That Was The Week That Was- 4th Week May

Last Week This…

Plus This Equals = OUCH!

Wednesday was painful- sort of. Not only were  words from the Chairman that left traders confused as to when the Fed would start slowing down its liquidity drive but bad data from China caused Japanese markets to dive over 7% on Thursday. This was their biggest drop since March, 2011. The US markets gave up 80 points on the Dow and had their first losing week in a month.

The Ben Bernanke Made it Clear that Congress and the Administration were no friends of the economic recovery. ‘Fiscal policy at the federal levels has significantly become more restrictive.’ He went on and said to the Joint Economic Committee, ‘High rates of unemployment and under-employment are extraordinarily costly. Not only do they impose hardships on the affected individuals and their families, they also damage the productive potential of the economy.’ ….has anyone heard or seen of a jobs package or discussion come out of Washington anytime in the last eight years? Hello? 

More as the week wears… on by the by…

Economic Bad News Has Been Swept Under the Carpet as investors look six months ahead and find things look peachy. Or, as some analysts think that the rally was simply an expansion of the P/E ratio. Although there are murmurings of distrust from those that still remember those heady days of 2000 and then the dot com crash and the the euphoria prior to the real estate banking collapse of 2008. Goldman Sachs has upped their closing year-end number for the S&P 500 to 1700, a full 5% from closing number of last Tuesday. Yahoo has spent over $1 billion on a blog site called Tumblr. The folks at Tumblr have cleaned up their act where a good percentage of blogging was adult minded. Still this is a youngster’s hip site ( I mean those 25-35 and not your Disney kiddies). I suspect getting granny and gramps to visit as they do Facebook may be difficult. Tumblr has made a few bucks but nothing to justify the price tag paid by the visionaries at Yahoo, according to critics. Ya’ll have to ask if someone couldn’t have bought it at a cheaper price or created something comparable from scratch at a less expensive cost?  The ink isn’t in the pen for the Tumblr deal when Marissa Mayer is off to the races bidding on HULU the video streaming service. This is another company that has had trouble defining itself in the marketplace but has some cool toys.

Gold and Silver seem to have lost their luster. Now metal Bulls are looking and buying Palladium. Investors can buy it through an ETF ticker PALL.

TUESDAY MARKETS WAVERED UNTIL THE NEWS THAT JAMIE DIMOND GOT THE CONFIDENCE OF THE THE BOARD TO WEAR BOTH HATS AT JPM, THEN STEADIED AND MOVED HIGHER.

Speaking of which- should we be paying attention to the metal’s market? Peter Bankoff is trading on technical's and reports that Gold trend is bearish and he’s betting the price will fall under $1,000. It’s got another $400 or to go…

Markets Cannot Be Wrong. It Doesn’t Make Any Difference if You Can’t Make Sense Out of Them. Thomas H. Kee, Jr. Reports the Disconnect Between Reality and Investment.

• Materials have had –15.3% earnings ytd but the material ETF NAR.EXB is up 10%.
• Consumer Staples have had –4% EPS but consumer staples ETF NAR-XLP is up 20%,
• Telecom has had –14.7% EPS but telecom ETF NAR.IYZ is up13%.
• Energy has had a  -5.2% contraction but the energy ETF NAR.XLE is up 15%.

OK- here’s some news that should shout ‘slow-down’ more than anything else: Wal-Mart, Target and Sears all missed their earnings estimates.

It Could Have Been Worse Thursday as markets ended up falling only a bit but during the day were off a lot. Japan’s markets were off 1,000 points but bargain hunters cut the losses.

Confusing Us Ever More is The Following…The two charts show a recovery but also yields fall showing slow growth.

 

That was the crash, dummy, writes George Acs. George has been waiting for a correction for the last eight weeks. (It’s like the kid digging through a roomful of horse poop saying there has to be a pony in here somewhere.)  Then came the Key Reversal Day last week, that was the day when the market reached new highs and then suddenly reversed to go even lower than the previous day’s low. The theory is the greater the range of movement and trading volume the more reliable of an indicator of a reversal. It all came together with Japan getting hit for a 7% loss but we’re still in the game and it seems that was the correction we were waiting for.’ Stranger and stranger, Georgie.

 

Mitch Zacks suggests that we are approaching a Spring Slowdown. He also expects QE3 to continue into the middle of 2014 with no rate hikes until a year later- 2015. Inflation should be contained and end up in 2013 at 1.3%, 1.6% in 2014 and 1.8% in 2015 ( we know they’re guessing at Zacks about inflation but we’re letting them play the what-if.)

Alan Brochstein Blogs, ‘Why This Long-Time Bull is Moving To The Sidelines.’

He provides the above chart illustrating the S&P 500 last week. The green and red squares are the daily performance of the S&P the green line is the 10 day Simple Moving Average (SMA) and the red is the 50 day SMA. His argument is that the S&P opened lower both Thursday and Friday of last week and traded up during the day but was unable to close positive either day. The 10 year Treasury also hit above 2% for the first time in 2 months with a sharp downturn in the Japanese markets. He thinks, ‘ at best, a 50% retracement from November would put the S&P 500 around 1515. A 2011-style move would put us below year-end close of 1426-1350. ‘

  Pick your poison. A slowdown? A mere blip on the field of an equity bull run? Or, a full blown summer correction?

Maybe I should have reported Chuck Jaffe’s Commentary a bit early but he’s cool to close. The Jaffe writes that maybe The Chairman Bernanke is daring us mere mortals to buy stocks at this particular junction. Paraphrasing you have to wonder if The Chairman is that devious in signaling an end to QE3 and seeing how the markets react? Will Mom and Pop, sitting on cash under the mattress finally come out and join the party? Will the institutions cut and run? The markets are trading at all time highs and there doesn’t seem to be more money to be made at these levels, says Jaffe. How the markets react to The Fed’s trial balloon of the tapering to QE3 could be what it was all about last week. Yes, I watched the markets fall and then crawl back to a positive on Friday even as I and everyone in the room knew there was little money to be made and why were people throwing dollars in when they too knew that.

Questions call Paul @ 586 295 0430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

SECURITIES OFFERED THROUGH WESTMINSTER FINANCIAL SECURITIES, INC. MEMBER FINRA/SIPC

That Was The Week That Was-3rd Week May

Weakness? Bulls see no weakness. Dow 20000? Certainly many are predicting DJIA hitting 17000. Anyone old enough to remember Nixon can remember the Dow closing over 1000.

Monday Markets Steady as a Rock.  Major indices saw early weakness but steadied as better than expected retail sales, boosted by autos, was reported.  Without auto sales retail fell 1%.

Still Robert Doll of Nuveen Asset Management likes what he sees and writes that he doesn’t see the markets faltering into a depression. He does see a rotation from some sectors such as info technology moving higher than others. This could be a move to the ‘Sell in May’ crowd that usually moves assets to Utilities, Telecom, Health and Info Tech until October.

Lower gas prices, higher home prices and stronger market has given the consumer some confidence  and Bernard Baumohl believes the economy is ready to rock.

Timothy A. Bassett  CFP, at Talmer Asset Management & Investment Services, Inc. writes that its been 181 days (as of Friday) since the market has pulled back and we are overdue. Mostly weak macro numbers didn’t give pause to the Bulls. Industrial production was weak after soft manufacturing numbers. Usually this is consistent with spring numbers but not seeing this reflected in the markets.

Gold fell $29 to close $1359 on Friday.

Finally- MarketWatch.com reports that the stock rally is a sign of strength and froth. On Friday 141 stocks in the S&P reported new highs on that day alone.  Jonathan Krinsky, chief market technical analyst at Miller Tabak, reported the last time that so many stocks reported new highs on one day the market corrected by 4 1/2%. Usually the markets disappoint the greatest number of people. Waiting for a correction may not happen…

Questions call Paul at 586 295 0430 or write him at pstanley@westminsterfinancial.com

Securities offered through Westminster Financial Securities, Inc. Member FINRA/SIPC

That Was The Week That Was-2nd Week May

 I was having coffee with a client last week and was asked what I thought of financial scribbler and talking head Suzie Orman. Because small children may read this for grade school credit I’ll skip what I said exactly and following that my client said that the Suze told her listeners that people need to accumulate five to seven million dollars to retire comfortably. How in the world can regular people do that, my client asked.

The answer is that regular folks can’t. It is also one of the biggest lies that people in the financial planning business tell clients. It’s a two part lie. The first is that someone needs to accumulate a jillion dollars. Second you can only withdraw 4% to assure that you will have sufficient money for the rest of your life.

Examining the two part lie we also note that the same planners say that people should be able to earn 6%-7% with reasonable assuredness on their savings but only withdraw 4%. Now that doesn’t sound right. Right? Next the industry preaches that people can only take out 4% to ensure that their pool of money doesn’t dissipate. So why is it that some people can buy an annuity and get a total income of about 9% on their money? And why can’t the same people do the same thing without buying an annuity?

People are living longer but not forever. The lifespan of someone who is age 65 can expect to live to 83 if they are a male and 85 if female. If someone has extraordinary genes they may live a few years longer. Those not so blessed not so long. The fact is that by calculating total returns of 5%-6% earned per year plus how much really needed to live on for x amount of years a retiree can use both principal and earnings on their savings to enjoy a long happy retirement. There is no rule that states you can only take just a small percentage of your retirement pool to live on.

If you want to see how that works for you call or email me. I have some dandy calculators that’ll run  numbers for you. Call 586 295 0430. You will see for yourself you won’t need a jillion dollars…or even half a jillion..

Gold!?  It’s in Bear Territory. Ole Hansen, head of commodity trading at Saxo Bank in Copenhagen said, ‘The investment community or those trading paper gold in futures and ETPs are still heading for the exits.’ Gold which has been a currency trade has fallen 12+% in 2013. There may be more pain to come. For now the picture has changed. If you recall Goldman Sachs called it earlier in the year that gold would close around $1600. Now the estimate is $1550. This after gold closed over $1900 in September 2011.

 Results 2013…so far…so good…

Robert C. Doll, CFA, senior portfolio manager with Nuveen Asset Management, ‘The full set of economic data supports our view of a slower second quarter in a post sequesteration environment.’ In other words, don’t expect the same numbers in the second quarter…

The stock keeps on a rolling and the expenses keep a-coming. Bank of America just settled another litigation this time with MBIA for $1.6 billion, plus a $500,000 line of credit. Good news for MBIA as its stock soared. BofA said this would be a short-term hit. The bank also reported $4.3 billion in litigation expense in 2012.  a mere piffle…

Harrisburg, Pa. I’ve been there once. There are several things about the city I know. It had a flood. It has Mayflower relations living about. The airport (when I flew in) you were either landing into a mountain or off a mountain, I cannot remember which. And a some folk have a bizarre sense of gratitude. I gave a speech to a financial group and as a ‘thank-you’, the organizers gave me a a fifteen pound plaster bust of some long dead luminary, that I had to lug through several airports. Now we can add SEC fraud charges for failing to disclose financial troubles to investors. The 2009 city budget citied it has having Aaa credit when in fact Moody’s had downgraded it to Baa1. The good news is the the SEC has decided the city has had enough bad financial news that it will not fine it for its misdeeds. Currently Harrisburg is trying to avoid bankruptcy. Probably the cost of all those plaster busts they handed out to speech givers when cuff links or key chain would’ve been more appreciated.

On nothing but air markets moved to historical highs Tuesday! Excuse me, market movements are never wrong. It’s the individual investor that makes the right or wrong bet. Markets – never. So ends Econ 101.

Wednesday More of the same. Talking to a friend and we agreed that this serious market momentum hasn’t really been seen since 2000 when the Naz powered ahead on just a whiff of news on a new-dot-com product and ignored anything bad. Am I the only one remembering ‘ Irrational exuberance?’  Then it all fell apart (not saying this will), and the Naz hasn’t reached its all time high since 2000. The real news Wednesday was China. Just as I was researching China ETFs the news came out Chinese consumer inflation rose more than expected in April while factory prices fell for the 14th consecutive month! To solve this problem, which also includes slowing of economic growth from 7.9% to 7.7% last quarter the Chinese Central Bank may rely on boosting infrastructure investments and cutting taxes, said Xu, a former central bank researcher.  Chinese factories are saddled with excess capacity due to weak demand.  Food prices increased 4% last month, primarily vegetables.  Zhou Hao, China economist at ANZ in Shanghai said, ‘Monetary policy is likely to stay relatively accommodative as China’s economic recovery remains fragile.’ Still double or triple our growth and a billion people!?

Can we talk? Seriously? Much has been made of the unemployment numbers…Former US Secretary of the Treasury, Paul Craig Roberts said, ‘The 7.5% unemployment rate is not the result of new jobs generated by a recovering economy. It is the result of discouraged workers who, unable to find jobs, give up looking and, thus, cease being counted in the work force.’ The collapse in the participation rate is not a result of a return to prosperity. While the current rally, in this writer’s opinion, is nice. It reminds me of the year 2000 just before the Naz hit 5000 and hasn’t seen or been close to that number since. Central Bankers have made investments cheap by flooding the world economies with money. John Nyaradi at Dow Jones writes:

• April non-farm payrolls was mediocre. But Wall Street acted like it was a huge win.
• ISM nonmanufacturing report broadly missed expectations.
• April manufacturing posted a drop.
• Euro-zone manufacturing fell.
• EU unemployment came in at 12.1% in March.
• Buffett said that when the Fed raises rates it’ll be a ‘shot heard around the world.’ Too bad Bernanke won’t be there. He is expected to leave in January.
• Finally, 63.3% of all active adult Americans who are working fall into what the economists call the labor participation rate. That’s the lowest measure since 1979, and has actually risen as the headline employment rates continues to drop.

The Fed has said that it will start raising rates when unemployment numbers hit 6.5%. While you may think that is right around the corner, experts contend that it may be several years before that happens. In the meantime the US economy may go through another recession before rates are hiked!

Looking for the stock that’s a little off? Cramer dubs Open Table with shares up 68% year to date. Plenty of room to run, sez he. He calls it the one stock with no competition.

Finally- FDIC closes 2 banks last Friday bringing the total to an even dozen year to date.

Questions call Paul @ 586 295 0430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares.

SECURITIES OFFERED THROUGH WESTMINSTER FINANCIAL SECURITIES, INC. MEMBER FINRA/SIPC.

That Was The Week That Was-1st Week May

Lessons From Charlie, Warren’s Munger, on How to Become a Better Investor: Charles Munger is considered to be smarter than Warren Buffett, who is his partner. Munger is 89 years young and still very active in the business. Charlie preaches a discipline in what he calls ‘multiple mental models’, from a variety of disciplines, including engineering, mathematics, physics, chemistry and psychology. He wants to understand an investment both in its internal and external environment. He calls that the ‘Lollapalooza Effect.’ This is where anywhere from one-to-four forces are driving the investment in the same direction. The effect isn’t simple addition but more like nuclear explosion, Munger explains.

It is a multidisciplinary attack on a possible investment. Munger takes everything into consideration from the company’s retiree health benefits to changes in technology before making an independent price at which he’d pay for the stock. Most of us cannot understand let alone mimic Munger’s analysis of a stock. However we can buy those areas that Munger has shown an interest and allow others to manage the portfolio for us. Munger will not invest in any industry he does not understand; especially health care and technology. He wants easy to understand businesses with distinct and sustainable competitive advantages with a dominant franchise. He and Buffett buy what they believe are the best companies. They only own 41 stocks in their multi-billion portfolio. Buffett has said that  there is diminishing value as you add more.

Social Security & Medicare Are 2 of The Largest Assets a Retiree Has!

Politicians call them entitlements since they can pull a ‘Lucy’ on the American public anytime they want- and they’ve done it time and time again. Washington,DC has borrowed, misappropriated, reduced, re-defined our guaranteed benefits that have been bought and paid for through hard work and sacrifice. In order to fix the American economy , that was mismanaged and ruined by politicians, they’ve turned their sharpened pencils at the only bit of cash left in the pot. They say everyone has to pay their fair share- except them. They don’t need Medicare or Social Security; and so expect severe cuts to be made. and we’ll re-elect them and go madly on our way…

The chasing of yield has pumped the share price of companies beyond the point of comfortable. Money that typically runs to bonds, said Chris Wallis, chief investment officer of Vaughan Nelson Investment Management, now coming to equities. Barry Knapp, chief investment strategist at Barclays, points to Fed policy, reported last Monday’s WSJ, saying, as long as Fed policy stick to its current plan investors should stick with the stocks, and it could continue for years.  Earnings better catch-up, or if it doesn’t something will pullback.

Monday Markets Blew Away Expectations of A Contraction. Bears walked away muttering to themselves as the S&P 500 found its way to an all time high 1594 or 6 points shy of what many analysts say is the very top for 2013. Avi Gilburt of Elliott Wave said he isn’t buying into the S&P rally. Only on day trades, says he.  Kodak had another moment as the bankrupt giant gave assets to UK retirees in lieu of cash. This is the company that invented just about everything that has to do with photography, including the digital camera. It also was involved in the shhhh business for the US government. And yet it was slow to adopt new technologies forcing it into bankruptcy. The giving of assets is an attempt to emerge from bankruptcy as a much smaller and less vital company. Retirees are expected to hold assets and sell them some time in the future for whatever value they can get.  Say cheese….

Tuesday markets edged up to close the month positive. Mitch Zacks points out that there is so much lousy economic news out there that the only thing keeping the markets moving up is the promise of Fed stimulus. It makes cash irrelevant, bonds are at the end of their tether and dividends on stocks the only game in town.  Gold may be set for another move up. Reports MarketWatch.

Bob Doll, Chief Equity Strategist, Nuveen Asset Management, Inc. Revisits his 2013 Predictions:

• The US economy will muddle through with nominal growth below 5% for the 7th year in a row.
• At the end of the year Europe begins to exit its recession (Begins…!)
• US multi-nationals outperform domestically focused companies.
• Large cap stocks outperform small caps.
• The US government passes a $2-$3 trillion budget deal.

Red Wings Lose 1- Tigers Win 2 From Twins

Wednesday Markets Swooned as The Dow Gave Up 139 Points…

Hiring and Manufacturing both showed weakness as the Federal Reserve reported no new news and that they would continue their buying $85 billion a month asset plan. To be honest, that’s all you really needed to know to know that the markets are treading gently. Some may blame the sequester for some of the weakness but for sure we’ve heard nothing about jobs, stimulus from Washington pols and its as if they live in another world far-far removed from us mere mortals. We’ve been trading on Bernanke air and now time to regroup.

FACEBOOK may become a regular tech company, someone wrote, and last week the company showed they can produce some very nice results. Only the Street wants more and a sustainability. The company generated (get this!) $374 million of mobile ad revenue from Zero a year earlier. I am impressed! The company trades at about 18x’s earnings. Google trades around 12 and Netflix at 550 (no misprint!). Give it another year and some of the bad thoughts of the screwed up IPO will be a much dimmer memory.

A Glimmer of A Better Jobs Report Boosted Markets Thursday! While waiting for the official Friday jobs numbers the Dow soared back to where it was on Tuesday and all indices did the same. Expecting a better jobs number of  at least 140,000 will fuel the markets. But to make a real dent in the jobless the numbers need to be +200,000 a month! Bill Gross reports that we’ll all lose money because the world is awash with money. Our Fed is pumping out $85 billion per month with the Bank of Japan churning another $75 billion and the ECB hinting at negative rates. The questions every investor has to ask themselves is if the markets are sustainable at the current rate of growth? A friend mentioned to check the chart of IBM, usually a barometer of market action and so here’s the chart with the 30 day Simple Moving Average crossing over the 15 day SMA. That’s telling because its signaling a market slowdown. That’s the theory.  Note that sharp dip at the end of the chart that looks like a cliff that was last Wednesday. You can go to Yahoo finance and draw the same or other charts. (When the 15 Day crosses over the 30 Day –as you can see around March in the above chart, that’s a buy signal.)

Ignoring All My Smartness The Markets Roared Ahead on Friday! Experts were calling for 140,000 jobs and got 165,000 non-farm jobs in April and upgrades for March and February. Still we need 200,000 and the 140,000 was a low bar that folks thought was high enough but still low enough to get the market to keep percolating. Unemployment numbers fell to 7 1/2%, the lowest in 4 years. One thing I learned is that the market is never wrong. And even as factory orders were down by 4%! And durable goods and non-transportation orders fell the markets continued their ascent. As Jimmy Cramer said on CNBC there is a lot of money coming in and has to go somewhere. So we’ll take it while still remaining defensive, and not changing anything a whole lot.

Finally-Zacks writes the recent rise of stocks boils down to the Fed getting bond yields down to where stocks and real estate are attractive, and the simple slow improvement in the economy.

Questions call Paul @ 586 295 0430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

Securities offered through Westminster Financial Securities, Inc. Member FINRA/SIPC.