Gold traded Friday around $1643. Share in Apple fell another $16 to $565. It was only a few weeks ago shares were determined to get to $750 with ease. The unemployment numbers seemed to take all the wind out of the stock market sails and expose the market rally for a thinly disguised corporate method of hiking profits through higher productivity and labor cutbacks.

With Age (and money) comes the delusion that whatever comes out of your mouth is a pearl of wisdom. Charlie Munger, the right hand wing-man of Warren Buffett, said to Becky Quick on CNBC Friday, ‘Gold is for the Holocaust-Era Jewish Families to Sew Into Their Garments; Civilized People Don’t Buy Gold.’ Tell that to Paulson, Soros, Rogers just to name a few without getting to Central Banks and Sovereign Funds. After hearing him speak Zerohedge.com called the Munger ‘creepy’.  

Finally…FDIC closed on Florida Bank last Friday bringing the total year to date to

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