That Was The Week That Was-1st Week January

 

Wha happened? Time Magazine published the following from information obtained from the Tax Policy Center. Next -for those who worry about just everything -is the March deadline for the Debt Ceiling.

 

Still Cautious about Markets? Our friends at Northern Trust have released their 2013 Investment Strategy Commentary and their look ahead perceives 2013 as having Less Risk but also Less Reward. In 2012, they report, risk was rewarded. There was a lot of risk that year but in 2013 they expect  growth in the United States and emerging markets to modestly exceed investor expectations. They are concerned, however, that Japanese and European growth will disappoint. Here is their chart on select asset class total returns:

Very Often Crowds Do Get It Right!? Offhand I forgot the name of the book ,and its author, that declared the group often makes the right decision. Wisdom of the Crowd by Surowiecki?   Morningstar seems to have the same trepidation on the insight of crowd intelligence but wrote an interesting article that said while they are wary of amateur investor’s choices most recently the most researched and viewed stock analyst reports included a list of stocks that had the best sustaining competitive advantage and were tremendously under-valued. We could find fault with each and every company on the list. However, buying shares in all would make an interesting portfolio. Perhaps we should publish this now and then compare it at the end of the year against the S&P 500 Index.    

 

Robert C. Doll, Chief Equity Strategist at Nuveen Asset Management, LLC. writes, ‘The U.S. and global economy is slowly and irregularly improving.’ He calls it a Muddle-Though Economy and a Grind –Higher Equity Market. He also noted that as ‘tail-risks’ diminish slightly better growth may be realized which could cause inflation concerns.

 

Remember This! The Bernanke said interest rates would not be increased by the Fed unless employment fell to 6.5% or inflation rose to 2.5%. The WSJ looked at employment numbers perched around 7.7% and mused the possibility of employment percentages falling but before that happening the ‘expectation’ of rising interest rates from investors would ‘move’ markets. In other words, as the economic conditions improves investors could well move rates before the Fed pulls the trigger. Investors, especially those remaining in Treasuries, have been warned.   

Dow wrapped up the year gaining 7.3% in 2012 with a gangbuster performance on Monday. On NY Eve the Senate passed a compromise saving 99% of us from any major changes in our tax life. Gold was up $20 and closed at $1676 an ounce. Oil finished over $90 and both the S&P and Nasdaq were positive for the day and year. Facebook got a new friend as Daniel Salmon of BMO Capital Markets had a change of heart and labeled the stock an ‘outperform’ from an ‘underperform’. He was a huge Bear on the stock but recent events of profitability has made his raise his estimated price from $15 to $32. Let’s not forget FB in September announced buying back $2 billion in stock at huge discount from IPO!  Janet Levinne at AdvisorOne reported on commodities that are down this year- especially coffee, sugar and cotton down 2%. The World Bank is bullish on basic metals but bearish on precious metals, writes Levinne, in their latest report. They see gold moving down to $1600 but copper and nickel making significant price increases. On energy oil should falter while a slight improvement in the price of natural gas.

Bonds still okay? Maury Harris at UBS offered up a chart illustrating how the mortgage bond market has shrunk more than the Treasury bonds have grown. Once a huge source of income the mortgage bond sector is a faint shadow. Harris says that this inequity will have investors continue to buy Treasuries.  Won’t make money but they’ll still buy Treasuries.

Spencer Jakab wrote in WSJ January 1st, ‘ 2013 may be another 1973 for stocks.’  He offered up several scenarios musing on one side that this year could simply end up like 2005 with a total return of 4.9% or 1997’s excellent 33.43%. But he wrote with budget woes and the last election behind them bad news, Spencer reflected, comes soon after. He thinks that 1973 with Middle East problems brewing and stocks hitting an all time high in 1972 the wheels came off with a loss of 14.7% in 1973 and 26.5% the next.  

Bounce! Wednesday Markets Celebrated the Compromise. And, there may be more room to run in January as the ‘whew’ factor releases investor anxiety. Still there is a cloud on the horizon as the gang in Washington has 'kicked the can’ down the road till March. See below the chart from Thursday’s WSJ.

Let the dust settle. The exuberance die down. The sheer joy of our politicians accomplishing absolutely, positively nothing. In any other industry performance as we’ve seen would be grounds for dismissal. While this should be a good year for the economy expect volatility as businesses and investors settle in. Westminster’s Joan Goodman likes the major banks going forward but especially likes Wells Fargo. Expect lots of litigation and interest rate head winds for banks. Still they did have their best year since 2006 and fewer closures since 2008.  

You Retired? No major changes in Social Security or Medicare for now but you can bet its coming. Higher deductibles, premiums, less benefits and pushing ages out even further before getting a dollar from the social security pool are all on the table. Republicans have both entitlement programs in their crosshairs. Experts seem to agree that pushing ages out a bit before getting full benefits and integrating income with other assets would save the system for a long time. Medicare needs a complete overhaul including vendor’s charges and the huge amount of fraud in the system. Remember the early 80s when the Defense Department was buying $435 claw hammers, $640 toilet seats and $7,600 coffee makers? Does anyone know what a hospital, or emergency room, charges for a band-aide or aspirin?

Thursday Markets Cooled Slightly. Gold and silver fell after Fed minutes suggested that their mortgage asset purchases may likely end this year. Remember the QE is responsible for weakening the dollar and giving precious metals a boost. Rajiv Jain portfolio manager at Virtus named portfolio manager of the year by Morningstar. Clients will recognize he manages the Emerging Markets Fund. Ford getting a push from bloggers as the stock has been hot off its $8.82 low this past Fall.  Brett Kenwell wrote that the company has good stuff going for it: Strong Technical's, 3 straight earning beats, Mulally will hang through 2014, Strong China growth, handling EU losses and the #1 selling vehicle.  Morningstar likes Fair Value at $20.00 a share. Sell at $31.00 and buy around $12.00. Shares closed near $14.00 Friday.

Seeking Alpha Reports 2 Hedge Fund Managers Are Buying Facebook. Tiger Global has 11 million shares, recently buying 9 million. There was an impressive earnings report from Facebook. The stock was $18.87 in November and since has done nothing but soar. Experts are expecting that FB should be able to grow revenue at a 30% per year clip for at least five years. Also net income margins at a healthy 30%. and the huge buyback previously mentioned in this blog.

Tablets Are Expected To Be Big Sellers in 2013! Tech enthusiasts have been predicted the demise of the PC as tablets have been the du jour tech instrument of the 21st century. I have a Kindle and an Apple and both I enjoy. But, if there is one that stands out it would be the iPad. Certainly a price difference but speed, flexibility and long life between recharging makes it a hands-down winner.

Strange -Friday markets languished and then fell and then closed up. Banks and tech earnings were slashed for the fourth quarter but Goldman offered up strong guidance on Citi, saying the bank was on its way to health. Markets up and closed at highest level since 2007. No straight line up for equities but a bumpy road ahead with an economy that refuses to quit. Calamos Growth & Income Fund reopened to old and new investors Friday. The fund, once run by John Calamos, is fifty percent equities and the balance in convertible bonds. A convertible bond is one that pays a decent fixed rate and at the same time offers potential from the company stock appreciation. An investor does not have to convert and would only if shares were attractive. Otherwise an investor would hold the bond and earn the coupon. CME shares surged 4.3% even as Morningstar downgraded the exchange operator. 

Hostess is in talks to sell its bread business… Wonder, Nature’s Pride, Home Pride, Merita and Butternut are estimated to fetch $350 million. Sugar mavens are heartened that the cake biz which includes Twinkies will be sold later this year.

Finally- What Do You Sell & What Do You Do When Inflation Starts to Percolate? Call me for my Inflation Breakfast Meeting, Saturday, February 16th at 9 AM.

Questions call Paul @ 586 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.