That Was The Week That Was-4th Week May

Auto Stocks Are Down & So Are Sales…historically speaking. A day doesn’t pass when someone doesn’t ask me why domestic auto stocks are so low. Morningstar analyst David Whiston writes that he, too, thinks that auto stocks are incredibly cheap. He uses a complicated formula based on population and average auto sales data and concludes that sales should total nearly 16.1 million. Using these numbers and going forward he believes that there is a huge pent-up demand. This on top of new products from Toyota and Ford have some analysts predicting about 14 and 1/2 million cars to be sold in 2012. Bob Carter, GM at Toyota, told Bloomberg that investing in the auto industry becomes even more attractive once investors combine the top-down story with the dramatic, but misunderstood, bottom-up story at GM & Ford. PS…Ford upgraded to investment grade. General Motors is next in line. It will make borrowing cheaper and contribute significantly to the bottom line.

The above chart illustrates how many units are being currently sold versus historical auto sales.

A Short Week…and now I know where some clients get the bejebbers scared out of them.    Peter Brimelow commented Monday for Dow Jones MarketWatch that James Dines, of the Dines Letter, thinks that a cataclysmic war on the scope and scale of WW I may be just over the horizon. ( I am not making this up.) He doesn’t name protagonists or offer up sides just that there could be. Maybe, he muses a China-Pakistan versus India; or Afghanistan versus anybody. (What about a vote for our old friends Iran and Israel? Too easy?)  This may not be such a bad idea. In most cases any country that the United States gets into a war with usually finds itself better off financially afterward than it did before. We only have to look at Germany, Japan, Korea and Vietnam to see how industry and success have followed our military prowess. I suggest that perhaps Greece and Spain team up, hold a few reporters hostage in some posh hotel with room service and unlimited access to the mini-bar, and  declare war against the U.S. We denounce them at the United Nations, showing with charts and graphs that they are building a nuclear arsenal. They don’t deny and next we form a coalition and bomb a few out of the way  third or fourth rate Grecian and Spanish antiquaries. As soon as the dust clears Greece and Spain immediately sue for peace. We agree and lend them a trillion or so dollars at current bank rates and then they go back doing whatever it was they did before anyone heard of the euro or Angela Merkel.  The EU is saved. The United States gets to test a bunch of new weapons; and a few reporters go on the Atkins diet while jointly publishing a best seller.  See the movie The Mouse That Roared.

  And… as were coming to the end of the month expect nothing better than what we’ve seen so far. As I wrote earlier in the year- summer may offer little except sideways action for traders.  

Soothing words from president of the Federal Reserve Bank of Philadelphia. Charles Plosser said, ‘There’s no reason for people in the United States to get all in a dither.’, in a  Monday WSJ interview. He went on, ‘I think Europe is just throwing a lot of noise into the system right now. It makes reading the tea leaves particularly difficult right now.’ He also isn’t worried about risk. ‘A flood of liquidity into the U.S. as investors seek safer assets is more likely.’ And he concluded, ‘I think we have the tools at our disposal if it becomes necessary.’

Don’t Get Excited About The Short-Term.  Technically, say Dr. Alexander Elder and Kerry Lovvorn, the bears are fully in control. There is some short covering. Other analysts have stated the markets have been oversold. Last week has seen more weakness.  ‘When no new buying comes in the decline will continue.’

Bad Comparison! Facebook Price to Earnings is being compared to Google. At $35 a share FB had a 75-1 P/E. By comparison, cite the naysayers, Google is 13-1. The Price to Earnings ratio is waaaaaay out of line, they exclaim. What talking heads fail to mention is that Linked-In is at a P/E of 663-1, Sales Force is at 71-1 and Amazon is at 180-1. Got it?!

Bad IPOs? Remember General Motors? Zuckerberg is determined to create a monster social organization. In some ways he has a Steve Jobs desire for something more than money.

More On Facebook IPO Losses…Nasdaq’s inability or incompetence created a situation where brokers were advising clients, according to CNBC, to sell shares at a loss on Monday. The lines to get paid from the Nasdaq was huge. Unfortunately the vast majority won’t get paid since the fund is only about $10 million and claims are reported to be in the $100 million range. Jon Najarian of TradeMonster.com said, ‘Nasdaq has blood on its hands from the locked markets they disseminated for over two hours.’ Some hedge funds reported losses in the hundred of millions of dollars.

No Market Top! Mark Hulbert at MarketWatch wrote last week. Investor concerns that we’ve reached the zenith, the epoch, the tippy-top of the market is just not so. According to Hulbert he examined the following four indicators and came to the conclusion that only one showed a bearish tendency: Valuations- neutral. Technical – mostly negative. Monetary – No worse than neutral. Sentiment –Bullish. So pack up your worries and go on vacation…things will be better when you get back. Failing that consider…

MetLife Is Reported to ReVamp It’s Strategy in Light of Low Interest Environment. The company says it wants to boost its operating profit in emerging markets and sell to newly minted members of the middle-class in countries like Turkey, Romania and Egypt. I have a suggestion…first get your customer service down pat! Answer the phone in a reasonable period of time, have polite folks answering and cut down on the two days stuck in ‘we’ve changed our voice-mail- menu-customer -no-service hell.’

With Rare Exception- Most Investors Do Better Investing in Mutual Funds or ETFs & Not Individual Stocks. John Gerard Lewis wrote that many investors don’t realize something called specific stock risk. He cites some examples of stock risk that can devastate: (1) Industry Specific Risk (ex: JPMorgan and the autos) 2)Legal Risk (Healthcare suits) 3) Key Executive (ex. idiots who lead HP or Best Buy) 4) Management Risk (ex. Jamie Dimon and his team of investment fools) 5) Material Cost Risk (ex. steel, aluminum, copper and potash to name a few) 6) Government policy risk (healthcare, banks, investment houses, etc). The bottom line, with rare exception and possible one or two ‘pet’ stocks, investors are better to create and build portfolios using professional management.

Gold ETFs Leaking Money…

According to ETF Trends last Tuesday over $900 billion went Sayonara.    It was the single largest outflow day in GLD assets since August 2011. Gold closed at $1555 on Wednesday.

 

Getting There…Wednesday a Few Brave Analysts Put ‘Buys’ on Facebook. The stock stalled at $32.00 but some are now coming out and saying what ‘we’ know about Facebook earnings is only the tip! of the iceberg. For example a mobile Facebook app at $1.00 will add $1 billion to the bottom line in one fell swoop. There’s more and there’ll be more… Not all is as bad as some would have the rest of us believe.

Markets Off Triple- Strong- Digits Wednesday…but came back and closed off only 7 points. Worries over Greece continue. CNBC reportedly spoke of the real possibility of Greece leaving the Euro. CNBC also reported Friday that some Euro stocks will halve upon a Greek default.

Americans are Provincial. Most of us didn’t know where Korea was until a war broke out, and the same with Vietnam. Ditto for Afghanistan which, until a few years ago, for all most of us knew, could have been on the Adriatic. Now we are all becoming self-styled experts on the EU, and their politics. But, we still can’t find Norway  even with a GPS tracker. Some say that is part of our charm. We didn’t start investing in foreign countries until about 20 years ago thinking that the rest of the world lived in mud huts, washed in rivers and got their food from forests and streams. We told ourselves that buying foreign investments was too risky. It wasn’t then -it is now. Today the Europeans have some severe problems. The most striking is that the individual countries within the EU lack the one thing that the good old U.S.A. has and has been using to extreme advantage- printing presses for money. Unlike the USA each country in the EU has to bow to the strongest of the group, aka Germany, and get direction from them. The Germans control the presses and the lending mechanism. If this were 20 years back, pre-Euro, countries in Europe may still have problems but nothing that running the individual currency printing presses wouldn’t cure. Or, at least make the severe problems a lot less so.

Doesn’t anyone remember being here before?

Bit by Bit we are learning how messed up the Facebook IPO was- I was always under the impression that an investor couldn’t ‘short’ an IPO stock, only because logic asks where would the ‘shorter’ borrow stock from in order to short? Would someone buy stock in an IPO and then lend out shares to someone else to see their investment go down at the open? Well? I think not, I thought.  Wrong, it seems I was. While Goldman and JP Morgan were two banks that helped Morgan with the Facebook IPO, and had a vested interest in the company, they were also the culprits that leant shares to hedge funds in order that the hedge fund could short the Facebook IPO. The banks did it for a hefty price- according to the WSJ- equivalent to an annualized yield of anywhere between 10%-40%. This, compared to a typical stock borrowing fee of a quarter to a half a point. Lemme see if I got this…Goldman and Morgan got paid to help a company bring its stock to the public and best efforts to make it successful while at the same time assisted in seeing that the shares would fail while one of their partners was attempting to shore up the price of the shares in support at the open….I got that? Does reprehensible sound right?

While Some Throw Stones… Kirk Spano writes that he is buying Facebook at and under $40.00. He calls it a bargain under that price and predicts it’ll be where Google is down the road…and on the other side some analyze and say Facebook is worth just $13.00 a share.

Shocking! 48% of all Americans say they are not contributing to any retirement plan. Nay company nor IRA nor stuffing a few shekels in the mattress or the jelly jar buried under the front stoop. Nope- zip. The flip side is that the majority expect to be retired for 20 years and others more. The reason, ‘I don’t have to save because I plan on working longer.’   Lets see how that works out….

The Bobby Layne Retirement Plan…The ex-Lion QB said his retirement plan was to die when his money ran out….and he did. That’s Bobby on the right with Dandy Don Meredith. The original good ole boys…

Markets down Friday but Up Slightly For The Week.  Zacks.com gazes thoughtfully into the future and muses two possibilities: Europe implodes and the US goes into recession with another 20% downside on the S&P. (2) Europe contains their problems and the US economy keeps growing at +2-3% with the stock market making a 20% move to historic highs of 1565.

Finally- FDIC closed one bank in Alabama Friday bringing the total year-to-date to 24 bank closings.

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