That Was The Week That Was-1st Week December

 Lindsay Gellman in the Sunday WSJ Journal wrote about the things you need to do by New Year’s:

• Boost Your 401(k) Contributions for 2014
• Fund Your 529 Accounts
• Take Your required minimum IRA distribution
• Book Capital Losses
• Make Charitable Contributions
• Make Gifts to Individuals
• Group Deductible Expenses

 

Jeff Reeves wrote, ‘Two seasonal trends are bearing down on the market.’ December and January bring the Santa Claus Effect. These seasonal trends have more to do with actuality than they do mythology. Reeves reports that the S&P is up, since 1980, 81% of the time in December. And out of the last 63 years its been up 77% of the time. And while Reeves is not quite as sure about January having a solid upside he isn’t about to go negative on the new year. He finishes in his 12/3/2013 commentary that everything historically considered there are some pretty compelling reasons to trust a rally across December and January. 

 

A FEW TRILLION REASONS TO STAY BULLISH, by Zacks Profit From The Pros- Kevin Cook 11/29/13 So what’s driving the market? Cooks writes its the same things he wrote about last January:

• Macro Risk off- Investment Risk On.
• Economic growth is good enough and building momentum.
• The Fed remains on the side of pro growth and re-flation.
• Corporations are producing record profits and balance sheets are strong.
• Cash is still trash and fund managers must chase and compete for stock.

A correction could come at any time, but it will only make valuations even more attractive again, and probably pull more money from the sidelines and bonds.

 The Number of U.S. Banks has Dwindled to Its Lowest Level Since The Great Depression. From a peak of 18,000 to 6,891 there has been consolidation, mergers and failures. The losses are entirely within those banks with $100 million or less in assets. Small lenders are having a harder time with new rules, weak economy and low interest rates: WSJ/12/3/2013.

 

Gold Prices Had Their Worst November in 35 Years- If You Even Care. The glitter is off the metal as investors have looked elsewhere. Gold fell 12% in June and another 5.5% in November.

Bill Gunderson, writing for Dow Jones 12/02/2013: ‘Dow one million?’  Simple math, Gunderson writes, will get the Dow to 1 million in another 87 years. He states that when his mother was born the Dow was 160 and today 16000. Now his granddaughter is a baby and when she reaches 87, and if the Dow marches forward at a simple 5.5% per year,  it’ll be a million. The fact that the Dow reached 1000 when Nixon was President was in fact something that a lot of people were surprised by. Back then it was a real big deal.

Irwin Kellner, MarketWatch, reported 11/26, Retail Investors are Getting Nervous. Mom and Pop investors fear du jour is the next crisis. The small investor truly believes a massive tsunami-like correction is coming and so they’ll sit out any upside to avoid any possibility of financial pain. No matter the argument for investing, Kellner writes, the average investor has an answer. It is also interesting because in a Bull market many people are asking for tips but this time money is being taken off the table. Investors also fear that when the next crisis comes the big banks won’t be interested or able to help the government bail out the smaller weaklings, certainly not after the way several big banks have been treated by the powers that be. Now that’s very interesting and banks have long memories. You can bet they won’t be so quick to fly the flag and step up to do the ‘right thing.’ The ghost of Jamie Dimon will have the last laugh.

A Correction is inevitable. No matter when you invest at some point a 5%-15% correction will occur. If you are looking for that ‘sweet spot’ where you won’t get a correction within your investing lifetime you will be disappointed. The important thing to realize it is a ‘correction’ and not a catastrophic market crash. The market crash of 1987 saw a sell-off of about 25% and still investors who invested earlier in the year saw themselves even or slightly positive.

Monday & Tuesday Markets Fell on Tapering Fears. Worries over the era of cheap money drove traders to sell and at one time Tuesday the Dow was off over 100 points but closed losing less than that. A report from JP Morgan that hit my email on Wednesday morning supported the beginning of tapering by the Federal Reserve. Reading what other fund managers are comfortable with many support the start of an interest rate hike and a slowing of bond and mortgage purchases by the Fed.

John Williams, President of the San Francisco Reserve Bank, said that he fears investors have not been listening to the Fed. In an interview published December 2nd Williams said that interest rates will stay low as long as the unemployment rate is above 6.5%.

Bill Gross write in Morningstar’s Perspectives, 12/3/2013; Paraphrasing his statement about his associate Mohamed, the creator of the, ‘New Normal’, worries over the T junction investment future where markets approach a time uncertain inflection point and no one know which way they’ll burst. Gross blames it on negative aspects of fiscal and monetary policies in a highly leveraged world. Poor fiscal leadership and cheap money, same problems faced before the French Revolution.

A Bubble is Defined Differently Depending on The Asset in Question. Generally it is a bubble when prices are higher than the actual intrinsic value of whatever someone  is either buying or selling. Add leverage, or borrowed money, and when prices start to fall its accelerated by traders and investors trying to get from under their leveraged assets. The more they sell the faster prices fall until at some point there a bottom. A bubble typical is a collapse of markets as we saw in 2008 and 1987. A correction is a temporary respite and is more V shaped and very temporary. It’s difficult to know if one is in the beginning of a bubble collapse or correction until we’re well into it.

APPLE AND CHINA MOBILE SIGN DEAL TO OFFER iPHONE. A person who was familiar with the subject told Lorraine Link at Dow Jones and she reported it on December 4th. This gives Apple access to a market 7 times larger than Verizon network. Later in the day China Mobile said no deal, yet. So much for trusting the news.

Going into Friday Markets on 5 Day Losing Streak.

Wunderkind Eddie Lambert of Hedge Fund and K-Mart, Sears Fame and a person that Jimmie Cramer Gushed as the Smartest Guy in the House; the WSJ reported 12/5 his hedge fund is returning billions to investors as they redeem shares. Five years ago he was the star of the hedge fund world where he commanded a five year lock-up and $25 million minimum investment. Unlike Warren Buffett, who holds an open candid investor meeting once a year, Lambert has always maintained that clients pay him to invest their money and not explain his rationale. His flagship Sears has seen better days as Lambert has given shares in the company as part of the redemption process.

Two Things Happened Last Friday- The Jobs Report Showed Unemployment Fell to 7% as 203,000 Jobs Added the Labor Department Announced.

Michael Gapen, chief US economist at Barclay’s Capital, ‘It’s a pretty clear picture, one of broad based strength.’  The Dow popped 198 points, gold fell $3. David Petratis, chief executive of Allegion, PLC, ‘The U.S. will help lead the world in terms of the recovery.’  Still low paying industries have dominated the U.S. job growth for much of the recovery. The Friday jobs report signals the housing market continues to improve and that manufacturing gets busier. The Second Item Friday was that it was clear that the jobs report cleared the way for the Fed to begin tapering and exiting its bond buying. The next Fed policy meeting is scheduled for December 17-18. The WSJ reported it best on 12/07 that the gains on Friday showed that the Fed has had some success reassuring investors that they will maintain an easy money policy for years to come.

Finally:

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