That Was The Week That Was –1st Week March

 Last Friday I was talking to a friend who sounded  more than a bit peeved and said to me that his financial advisor should have said something to him before the markets crashed in 2008.  While I believe that more people ‘in-the-business’ knew bad things were brewing before the market collapse, I reminded him that a great many of the so-called experts were caught by surprise by the viciousness of the crash. Less than a year earlier in 2007 I had a vice-president of one of the world’s largest mutual fund families speak at my annual client meeting and he assured all of us that there would be no recession, and any stock dip would be mild. In hindsight its easy to lose track of the fact that everyone was stunned and looking for answers in 2008 when the markets did come tumbling down. Too much was happening too fast.  For those of you who do remember there was different market analysis every day ranging from it’s a minor dip to the Jimmy Cramer call on the Today Show to sell everything and run for the life boats. The best answer then and now was to hold what you have and allow the markets to run the cycle. See last week’s blog with Mark Hulbert.

The real financial losers have been investors who bailed and went to cash. While not all investments came back to where they were before 2008, a goodly percentage have. Even today in these up and down markets I have constant telephone arguments with a friend of mine who reads charts and tells me when the markets are going to correct and fall. Sell, he urges me and gets angry when I don’t. I try to explain that the reason I don’t sell is because I don’t know exactly where to buy back in. The other thing is that his sell signals are not exactly fine tuned. While he knows by the technical’s (we all do) that the markets will eventually fall he doesn’t have the exact date.

No one enjoys taking a beating. This up and down in the stock market since 2009 is getting rather long in the tooth. There are no  algorithms that perfectly time the market. There are no experts that know when the markets will fall. Those that do and make those extraordinary calls are revered forever and get to write books and make expensive speeches for decades. Most of them get it by accident and build their reputation on that accident. Here are a few suggestions and ideas on how to plan your portfolio for the next mini-disaster.

1. If you’re taking income out of your investments reduce the amount being taken until the markets begin their recovery.
2. Make sure you’re portfolio is dividend based. The longer the recovery the more shares of funds you’ll buy at cheap prices.
3. Reallocate now to a lower risk profile. If you’re taking an 80% risk to the market dial it down a bit more.
4. If you are really that scared of a downside then think of adding strategic income funds that mix bonds, currency management and real estate. You’ll reduce volatility, be non-correlated to the market and probably sleep better at night.
5. Most people in 2008 were not concerned so much about their principal investment but the gains on their principal. Just about everyone I know has their principal intact. It’s their earnings on that principal they are concerned about.
6. Stick with your investments. 
7. Finally- in a severe market meltdown there are few sectors that escape punishment. The fact that hedge funds and institutions often buy either options or on huge amounts of stock on margin increases the volatility as the race to the bottom gathers intensity.  

For The Week Markets Ended A Tetch Higher. It wasn’t impressive but it was a gain. Gold is down year-to-date 5.8%. According to Timothy Bassett, CFP, at Talmer Bank & Trust, overall market volume has fallen since mid-February and bearish put/calls have increased. Monday, March 3rd news that Chinese markets suffered their worst day since August, 2011 reached us in the early hours. Property and construction companies were hit hard as the State Cabinet announced higher down payments and mortgage rates on second homes in ‘cities that have seen steep rises in property prices’. 60 Minutes had a program on the glut of real estate not sold in China last Sunday.

Morningstar’s Robert Johnson, CFA., reported on the ‘sequester’ that since it represents only 0.5% of the GDP that the real economy is doing fine. He goes on to explain that the consumer is still spending, albeit not as active as a few months previous, but still spending. Personal income is hard to decipher but overall income’s look okay. Inflation, payroll taxes and energy costs are headwinds but not sustainable. Auto sales look good, real estate data is up, pending home sales bounce but watch for a pause, manufacturing is singing, ‘Happy Days are Here Again,’ and the Durable Goods Order Report continues an upward swing, highest in a year, and forward looking seems, Johnson concludes, there are at least a few more good months in front of us.

Cody Willard Compared the Two Cheapest Big-Cap Tech Companies. He writes, there are only two stocks on the list that trade for less than 10xs earnings, One is a company that has gone through numerous CEOs, written down billions in horrible acquisitions, hasn’t generated GAAP earnings in who knows how long and sells completely undifferentiated commoditized products.

The other is growing faster than any mega-cap company in the entire world, has a built in locked-in customer base of more than a 100 million customers, a revolutionary new, easiest to use ecosystem that is adding to its already critical mass and has lots of new revenue categories such as television-content delivery, wearable computing and talking interactivity, and is expected to report profits in one quarter this year more than any company has ever done in history. One is Hewlett Packard and the other is Apple. Want to guess which is which?

Time Magazine Had An Entire Issue on The Broken Health Care Industry… One aspirin tab cost to a in-hospital patient on average $1.50. What a business!

On-Line Gambling is Here! It won’t be long before state and federal politicians figure out that on-line gambling could generate $6 - $8 billion per year in revenues. A good piece of that would find itself in local and federal coffers. According to Morgan Stanley 175 million people worldwide play on-line poker. It is estimated that mobile on-line poker in Europe will generate $100 billion in play by 2017! Last year Nevada approved on-line poker throughout the state. There is less resistance in Congress to approve legal on-line poker than there has been in the past. Caesars, Boyd and Shuffle Master are poised to enter the business. Zynga, the on-line social gaming site associated with Facebook, is uniquely positioned to take advantage of this new opportunity. Las Vegas Sands CEO Sheldon Adelson is vehemently against on-line poker, even though in Vegas his firm would benefit. Wynn Resorts are on the other side and look favorably to on-line poker. New Jersey’s Guv signed on for his state to enter the on-line poker arena last Tuesday. Shuffle-up! Investors looking for my Fav in this field have only to call me.

Speaking of Sheldon Adelson… suing a reporter and the WSJ for libel. Seems the billionaire takes umbrage with being publically called in a business report a foul mouthed pimp, according to news reports. Hmmm, does one need to prove one is neither one or the other?

The Italian Vote Had Our Markets in Disarray on  Monday. The Italian elections, which were supposed to go to the left to continue the country’s economic austerity reforms was thrown a monkey wrench when voters  said, ‘Basta!’. With no clear winner financial markets were rattled and Morgan Stanley lead the decline back at home and  fell 6.6%. This acerbated worries over European contagion (similar to the American domino theory back in the 50s and 60s?). Markets were up in early trading as things seemed to be going along with the Italian reform election plan. By the afternoon stocks turned ugly and really threw in the towel late in the afternoon. The Dow fell over 200. Gold was up. In another bright spot the yield on the 10-year Treasury fell to 1.86% or over 6% in a huge day for Treasuries as the flight to safety took everyone by surprise.

Hello, Gold…

Goldman Sachs cuts its 2013 gold price forecast. The 6-month forecast for gold has been slashed to $1600 an ounce from $1805 earlier this year.

The troubles for Gold’s decreasing price have been caused by an improving global economy and the stock market, which allowed investors to indulge in riskier assets. This allowed them to sell gold as a safe harbor instrument. Right now Gold Bulls are in a minority. Hedge Funds, in particular, are waiting for a lower gold price before jumping back in. These same funds are holding back to move when gold becomes a hedge against inflation. Stay tuned…

Low and No Interest Rates Have Contributed to Huge Pension Gaps @ U.S. Corporations…

The top ten list of American companies underwater also include GM, Ford, Verizon and Lockheed Martin.

The Markets Wanted To Hear Nice-Nice From the Fed and They Got That From The Chairman. The Ben Bernanke semi-annual talk to the gas- bags in Congress boosted Asian markets and gave a leg up to our domestic’s to the tune of 116 points on the Dow. So far the Fed has a total of $2.8 trillion of Treasury and mortgages and plans on continuing to purchase $85 billion a month of long term Treasuries and mortgage debt. The Chairman assured Congress that he takes serious the bubble-risk talk but feels that the benefits of continuing to buy far outweigh the risks. Senator Bobby (Let GM Go Bust) Corker, of Southern Domestic Auto Manufacturing Fame, verbally attacked the Chairman with his particular brand of Talk Radio mentality and said the Fed was throwing seniors under the bus by pushing down interest rates and reducing returns on savings and thusly encouraging them to live beyond their means. The Ben Bernanke pointed out that his record of keeping inflation low and stable is better than any Fed Chairman since WW2. Ouch, sorry Alan!

Super Day Wednesday! Markets rocked. Dow was up 175 points and the Naz jumped 32. Gold fell as did oil. Still this may be close to the end of the run, for a time anyway. Thomas H. Kee, Jr. He says there is substantial resistance at the DJIA 14,082. Hits at Apple and Gold, for different reasons, spells markets going lower. Gold, Kee writes, is starting to look attractive, however. Finally, small caps usually rally at the end of bull markets and Kee points to the recent run led by the Russell 2000. He suggests that we’re due for a normal reversal only one that may be worse than normal.

No Secret The U.S,A. has Gas and plenty of it! Russell Gold wrote that the gas boom is here and will continue. Scott Tinker, director of the Bureau of Economic Geology at the University of Texas sez we are looking at multi-multi- decades of growth. (They talk like that in Texas?) The great news is that it’ll be pretty much profitable at a market price of $4 per million BTUs. That’s a small increase from the current $3.43. I am relieved to hear that since we only have a few hundred years left of coal.

Flat Thursday. The Boo Birds Are Out. This time they have a good reason- politicians are artificially creating hardship for no other reason except to prove their political points and  blame each other. ‘For good of country,’ means little. Gold fell Thursday. So did silver. Like everything else there will be a bounce. Watch the ETFs- GLD & SLV. Sequester won’t kill the markets or the economy just make the hill a bit steeper. Again, no direction from either party. Leadership? 

The Warren Buffett is still hunting. According to news sources the Oracle of Omaha announced two years past that he was on then hunt for major acquisitions and since then he’s bagged Heinz and Burlington Northern Santa Fe Corporation. In his letter to investors The Buffett complained the $24 billion the firm earned last year was unacceptable. Groupon CEO canned. stock price fell from IPO $20.00 to under $5.00 last week. Labor intensive deals and no performance has caused grief. Remember Google wanted to buy the company for about $16 billion and Andrew Mason, now ex-CEO, said, ‘Nyet’. JC Penny CEO Ron Johnson spends two workdays a week working from home. Good for sales, middle management, etc not for leader that seen stock price plummet and customers flee. New concept store within a store may be short lived, as possibly Johnson’s tenure. Worst retail quarter in history for JCP.

Bestest Way to Manage Kid’s Kollege Kosts? If you live in Michigan its the Michigan Education Trust. There are various payment plans and years you can buy. My daughter has used this to guarantee a college education for her son. To my knowledge there is no other way to guarantee the cost of your child’s or grandchild’s education. (if you don’t believe me ask anyone who was planning on sending their kid to college in 2008 and invested in mutual funds or stocks?)

  No Banks Shuttered Last Week by FDIC and the list of Problem Banks Shrank.

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

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