That Was The Week That Was – 1st Week August

•  Rep Gabrielle Gifford's returned to the House to vote for the debt increase. ‘ I had to be here for this vote. I could not take the chance that my absence could crash the economy.’ 

 

• Nervous traders witnessed a massive selloff that started overseas and ended Thursday in a massive drop in the last hour of domestic trading. Computer trading programs triggered a race for the bottom as investors and traders watched the carnage.
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• It was the worst day in three years and blame was spread to Tea Party activists, overseas and domestic governments along with corporations sitting on trillions of cash and refusing to do anything with it.  It started with investors worried about the European debt crisis that now included Spain and Italy. On this side of the waters the straw that seemed to break the backs of domestic markets was the news by Bank of New York Mellon who announced they would start charging big customers 13 basis points to hold cash. John Brady, Senior VP for MF Global, said, ‘I think that has shaken the markets. Charging customers to hold cash is pretty punitive. It starts to smell like Japan.’ Computer sell programs kicked in and once started could not be reversed.  The National Post in Canada seemed to have a handle on the worst day since 2008 and put the blame: U.S. Politicians, Tea Party Activists and spending cuts during a fragile economic recovery; weak employment; Chaos in the Euro zone with government officials not saying a word about Ireland or Portugal; a commodity selloff with oil falling to a five month low and both the Swiss and Japan trying to weaken their currencies and counteract the world’s expectation of a safe haven.
• No surprise that major investors and traders were expecting a United States default Monday as politicians wrangled for a political edge and completely forgot about what the job they were voted to do. The Debt deal didn’t mollify investors but sparked fears that spending cuts could curtail growth. The crash was a complete surprise and almost a perfect storm set up by the governments on both sides of the Atlantic. Nothing was safe as margin accounts were unwound and sell at any price- the rule of the day.

 

 As if it couldn’t get worse Standard & Poor’s lowered its debt rating of the United States (for the first time in History!) to AA+ from AAA! The rumors of a downgrade had been swirling all day Friday as the markets had a 400 some point swing day from up-down- and finally ending slightly up in a mixed market day. While it was business as usual in Washington with lawmakers off on another vacation and the President campaigning S&P drew a line in the sand and was firm on its decision to downgrade U.S. debt. The reason the ratings agency gave…the political system of the United States has become less stable and that the budget cutting announced earlier this week didn’t go far enough. We deserve better.

• Before you throw in the towel a few syllables about what’s good. Corporate profits remain robust. Around 80% of the S&P 500 companies have reported earnings and aggregate earnings and revenue are both up about 13% from one year ago, according to Yardeni Research. Corporate cash is at recover levels and a growing number of companies are buying back shares and raising dividends. Here are a few companies  Dave Kansas at WSJ mentioned as having attractive valuations:
• The S&P 500 trading at 13.6 P/E versus traditional 16.
• Apple sitting on $76 billion in cash. 14 x’s forward earnings.
• Intel at 9 times
• General Electric at 12
• IBM at 13
• Ford at just 6 times forward earnings.

• Warren Buffett, ‘Be fearful when others are greedy, and be greedy when others are fearful.’

 

• Gold fell as traders unwound margin accounts. In case you were wondering. In a panic nothing holds.

 

• All the efforts of Quantitative Easing 2 were wiped out in a few hours which will give the Ben Bernanke pause to consider QE3. On CNBC Market Wrap discussion included the very real possibility of the Fed stepping in to stabilize markets with a QE3. Especially if the Fed thinks the country is slipping into a recession!

• In order that we not forget: Jimmy Cramer’s Rant against the Federal Reserve and The Ben Bernanke just celebrated a 4 year anniversary, ‘ They know nothing!’ on August 3rd. The rant heard around the world happened one year after the markets collapsed and the Fed dithered and sat on its hind legs doing nothing. At the time one Fed official, Bill Poole of St. Louis, wanted to RAISE interest rates. The discount rate at the time was 6.25%.  Unemployment was accelerating along with mortgage foreclosures and the stock market was posting losses each week. Finally someone awoken The Ben Bernanke and rates started to come down but very slowly. Without Cramer it may have happened much later. (I’m not a huge fan of the Jimster but give him credit when its due). Will this happen again?
•  Lies the government, brokers, bankers and mutual fund salespeople tell you: it’s not true that most Americans are ill prepared for retirement. Research at the Rand Institute shows that 7 out of 10 Americans aged 66-69 are adequately prepared for retirement. The report does state concerns notably among singles with no college education, and especially among single women, are especially vulnerable.
• George Soros, billionaire, hedge fund manager and all around left wing crackpot, is leaving the investing- for -others business. The 80-year old Soros says his hedge fund will return investor money and act more like a family business. Some have suggested that the types of investment that brought Soros money and fame may be getting a little long in the tooth and this is a good time for him to hang up his spurs as long as his legacy is intact.
• Consumer Reports’ rule for investors: Don’t invest in anything that eats or needs repainting.
• From the Department of  Another Way To Game The System: Rules were enacted, eight years ago, to curb analysts from meddling with trading. This was to support a so-called Chinese Wall and not fluff the company value to investors in order to get at the company investment banking biz. Now there is a new game afoot. Seems that after the 40 day Quiet Period, after a new stock is issued, investment houses are apt to release positive reports on stocks they  brought to market. Traders buy just before the expiration of the 40 day period in anticipation of the bullish report.  Game on!

• Jimmy (The Mouth) Cramer comes in second at a Louie Look-a-like Contest: Jimmy top right and Louis C.K. star and producer/director of Louie seen on cable channel FX in the other uncanny pix.

Here’s the rest of the week play by play as it unfolded…

• Monday last the markets soared at the open and just as quick dropped like a stone as manufacturing numbers came under question plus whether or not Congress would actually agree to increase the debt. At the close all indices closed off their lows. I  watched CBS news Monday as 4 Congressmen were interviewed by Scott Pelley and three of the four were candidates for anything other than doing the work of government. Dysfunctional and ignorant are probably safe descriptions. Even Joe Biden said that the last two weeks showed how dysfunctional Congress is.
• Jim O’Neill, head of Goldman Sachs asset management arm, told Bloomberg that portfolio weightings into emerging markets for most investors should be raised. When asked which of the BRIC countries he likes the best the Jimster said, ‘I would actually pick Russia right now.’ Market Vectors Russia (RSX) is up 4.5% in 2011.
• Technician Michael Kahn at Barrons.com illustrated weakness in the industrials. Interestingly he also stated that the weakness extended to the airfreight biz- (remember FedEx gave sterling going forward projections for the balance of 2011). Caterpillar and 3M also closed lower and fell below their own rising trendline.
• Surprise! Toyota raises outlook after a 99% profit slump. The Japanese automaker said it expects a second half rebound. The automaker, with all its problems, is still in the hunt as #1 world auto maker. Morningstar likes shares in TM to $105 and they closed Monday a tad under $82.00. All domestic manufacturers had superb July as Chrysler was up 20% and Ford and GM were up 8% and 9% and both suffered stock losses on Monday and Tuesday.
• Your friendly neighborhood banks are working on language to include in savings and check documents that include arbitration as the only way a customer can resolve a dispute. Forget about taking your case to court or joining a class-action lawsuit some banks  have already included arbitration language into their agreements.  Regions bank just strengthened language in their 43 page agreement when a customer opens an account to read: ‘will not have the right to pursue a claim in court or a jury decide the claim and you will not have the right to bring or participate in any class action or similar proceeding in court or in arbitration.’ Banks with  mandatory arbitration are: Well Fargo, JP Morgan, TCF, BB&T, Huntington and Regions.
• Stocks cratered in the last hour of trading Tuesday. The debt limit was passed and sent to the President. Notably absent were any photos of the government officials who made the ‘deal’ possible. It was a sad pix of the Prez sitting all alone at a desk and signing the bill into law. See him below on August 2nd and then signing the health care bill into law with all BFFs. The Prez  usually has a big crowd even when he orders lunch.  Note all the pens lined up in front of him –Stocking stuffers?   Tuesday stocks had been meandering all day, slightly off their feed, when consumer spending was revealed as anemic and threat of a ratings cut by either Moody’s or S&P  finally triggered computer sells. Late news printed by the WSJ that afternoon was as poignant as a Mickey Spillane story: There’s no doomsday on the horizon, as much fun as it would be to prepare for one. There’s not even necessarily a crash. But there’s likely to be a long period of challenging conditions for investors. The 18% average real returns (after inflation) of the 1980s and 1990s are as over as M.C. Hammer pants. The 7% real returns of the last two centuries look optimistic, too.’
• A sympathetic Bounce is what we were looking for in the markets after 7 days of down, but it wasn’t what we got on Tuesday. Government lead us to the brink and many still don’t have a clue to what they did. Jimmy (The Mouth) Cramer on his Mad Money said he was Not recommending investors to sell- even though-he said- he had done it before and had no qualms to do it again.
• The Swiss aren’t too thrilled with a stronger Franc and announced they would do whatever needed to be done to halt the rise of their currency. A stronger currency buys less goods and services. News crushed the Swiss Franc while both the Euro and Dollar jumped.
• Japan nixed a stronger Yen on Thursday. The global battle for cheap currency is on. Gold will benefit from this price war.
• Stocks finally edged into positive territory but not without a lot of anxiety Wednesday. GM reported a 7.6% gain over  last year and investors still have turned away from the autos in 2011. Efram Levy, analyst at S&P, has a strong buy and a $42.00 target on the stock, still shares are down 26% this year. Ford is down 31%. Some fault the talks with the UAW but the UAW is lovey-dovey and wants nothing to disrupt the manufacturing process or jobs
• Psssst- Regions Bank Vice President John Turner, Jr. bought $50,000 shares of the bank at $5.94. Morningstar has shares of RF fair valued at $8.00.

• Hello? Dendreon the company once being whispered as the possible thousand dollar a share because of its cancer drug. Sales were disappointing and shares in DNDN were slashed Wednesday by 62%! Zipcar, a most recent IPO in its first quarter as a public company announced narrower than expected loss and shares were up.
• Retired or Expecting to Retire? Republican House Majority Leader Cantor said Wednesday that Americans better get used to Entitlement Promises being broken. He went on to say that when the committees meet they will look to preserve benefits for those 55 and older. ‘This is the better way for American’s to get their house in order.’ Still no word about reducing Congress’ automatic pay raises, reducing their pensions or benefits as a way of sharing the pain – since the U.S. government has a lot to account for the financial crisis and they way its been handled.  
• Finally- while we can expect volatility on the S&P downgrade both Moody’s and Fitch have affirmed the United States debt as AAA, although Moody’s cautioned it may downgrade U.S. debt in the future. The U.S. joins China and Japan in the AA club. Other double As include: Belgium, Spain, Israel, Taiwan, Saudi Arabia and Abu Dhabi.

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

That Was The Week That Was-4th Week July

•  Former GOP Senator Alan Simpson provided some interesting asides to the lunacy in Washington (okay, what would you call it?). About Medicare: You’ve got to make hospitals keep one set of books, not three! On running for office now: Hell, no! Instead of, ‘What are you going to do for your country? you sit figuring out how to screw the other side.
• Let’s get this out of the way before we review the week and what happened when and by whom. The chart above says it all and shows that the markets slowly fell as Congress dithered and tried to expand their political agendas. Even as late as Saturday Congress was still arguing for advantage rather than compromise. On Monday morning news that both sides reached a compromise on raising the debt limit and a two stage debt reduction plan. Markets got a lift on the news as European and Asian markets were up in morning action. Pre-market for the U.S. was positive. Let’s go to the day by day of last week and other news…

• Frustrated and Disgusted with the entire show in Washington this past week. Congress and the President could have solved this in a NY minute if they wanted.
• Steve Wynn, Las Vegas CEO of Wynn Resorts, a Democrat, said, ‘Obama administration is the greatest wet blanket to business, and progress and job creation in my lifetime. It’s Obama,’ Wynn concludes reflecting the frustration of many Americans, ‘that’s responsible for this fear in America…everybody’s afraid of the government, and there’s no soft peddling it.’
• WSJ spanks Obama on front page after his address to the nation- citing the country needs leadership instead of the blame game.
• CNBC reports Chinese and other foreign holders of our debt are seriously concerned about the antics in Washington, DC. ‘The high stakes political posturing is a shock to these countries,’ says Jina Ventures’ Ron Shah, who said he’s heard the same from United Arab Emirates. The damage may already be done to the dollar and Treasuries. China may accelerate diversification away from the U.S. dollar. On CNBC Wednesday the CEO of Dow reported that foreign leaders were laughing at the United States.
• Dr. Irwin Kellner, in MarketWatch.com suggests that as weak as the economy is that the Fed should embark on QE3. He goes on, ‘…another round of  bond buying, along with some cajoling by their regulators, might get the banks off the dime. And more lending should eventually lead to more jobs and a stronger economy.’  Tell me how that cajoling part works out, will ya. I personally prefer not so veiled threats and arm twisting….but, that’s just me.
• A new Book-The Psychopath Test: A Journey Through the Madness Industry- answers the question why are so many CEO’s jerks? Because they’re psychopaths….or so says author Jon Ronson…works in politics, too, I assume…
• Smart Money is pouring into Mongolia: According to Bloomberg’s Businessweek, a land of 2.8 million people and 14 million goats is loaded with minerals. There could be a trillion dollars of various gold, silver, copper, molybdenum and other resources buried in the dirt.
• Gold- has more room to run…based on what happened last Monday and as U.S. dollar weakened.
• Small Cap stocks may still have their day in 2011, so sayeth strategist for JP Morgan, Bhupinder Singh, who sent a note to his clients informing them of such. He gives the following reasons for his euphoria: attractive valuations, strong fundamentals, improving investor sentiment and increased M&A activity in the small cap space.
• Billy and Melinda Gates, bless their provincial pea picking pure hearts have blown $5 billion on trying to improve public education through grants and scholarships. They’ve discovered what others before them have found is that education will sop up money faster than a biscuit does gravy and return little except heartburn. Their failure is the same as that of the Ford Foundation and the Walter Annenberg’s foundation. Money alone won’t win the battle when faced against dysfunctional urban school districts run by powerful labor unions and a top-down government monopolies. You can’t make ‘em learn and you can’t improve the teaching with a checkbook. 
• India’s market keeps rolling After Central Bankers reiterated a hawkish stance toward inflation and lowered growth expectations to 7.9% in 2011. Good for investors in emerging markets as the sector continues to move forward.
• Another  Congressman bites the dust- David Wu quits among allegations of….er…he was naughty. Again, elected officials with too much time on their hands…. right-o, Mister Weiner?
• 9 Quarters in a row of profits and Ford sliced more off their debt, banking over $700 million for a total of $22 billion. Shares popped in pre-market. Morningstar likes share to $24.00. Shares fell at the close under $13.00!! This week investors looking for signs of a pick-up in sales for July, a month known for its weak auto sales.
• A pox on both their houses and it wouldn’t surprise a lot of people if the Swiss Franc emerged as the ‘Go-to-currency’ when global concerns  demand a safe haven. With politics more dear than global economies or concerns of their citizens, it seems that the Swiss Franc will emerge as a more sensible alternative to either the euro or the dollar. Both the dollar and euro are seen as damaged goods as politicians on both sides have illustrated their total incompetence.
• Netflix didn’t make the numbers Monday and punished the stock was. Shares fell 9.1% at the open on Tuesday. The company announced a new tiered rental system- one for streaming video and another for mail-order customers. Wall Street says phooey and shares continued to fall. Customer used to convenience and inexpensive cost may revolt and visit competitors HBO or Hulu. Morningstar has fair value of $150 per share and NTFX closed Thursday $266.
• Jimmy (The Mouth) Cramer appeared on NBC’s Today show last Tuesday and told investors everywhere to stay the course, don’t sell and the Street wasn’t worried. In the meantime concerns were building on the U.S. possible default as alternative measures were being discussed by traders, investors and money managers. Someone tell Jimmy he just doesn’t get it.
• The Mouth raved on his Monday night show, literally went on and on and on about E-Bay and how everyone is missing it and what the global brand offers. E-bay owns PayPal among others…just in case you didn’t know.
• Political ideology has overcome common sense.
• Apple closed over $400 on Tuesday, IBM was off a tad and markets fell across the board as the dollar weakened and gold up.
• R.W. Baird recommended UPS, stating to buy shares on weakness. The company likes the shares to $84 and closed on Tuesday  over $71.00.
• Former Wachovia broker stole $8.4 million from retirees’ accounts and recently he went to jail. He opened a trading account at OptionsXpress in his wife’s name and promptly lost it with aggressive trading. And, in a separate case two other Wachovia brokers stole from 42 clients and estimated $8 million. remember read your statement, ask questions, and don’t just toss them in a drawer.
• Ya’ll remember financial blogger and really smart guy James (Need a Haircut) Altucher? Lyle Lovett’s the other guy- they get confused a lot. James writes that he believes Google will go to $1500. He continues that he was laughed off the set at CNBC when he predicted Facebook would be valued at $100 billion. We all did the same when we heard Julia Roberts married Lyle (who?) Lovett.  Apple, James continues, will be the first trillion dollar market cap company. Both these guys need a real good  conditioner. See more about Apple…
• Markets showed their muscle Wednesday and went on a selling spree-stocks lost a billion or two of market value- hoping Congress could get a glimpse into the abyss if they didn’t get their act together. Every index was down except the dollar (strangely) as it and the Swiss franc and yen all strengthened. CNBC reported on their market wrap show that there was a lot of Institutional selling.
• Okay- we’ve been here before. This is Not 2008, 2001 or 1987 ( thanks for reminding me Chuck Jaffe who reported thusly). Remember both political parties have expressed worst case scenarios designed to scare the crapola out of adults. This has not been about informing the American public about what their government has been doing for them. This has been about the government using the American public as pawns in their scare campaign. All this simply to manifest their own political agenda and get bragging rights going into election season. Instead of us being scared of what our government won’t do those in government should be afraid of what the American Voters will do. Boo – right back at you! We really do deserve much better.
• Thanks, Jeff! You did it! It’s the world biggest book store and sells just about everything and what it doesn’t it gets for you. (A UPS truck is always dropping stuff off I buy on Amazon, you too?) Revenue growth was up 51% – the strongest growth rate in 10-years. Mahaney at Citigroup gives it a Buy and price tag of $280 a share. Amazon is one of those amazing internet stores that is constantly growing and what you order you get and get quick. Shares trade at a premium. Morningstar has the stock at current fair value or $225 a share.
• Big Bets being made on Japan. Unfortunately one of the bestest managed funds with a big bet on Japan has closed its doors to new investors. Nuveen Tradewinds Global All-Cap. Still Morningstar likes MFS International Value as another solid pick that has increased its exposure to Japan.
• Thursday markets fell modestly with the dollar holding onto gains as politicians rejected the Republican plan of kicking the debt down the road six months as a non-starter. This has been a man-made tempest as fundamentals have been strong, jobless claims fell and financials strengthened.  Doomster Peter Schiff, chief global strategist for Euro Pacific Capital is convinced U.S. falling off a cliff and predicts the dollar tanking and Treasuries defaulting. Wash your mouth, Peter.
• Hedge Fund Tremont will repay $1 billion to Madoff Estate Trustee. Tremont is the second largest so-called feeder (procurer) fund that provided Madoff with his victims in return for a fee. So far almost half the $17.5 billion has been recovered.
• If dollar tanks what should we be owning? The usual: commodities, oil, short Treasuries and metals along with Foreign or a global bond fund according to Peter Schiff.

• Home Builder D.R. Horton was up 5.4% on Thursday on better than expected quarterly profits and a boost from an unexpected rise in June home sales. Ticonderoga Securities noted that pending home sales last month had been expected to show a drop off. Instead the data would up showing a 19.8% improvement! Any other time this would be surprising and front page news. Today it’s a lost footnote.

•  Tropical Storm Don should avoid production platforms south of New Orleans but some activity being seen as evacuation exercises are being practiced off-shore. May see a pop in oil if the storm comes near coast refineries.  Somehow Don is not a storm scary name.
• Jon Najarian, on CNBC Friday, said,  he is not a buyer right now- but only because he wants a bigger pullback (about 500 points this past week on the Dow is all we lost). ‘I’m a buyer of Big Fear,’ The Najarian said, ‘Buy the big dips not the little piddly stuff we’re seeing. I want more fear then I’d buy.’
• IBM – aka- Big Blue- stock up the last 2 days of last week. During moments of crisis an old chartist once told me to watch the stock – where it goes eventually so does the markets.
• Sprint deeper than expected quarterly losses. Shares punished in a very medieval way. Michael Rollins, a stalwart analyst sticking to his guns reiterated a Buy rating stating the stock was oversold and has a $6 share price on it. Jimmy (the Mouth) and Morningstar both had $8.00 earlier this year.
• Genworth- the GE spinoff-insurance/financial services company almost going under and losing $2.8 billion in IPO money. Under new management company has clawed back ( I still wouldn’t buy insurance from them- lots of bonuses and stuff). Now company says it is setting itself up for a possible split. Shares trade under $9.00. What am I missing?
• Analyst Shaw Wu reiterates Buy on Cisco. He says maybe one or two points of downside and maintains a $25 price target. Shares closed $15.97. Morningstar loves the stock to $30 and says buy at or under $21. Got 5 stars, it does.
• Goldman Sachs forecast oil rising more in 2011 and sharply higher in 2012-I do love the energy sector – The company’s 12-month price target for West Texas crude is $126 a barrel. Goldman rate oil producer Hess neutral but has a price target of $105. Shares trade at $69 and have a 9xs trailing earnings. Morningstar has 4 stars and writes to buy shares right at this price and has a $97  target share price.
• The one stock that’s on everyone’s list and lips is Apple. This one stock is whispered as the go-to if the country falls into recession or putts along in recovery. If the stock gains another 12% it will surpass ExxonMobil as the world’s largest by market cap company. Brian J. White, analyst with Ticonderoga Securities, thinks the stock is undervalued! The reasons: Apple still only has a single digit share in mobile phones and personal computers. He also said, ‘It may be early for Apple as we can’t model out some of the possibilities an Apple TV set, huge growth in China, businesses buying Apple computers. It sounds crazy.’ Apple closed a smidge under $400 end of the month Friday. Some analysts like the company to $600 and Mornngstar rates it a buy to $475.00.
• Finally- FDIC closed 3 small banks in Indiana on Friday bringing the year to date total to 60. All things eventually come to an end….

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