If you told me five years ago if I would be recommending commodities, metals, emerging market bonds and REITS as part of an allocated portfolio to my clients I would have called you nuts. That was then and this is now and I am not the only investment professional that sees value where only a few years earlier I would have been more concerned about risk than return. Fertilizers makes things grow unless there is no water. Water is now a huge commodity and one with deep value. Some people see it as such and others think anything that comes from turning on a tap cannot be worth much. Water, my friends, is an alternative investment. Timber is another, as is all commodities including oil, gasoline, cattle, soy beans and corn. Those that bought the commodity index find themselves on the plus side so far this year even though oil and gasoline are down, other commodities are up. Not all alternative investments are suitable for my clients. I draw the line on currencies, hedge funds, managed futures, long-short funds and bear market funds. There are probably more and I’m having a senior moment, but you get the idea. Maybe I’ll get over them as well sometime in the future. Alternative investments and alternative investing is now mainstream whether you or I completely embrace it or not. Fund managers have found ways to create portfolios that have less risk by combining traditional and so-called exotics to provide better yields than plain vanilla products. So the next time you’re pumping gas for the car, digging into a plate of French fries or carving up a steak think of the investment opportunities you and millions of others are touching and that are available for you today. Call or write me for my personal best picks and ideas.
CNBC reported Thursday that the spike in crop prices may signal a chronic food crisis. Like most everything on the planet food can be invested in. There are stocks of companies in food related businesses such as fertilizer, chemicals and in the commodities themselves.
Dow Closed The Week @ 3 Month High. Volatility off Significantly. Investors may see carryover as Spain signals it may need a bail out. All eyes on EU this coming week.
What The Charts Say About an Investment. Click on my podcast for information on how to chart individual stocks. This will give you an idea- only- of when to either buy, sell or hold a particular stock.
Groupon shares sink! I could never understand the hype about this company. The deal is they make deals with companies to give a daily discount and then advertise that discount to subscribers and non-subscribers to entice them to buy or visit that particular vendor that day. The company doesn’t have the finesse of a Google or Facebook knowing what I like or don’t so I get ads on everything from pedicures to West-side gourmet sausage. The stock has fallen 67% so far this year. I probably get same if not better deals with Penny Saver…
Speaking of Facebook…UBS sues NASDAQ, OMX Group. The Swiss bank said it lost over $357 million on the botched Facebook IPO. UBS stock is down about 3% from the first of the year, according to Dow Jones. UBS announced they lost the money for their accounts and more importantly their client accounts. This was so messed up an offering that when this representative put in orders for himself and clients we could not confirm our buy nor could we sell what we did not know we owned until the close of business. It is unclear if UBS was using Facebook as a day-trade or for a long-term hold. But…and here is the very strange thing about the Facebook IPO. Just before its open analysts poo-pooed the stock price and the amount of shares being issued saying it was way over-priced. Still many of the ‘smartest’, ‘brightest’ and ‘richest’ investors were lined up to buy shares at the open. So if this was such a bad deal where did all these investors come from? And, why didn’t the bank convince those investors not to do the deal? Me thinks, my friends, that there was, and is, much disinformation on this stock before and after it becoming a public company. Stinks is a word that comes to mind. You, too?
Word from Fidelity is That They Are Done With Facebook- dumping 2 million shares in June. Do you want to bet that they’ll be a buyer if the stock shows life?
Is Your Home an Investment or a Place to Live at a Reasonable Price? Ages ago, before 2008, I knew a guy and his wife who bought the largest and most expensive home in their subdivision. They struggled for ages to make the mortgage payments as that home represented their retirement fund. When I met them there was no way that I could convince them to: (1) diversify (2) buy a more reasonable home (3) take the mortgage savings and invest it elsewhere. Today that home is worth less and they are a lot older, and unfortunately, poorer. For most of us we buy a home for a laundry list of reasons, last being that the home is an investment. In the early years we buy a home because of its school system, the community safety and the close proximity to shopping and other services. Later we may buy a home because of health care, neighbors and activities geared to our lifestyle. We also like the peace and quiet of the neighborhood, proximity to the arts or sports or simply a great place to raise a family. Lastly is the buying of a home where its an investment. According to Mitch Tuchman at MarketWatch.com writes that your home is a roof over your head, which, purchased properly, can be a great way to spread the cost of shelter over many years. Today, however, there may indeed be an opportunity to have a home double as an investment. Good news as housing data and consumer confidence was boosted before the Fed decision on any further economic action on Tuesday.
In the 1960s I knew a guy who drove to California in a car that caught fire about every hundred miles of so. It’s amazing that the same company that made that car has turned itself and its domestic US partner, Chrysler, around. It wasn’t Lee Iacocca or behemoth Mercedes who did it. It was the Italian auto manufacturer Fiat that US consumers derogated back in the day as Fix It Again Tony which did the job in making quality autos at the turn of this 21st century. The company posted over $400 million in profit in the second quarter of this year. Chrysler’s sales are so strong up 13% this July that they are propping up Fiat that is struggling with the EU recession. GM down by over 40% due to EU troubles.Waiting for the Chrysler IPO….
Apple- in the News- Again. According to Sanford C. Bernstein & Company Apple is considering a stock split. But this is only a rumor! The company could be added to the DJIA. According to Bernstein & Co Apple is the only company with $215 Plus market cap that pays a dividend and is not included in the Dow. Apple shares were up on the news.
Social Media Dead? The botched IPO of Facebook has many investors re-thinking their opinion of Initial Public Offerings and social media stocks in particular. There is one company that many business professionals and analysts like and its LinkedIn. When the stock went public in 2011 it too was scorned as a Facebook wannabe. Today the stock has outperformed all other social media stocks. At the end of July Groupon traded at $6.65 a share, Zynga at $2.95, Facebook at $21.71 and LinkedIn at $102.65. The stock is considered a biz recruiters tool and is popular with business professionals and home office human resources.
TopStockAnalysts Offer a ‘little known tactic’ for stock picking. It’s called ‘spinoff investing’. The way it works is to invest in the spin off from a major company. The theory is that the spinoff opens up value in the spun company shares. TopStock David Goodboy writes that News Corp is expected to split into two companies and Kraft Foods has revealed they expect to break off their international food division into a new company called Mondelez. Investors can keep an eye on the SEC Edgar Online data base for news of potential spinoffs. Not all spinoffs are winners. More homework is needed but it provides a serious source of possible investments.
‘Nothing! We’re Going to do Nothing!’ At least for awhile…The Federal Reserve did nothing Wednesday except to kick any action down the road. Taking a cue from European and Washington politicians The Ben Bernanke and Crew held back from announcing any new stimulus for the economy. Immediately upon the announcement stocks fell, the dollar rose, gold fell more and the euro lost ground. The only news, if you want to call it that, was that the Fed said they would keep interest rates low through 2014.yes, the Federal Reserve did include new language that said they were more prepared to act than not. Many said The Ben Bernanke bowed to the action of the EU, allowing them the lead. ADP Employment Numbers announced 30% above expectation at 160,000+. Most Reporting Companies exceeded expectations but did it with fewer people.
July Market Index Report
Ah…Someone Smells Opportunity. In Michigan Macomb County is the blue collar equivalent of Oakland County, which is a wealthy, sorta snooty neighborhood. Bill MacMachen, owner and founder of MacRay Harbor Resort, walked into the Macomb county Treasurer’s office last week, according to the Detroit News, and bought 657 Macomb county foreclosed properties of all shapes and sizes. Whether these were all the foreclosed properties or just those up for auction is not known. What is known is that they were a mix of vacant lots, homes and industrial businesses. The marina owner paid less than $5 million for the whole kit and ka-boodle. Individual investors were angry and very vocal at what they felt was bad manners and business sense by the county.
Bill Gross, smart rich guy who runs PIMCO bond fund, said the, ‘Cult of equity is dead.’ Meaning that stocks will not, going forward, provide investors with the kind of return that they were used to in the past. He even put the Kibosh on bonds, saying with the yields where they are investors have little hope for long-term returns. Analysts and talking heads bumbled around trying to get an answer, or spin, to Gross but couldn’t. Gross didn’t come up with any solution except writing that people would have to work longer and not expect to be able to see ‘normal’ retirement.
Someone Is Going to Put The End To Flash Trades… as about 150 stocks were involved in another mess Wednesday. This time Knight Capital, a vocal critic of the last Flash Crash, was the culprit saying their software glitch kept repeating buys and sells over and over. This went on for 30 minutes.Brokers said Knight could or should have been able to stop the computerized buys and sells but for some reason either didn’t or couldn’t… Knight stock fell on the event. Knight is looking for a suitor to bail them out of almost a 1/2 billion dollar hole! The company may be but a memory by next weekend if it doesn’t find a financial backer. Rumor has that they have but time will tell if they can rebuild investor confidence.
Investors were once again disappointed as Thursday rolled around and ECB , which once said they would do ‘whatever’ it needs to do to save the euro…demurred. Markets were expecting ECB President Mario Draghi to provide them with shock and awe and instead, according to Todd Schoenberger, managing principal of BackBay Group in New York, ‘Draghi set us up like a poker room of suckers.’ Draghi did signal ‘plans’ to lower borrowing costs by initiating bond purchases but that could be weeks away. The markets were waiting for something on Thursday of major significance and to say they were disappointed, especially in light of The Ben Bernanke bowing out of any meaningful Fed statement on Wednesday, were constrained at best. Critics lambasted the ECB president while Stephen Jen, managing partner at SLZ Marco Partners, said the markets demanded too much. Markets fell significantly on the no news.
The Auto Industry is on-tap to produce 14 million autos. Even with EU troubles the industry is cranking out and selling vehicles. The problem is that the stock price of GM and Ford finds new 2012 bottoms. Painful isn’t a word as patient investors hold shares in Ford and General Motors. Ford shares fell to under $9 and GM is a tad over $19 a share. Morningstar likes the stock of Ford to $23 and writes that investors should consider buying at or under $13.80. On GM Morningstar says fair value is $48, and consider buying at or below $28.80. There is value here, just the markets don’t see it or don’t want to see it – just yet. Stocks on Foreign Manufacturers are doing well, even as the yen appreciates. Toyota’s profit was the highest in four years. Toyota expects to expand sales in US to 14% up from 12% last year.Honda & Nissan also reported strong profitable quarters.
Apple versus Samsung. The two are suing each other over patent infringements. The court informed Samsung that certain documents could not be used in court. Samsung then sent the documents to the press! Apple, cried foul, argued that the court should sanction Samsung for breaking ethical rules. Ouch! The court told Apple to simmer down and ignored their request for sanctions. Court resumed and attendees were given earful of ‘secrets’ of Apple.
Stocks jump Friday on news of better than expected non-farm payroll increase. The Dow climbed 217 points and S&P and Naz were also up. Gold closed over $1600 and Oil was up huge to finish at $91.39. Friday’s action put the week into the black.
Retirement Issues: Another book written to assist a writer/financial planner/analyst in securing his retirement future was reviewed in one of my industry magazines. The fact is that solving retirement issues is as easy as (1) Make sure you’ve saved more than you’ll actually need for the day you stop working (2) Use less of what you’ve saved for income and lifestyle. (3) Ignore all the day to day noise and concentrate on earning 1% more than combination of inflation and taxes. It’s as easy as that! The problems start when you’ve not saved enough, you try to stretch too much from too little and maximize every investment that even the best and brightest can’t achieve and blame either your advisor or yourself. I have never met a person who has sufficient savings and a moderate lifestyle who is unhappy with where they’re at.
Finally…Friday Congress Goes On Vacation For Five Weeks.Lots to be done is still not done -the problems needing attention when our elected doorstops come back; what to do about potential Cyber attacks against water and power grid, the post office is officially bankrupt and loses $25 million a day for every day something isn’t done, the fiscal tax cliff looms and little has been done on extending the Bush tax cuts; plus still nothing on jobs even as the percent of folks not working has inched up.
Get someone on your side to help in the financial decisions. Call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
I had a different open for this week’s blog but instead decided to report on why Markets moved the last few days of the week with the Dow over 13,000 for the first time since…(yipes!) May 7th! It started as your typical lackluster week, as my next piece reports (see below Boxers), but on Thursday the ECB announced that they would do whatever they had to do to save the Euro and all bets were suddenly changed from shorting the market to covering shorts. On Saturday news that Germany and France jumped on the bus to proclaim their devotion to saving the euro was announced. But it all started with Thursday’s news that turned investor’s heads and wallets. The reality is there wasn’t so much a rally on Thursday as there was a covering of short positions in anticipation of a stock rally. In other words-Thursday was the set-up day for Friday. I got the impression, and it was confirmed, that no matter what the news on the US economy Friday morning the markets would rock. In fact the GDP numbers on Friday confirmed that US growth is slowly sinking and we’re closer (if not actually in) a recession. Barrons reported that the economic report card for the US economy was magna cum lousy. The first quarter growth was at 2% and fell to 1.5% in the second quarter- if not a recession number an anemic number at best. This GDP took jobs from 225,000 (est) to 75,000 creation rate per month.Consumers also disappeared in the last quarter. It’s not that you, me and the candle stick maker do not want to buy a new car, refrig or a three pack of tidy whities; it’s that we’re keeping that plastic locked up in a drawer and only buying essentials- even as the price of gas falls. No secret that’s its the lack of direction and confidence from Washington and Europe that hurt retailers as we’ve buttoned up our pocketbooks. Also the dunderheads in Washington have allowed the tax crisis to fester, causing a lack of guidance. Without action by lawmakers the $600 billion in higher taxes and reductions in defense and other government programs will most assuredly throw us into a deeper recession. The only true bright spot has been the surprising and almost forgotten home builders that have shown a miniscule increase. But getting back to the markets on Friday they moved back to where we were earlier in the year in anticipation of more monetary easing by the Fed. Now we look forward to the Federal Reserve if they keep their word on more easing through buying the long-end of bonds. We also await what the EU will do to provide some assurance and breathing room for Spain and Greece. The EU problem, unfortunately, will be with us for some time. In the meantime the markets move counter to what’s happening in the real economy. These market moves have nothing to do with fundamentals or value. They are simply siding with the central banks. Nothing really has changed, my friends.100 days to election.
Earlier before Markets marched higher…
Like Boxers Evenly Matched…the markets mood shifts on rumor and innuendo. It’s not pretty but according to Tomi Kilgore of Dow Jones the Bull Trend is still up! I refuse to bore you with all the reasons but Tomi gives the upward trajectory trend line on the S&P 500 from June 4th through last Wednesday and the 200 Day Simple Moving Average (SMA) as primary drivers. These trend lines are keeping the Bulls, my friends, in the game. It all has to do with Dow Theory which simply defines, ‘The Trend is your Friend.’ On road trips I listen to financial news on Bloomberg Wall Street radio (and not the frightening amateurs) and the analytical mood is noticeable as professionals discuss what lies ahead instead of the gibberish Armageddon being foisted on the American investor.
Click to Listen to My Podcast on the value of seniors buying higher yielding longer maturity bonds with death puts.
Apple! I and a few clients bought the stock before the numbers were announced Tuesday after the bell. The Wall Street Cheat Sheet whispered that Apple could put up some home run numbers. They did but the numbers were not enough to beat analysts expectation and the stock fell in after hour trading. Analysts still love the stock and truly believe that it will retain its dominance in the smart phone, iPad and iPod and coming soon to an Apple store will be the Apple television. Apple has not made the mistake other firms such as Motorola made in the past and has integrated its products from iPhone to iPad to iPod. Going forward we should see the new iPhone 5 and a mini-tablet. This is a company that has a P/E of around 11, about $100 billion in cash and equity and no debt. Even as the stock fell on missing earnings there are analysts upgrading the stock higher. Stuart O’Gormon of Henderson Global has set a target of $1,200 and Brian While of Topeka Capital says $1,111. CNBC analysts Tuesday called Apple a must have stock and predicted $1500 by 2015. Shares in Apple closed a tad under $600 Tuesday. Morningstar confirms that Apple stock shares could and would bounce a bit as consumers hold back buying old product and await the more current versions of smart-phone and tablet.
Facebook makes numbers! But the stock is punished with vengeance! Zynga, the on-line game company associated with FB, missed numbers horribly and the stock price was trashed by traders. Because Zynga pays 30% of fees to Facebook investors assumed that the future is cloudy for Facebook as well. This may or may not be appropriate. Morningstar’s analyst Rick Summer warned in June that FB has a bright future but revenue growth and profits could stumble. Also as CNBC analysts reported the messed up IPO stink still lingers on the stock and investors jump ship much quicker than if the stock offering went well. Expect those original investors to cut and run in August when their lock-up ends.
The big problem is there is reticence among investment professionals to cuddle up nice and fuzzy with FB founder Mark Zuckerberg who wears business casuals from Unabomber Men’s Wear, and has all the warmth of Robert Blake after an Italian dinner. The Zuck views Wall Street as a ‘necessary evil’. Wall Street returns the favor by ensuring FB shares keep to a narrow trading range. MarketWatch commented that Zuckerberg would be wise to lose the attitude and get with the program more like a Jami Dimon, arrogant but accessible. While the Zuck may be too full of himself and too young to realize his complete role there should be FB handlers to clean up his act and trot out the face of Facebook for investor conferences. Zuck should also learn to discipline himself and heed what The Street demands. ( I would expect a mea-culpa when both Zuck and Facebook get their act together).
THIS IS ZUCK.
AND THIS IS NOT!
Positive’s For Facebook! Rich Bieglmeier reported for iStockAnalyst.com what The Street ignored was that revenues increased 32.3% for the three months ended June 30, 2012 versus same period last year. Meantime, the Beiglmeier writes, R&D has increased 612% from $99 million to $705 million. Sales & Marketing increased from $96 million to $392 million – a 308 % jump. In total Facebook spent $1.1 billion preparing itself for tomorrow. Had the spending in those two areas remain flat Facebook would have added 42 cents to their earnings! The stock would have soared. FB is more a data collecting force than an advertising source, according to analyst Bieglmeier. And the General Motors Ad Honcho that said GM would pull all ads from Facebook only days before their IPO was fired by the company this past Sunday.
Hot Research in Barrons.com by JMP Securities boosted Facebook with a strong buy in June, 2012 saying, ‘…investors should not underestimate the company’s highly creative management team, its large user base, the virtuous circle created by its size to attract more users, and the attractiveness of such a large user base to advertisers and companies looking to sell on-line services. Currently Facebook’s ad revenue represents about 11% of the roughly $39 billion….and could reach 22% by 2015.’
Some Stocks Beaten Up… even as the markets jump over 200 points on Thursday. Never again, traders pledge to trust Netflix that a stumble could be quickly recovered. Netflix still struggles with their split between DVD and streaming biz. Amazon is in the streaming biz as is others. Netflix shares fall 25% on bad earning news Wednesday as the company still bleeds subscribers. Las Vegas Sands shares fell on lower house wins. The casino operator opened its fourth gambling house in Macau. Even though revenue increased 10% net income decreased by 40% on lower profit, pre-opening expenses for casino #4 in Macau and the cost of two land parcels on the island. Track this stock LVS.
IPO possible for MGM Holdings? Metro-Goldwyn-Mayer holds the James Bond franchise and the 88-year old firm has gone through several owners including Ted Turner and Kirk Kerkorian. In 2010 the company filed for bankruptcy protection and now hired Goldman Sachs to explore the possibility of an Initial Public Offering. ‘ Ready when you are, CB!’
Stocks started off strong Wednesday and fell off by the close. Markets ended mixed due to Commerce Department report on lower than expected home sales.
How Can You Determine Re Financing on Your Home Mortgage?
Go to Zillow.com Check comparables and home values in your neighborhood.
Calculate how much equity you have in your home. You’ll need at least 30%.
Go to my web site and pull down mortgage calculator engine. ( primaryplanner.com) Fill in blanks and you should have your answer to either proceed or not.
Who owns Rolls Royce and who owns Audi? VW owns Audi. Rolls is owned by BMW. Porsche’ owns majority shares in VW.
Markets Popped Thursday 200 plus on the Dow on News ECB Would Do Whatever It Needed To Do. Still, we’re not out of the doghouse quite yet. CNBC reported much of the gains were due to short covering. New money coming in was not evident. Folks at 24/7 Wall Street twisted tight their thinking caps and came up with 10 Things We Need To See to Know The RecessionIs Over.
GDP has to rise above 2 1/2 % annual rate.
Need 250,000 new job hires per month.
Housing and foreclosures stabilize.
Recession ends in Italy, France and UK. (this may take a long time).
China growth back to over 9%.
Tax Rate Stays Put.
Retail Sales increase (this includes autos)
Consumer Confidence Back!
S&P 500 stock index has quarterly earnings increase year over year.
If Fed’s raise rate suddenly it could mean the economy is moving in the right direction.
Betcha you knew this but it doesn’t hurt to see it in print and understand there is no boogie man and that things can be put right doing just the simplest things.
My Allocation Since 2011 Has Concentrated On Domestic Funds, Stocks and ETFs. Yes, there are emerging market bond funds and global bond mutual funds on my preferred list but scant use of foreign equity funds, and only for contrarian purposes. Lloyd Blankfein, CEO and Chairman of Goldman Sachs raised & saluted the flag and extolled the virtues of the United States and the long-term value investing in the USA. His reasons include the domestic energy boom, green tech and the quick response by policymakers to the unfolding credit crisis. Don’t give up on the United States is his point even as he warns about our debt problems and that the retiring mass of Boomers will not sink the country into irrelevance.
Starbucks falls 10% on Weak Guidance by Howard Schultz.Overall markets up 1% on Friday and Starbucks stock was, according to experts, marked to perfection before Shultz talked of weaker sales going forward. Seeking Alpha bloggers likes McDonalds and Exxon-Mobil as better values than Starbucks.
FDIC closes One Bank in Georgia. Bringing the total in 2012 to 39. According to FDIC about $2 billion in funds used to close banks this year. We are behind last year’s pace of 61 closings over the same time period.
Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
We’ve come a long way as investors. Twenty years ago many people were frightened to death of buying foreign mutual funds or foreign stocks, such as Nestle’. Today investors go where the action and returns are. Emerging Markets is one of my favorite sectors. Most people associate emerging markets with the BRIC countries: Brazil, Russia, India and China. In actuality there are more 150 countries on the list which include Malaysia. Latvia, Israel and Slovakia, to name just a few. The definition of emerging countries are those that are undergoing rapid growth and industrialization. This was coined by World Bank economist Antoine W. van Agtmael in 1981. There is a difference between all the emerging market countries; the most senior is called Advanced Emerging Markets and the others are termed as Secondary Emerging Markets. Advanced markets in 2010 were Brazil, Hungry, Mexico, Poland, South Africa and Taiwan. India, China and Russia are on the secondary market list. But there is another market that many investors have either not heard of or think too risky and that is Frontier Markets. These are countries that are just getting a foothold into the world’s economies and many just starting to move into the 21st century. Most African countries, outside of South Africa, according to source Mark Mobius at Franklin-Templeton, are considered to be frontier markets. He reports that a misconception is that Frontier countries’ growth is based on commodities. While that may be somewhat true it is not for all countries. For example Nigeria is dependent on oil exporting, Kenya is more of an agricultural society. Frontier economies are one way to allocate portfolios. Some emerging market funds did well in the first half of 2012 the same couldn’t be said of the frontier markets. Hard hit was the MSCI Frontier Market index which lost over 8% so far in 2012. Kenya, Nigeria and Bahrain were up while Bulgaria was down over 25% and the Ukraine fell over 35%, Still while the growth in the United States is expected around two percent that of Frontier markets average around six percent. They usually do not move in correlation with our domestic markets. For more information on my favorite emerging and frontier market investments and how they could possibly fit in your portfolio call or write me.
I got a phone call last week from a woman who introduced herself working for a company that was appointed to do marketing for a local credit union. She said someone would be in my neighborhood and ‘dropping off’ information on the credit union. Okay, I know the game and who these folks are and they sell fixed high commission annuities. This ‘insurance’ agency (which she didn’t tell me she worked for but I know she does), has been in hot water before selling high redemption annuities to seniors. I interviewed the attorney representing one of their victims on my radio show years back. And there was a channel 7 television investigation into their methods of gaining access to people’s homes. Of course I knew who she really represented but no mention of the affiliation out of her mouth. If you live in Michigan and get a call from someone with a similar pitch or someone wants to save you money on car insurance, or drop off some senior coupons, be..ware!
Experts See Signs of Pickup. Last week CNBC reported that Mark M. Zandt, the chief economist for Moody’s Analytics, who said, ‘ I do think the economy is stronger than what the numbers show.’ Some economists point to private forecasts showing a stronger June than the one depicted in government reports. One such survey showed that the job creation was really 175,000 and not the DOL number of only 80,000. Some economists question if DOL made a big mistake.
Frustration With Washington, Banks, The Economy and The Stock Market Have Investors Looking For Answers. More than at any other time I am seeing sales people, with no experience in securities, counseling individuals to buy fixed annuities or equity-indexed annuities with extra-ordinary redemption charges and little opportunity for real economic growth. If you don’t know what you are investing in ‘ask someone!’ Once your money is gone- it’s gone. Don’t think you can sue them for your lack of knowledge or experience.
More Investment Myths. Here’s a few common thoughts you should know are not true.
Bank savings are free- False -The bank uses your money to invest, pay their bills (including overhead and employees), and calculates how much ‘interest’ to pay customers depending on how long they can get them to lock up their money. A friend of mine was an officer at one of the major banks and bragged that at some branches a 1% return on the money on deposit was enough to pay all expenses for that branch. Buying furniture or jewelry probably has less fat and commissions than a bank savings account.
Insurance Companies Are A Safe Place to Put Your Money – Maybe. It all depends on the insurance company. Unlike FDIC all money with the insurance company is guaranteed by the insurance company. If the company goes bust or is taken over some or all rules are re-written. That’s why its important to check the claims paying ability of the insurance company. Plus rules are different with insurance companies. Some of the rules are so odd that people cannot believe they invested and turned over their hard-earned money to an insurance company. In some cases redemption charges plus penalties before age 59 1/2 are exorbitant.
Managed Investment Accounts Are More Efficient & Cheaper- And I have a bridge I’d like to sell you. Managed accounts use no-loads or load waived funds, ETFs and other vehicles with no up-front charges. There are still fund fees that are charges to reimburse expenses to the fund or Exchange Traded Fund -plus each account has an annual account fee that is deducted quarterly. The managed fee typically runs 1% to 3% annually depending on the company, the representative and how wide-awake the client. A lot of managed accounts are just as expensive, some more so, than if you buy a mutual fund and park it. In some instances the constant buy and sell of the manager is more for show than for actual account value. Some Managed accounts are also a good place to hide lousy funds just to keep them going. Don’t be fooled by the managed account story. Like anything else there are good ones and lousy ones. No secret here.
Target Date Funds will get an investor from here to there with no worries.Let me see the plans to that bridge again. All Target Date funds are not equal and lately several companies have gotten out of the Target Date Biz. The Target Date concept is to invest in a fund that is more aggressive in the early years and gets more conservative, and stays that way, as you reach retirement. So today a Target Date fund invests in equities if you are young and as you age it’ll buy bonds. In other words today you’ll get the best of the worst worlds in one investment. The bond bubble should be well on its way by the time many are retiring and that’s where the assets will be invested. Most investors can do better.
Be Pro-Active. The days of invest and forget are gone. Don’t think that there is a product or concept that’s going to take you to the promised land with little work or effort on your behalf. Thankfully my clients are pro-active but there are a lot of seniors I meet that I wonder how they ever managed to accumulate a dime. If you don’t know something- hire someone. If you’re not sure of the person you hire- get someone else. It’s cheaper than losing your entire nest-egg. Don’t guess or think someone won’t take advantage of you and your money.
Robert Pollack, of the WSJ, knocked on George Shultz door a few weeks back… Shultz, former Treasury Secretary, who is 91 reminded us that when ‘Ronald Reagan took office inflation was in the teens, the prime rate was in the 20s, and the economy was going nowhere.’ Shultz also reminded us that the bailing of the autos was a political bankruptcy and not a rule following bankruptcy (as anyone who owned a GM corporate bond will tell you). The unions were paid off, Shultz said, and the regular creditors didn’t. (Bondholders are first in line as creditors but were left out of the negotiations.). In answer to what policies promote growth he answered, ‘ We need another round of the 1986 tax act. That is clean out the preferences and lower the rates.’ He also said that ‘like in sports people want to know what the rules are. Today business leaders are asked to play the game but not told what the rules are, or told that the rules will be made up as they play.’
The Euro’s Fate: Randall W. Forsyth writing for Barrons examined the difference between European leaders and Americans and how they are attacking the economic crisis. In America the central bank will print as much money as necessary to keep inflation low and promote job growth. In Europe the idea of printing more Euros is unseemly. Instead they Europeans promote tax hikes and spending cuts to solve their economic problem.Forsyth concludes that not only is that philosophy overseas not going to work, it could lead to a disaster. Instead he offered a thought that reducing the euro to equal the dollar in value (a across the board devaluation), would accomplish what we’re doing here without having the printing presses work overtime over there. An investment against the euro could be in order. In an interview Warren Buffett commented that the Euro couldn’t survive under the present rules.
Gold Buggy?
Central banks have been buying gold by the ton. (Actually its by the tonne- which is 1000 kilograms, not exactly a ton and a substantial difference when calculating cost of gold per ounce.) In 2011 they bought 455 tonnes. Here are some of the purchases supplied by the World Gold Council. During the last 12 months the net purchases have averaged almost 20% of total annual supply. Russia added 15.5 tonnes in May and its reserves now stand at 911.3 tonnes. Thailand has raised its holdings by more than 80% since mid-2010. The Philippines have been quietly buying their own production and have added 32 tonnes in March. Central banks, excluding China and nations that don’t report gold purchases, have, according to the World Gold Council, added a net of 1,290 tonnes of gold since 2008. That would be a lot of gold except its off from what Central Banks held around 1980. If you were worried about a gold bubble there doesn’t seem to be an indication of one just yet. I also still like the gold ETF GLD as the most efficient way to buy and sell the metal. If you need help adding metals to your portfolio and wonder best entry points E or call. Gold fell Tuesday as stocks moved higher after the Ben Bernanke testimony.
Speaking of Medals… Bloomberg’s BusinessWeek Etc. Department gives the lowdown on Olympic Medals. It takes 8 tons of gold, silver and copper to make the 4,700 medals for the Olympic and Paralympic Games.
There is $325 of silver in the silver medal which has 92.5% silver and the rest copper.
There is $660 of gold in the gold medal which has only 1.34% of gold and the rest is silver.
Each medal weighs almost 1 pound.
If You’ve Been Holding Oil… low prices were good for consumers- ‘cept consumers were not spending the gift of lower gas prices because gasoline prices lagged the lower oil prices. Investors, on the other hand, who owned oil stocks and funds were getting hammered as prices fell (partially due to a strong dollar). Reinvestment of dividends always helps while we wait for the correction. Now we’re seeing a slow but steady return to higher oil prices according to bloggster and investor Tom Bowley.
He draws the above parallel & Darn if the chart of the S&P 500 Index and Crude show a similar pattern. The argument is that the chart is illustrating higher long term bullishness in oil and equities as we go forward this year.
Barton Biggs Dies at 79. Once heading Morgan Stanley’s Investment Management division and founder of hedge fund Traxis Partners when he left MS Biggs was known as a visionary. He called the Tech Bubble before it burst but was ignored in 1999. He was wrong on the 2008 market collapse but he was in good company on that one. Biggs was one of those people that when he talked you had to listen.
Cookie!? No- Donuts! Krispy Kreme. The first time I heard about Krispy Kreme was reading Bob Talbert in the Freep. Talbert was from the south where Krispy Kreme called home and was as popular there as fried chicken. When the brand came to Michigan I knew why ‘ Shut my mouth’, Krispy’s were the donut of choice down south. Hard times followed the brand but now Stephens gives the stock an Overweight. They like shares to $9.00 from the current $6.52 close last Monday.
Cops and Robbers – Essentially. From the Libor scandal where 18 banks concocted a global conspiracy to fix interest rates in order to deceive regulators that all was well with the global economies, to the recent news that HSBC has become almost the bank of choice for money launderers and cartels, to the JP Morgan ‘opps trade’; banks have been in the news doing what banks shouldn’t be doing-which is stealing in one fashion or another. Now the snootiest of them all, Goldman Sachs, is building a private wealth unit to loan money and do business with the uber-rich and moneyed corporations. The war chest is estimated by the WSJ to be about $100 billion. Goldman is joining the ranks of Bank of America and JP Morgan Chase who do have wealth units in place, along with their retail trade. A weakness in European banking has prompted this entrance into the wealthy and corporate private area. Warren Buffett’s favorite bank, on the other hand, is Well Fargo – he said that he’s been a buyer almost every month of shares.
In Politics…In a tight Senate race Lyndon Johnson directed his campaign manager to slur his opponent with a particular nasty accusation. When the campaign chief said that both he and Lyndon knew it wasn’t true Johnson said, ‘I know. I just want to hear him deny it.’ Some things never change.
Fred Smith, founder of Federal Express, said, ‘Our tax code favors the financial sector, speculation and leverage at the expense of the capital intensive or the industrial sectors.’ Smith advocates a territorial tax system which would only tax domestic, rather than worldwide income, bringing U.S. practice in line with most other rich countries. He also advocates more tax benefits for businesses to spend on equipment and software. Fair to say that both Obama and Romney favor reducing the corporate tax rate.
Chuck Schummer (D-NY) told The Ben Bernanke last Tuesday to do whatever it was he and the Fed could since Congress wasn’t and wouldn’t be of any help. It’s as if the ghost of mean Chucky Colson invaded Washington and allowed Congress to allow the people of the United States to ‘dangle in the wind’. Bernanke pled with Congress to act on taxes before it was too late. He made it clear that he wasn’t lecturing Congress but needed help to turn around the economy. Bernanke’s words fell on deaf ears. Brian Kelly, founder of Shelter Harbor Capital, said after the Bernanke testimony, ‘Now you have to be long stocks.’ Kelly, as well as other market pro’s, according to CNBC, believe that Bernanke telegraphed that QE3 must be factored in all trades. Kelly also said, ‘Whatever comes along next is going to be big,’ and you want to be in stocks when that happens.
Get the feeling we are simply trading between government stimulus and forgetting investment basics. Seems you can toss asset allocation into the dustbin along with anything else of fundamental value.
Weekend Worries… I told an associate I worry about weekends even when there doesn’t seem to be any news on the horizon. The weekend ended Monday as more worries about Greek default and Spain’s weakness caused Wall Street jitters. World markets were down Monday morning as I was driving home about 3:30 ayem from a short two day mini-vacation up north. Bloomberg news shed light on the perils of the Eur0, the possibility that Greece would leave the EU and in six months we’d be talking about higher oil prices and inflation along with EU worries. On the local front Bloomberg reported that most reporting domestic companies did better than expected but lowered forward guidance as they expect consumer economic slowdown.
Questions, call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.
