That Was The Week That Was –4th Week August

• Seems I can’t leave the desk for a few days without all sorts of stuff happening. Markets continued their screwball antics last week making the Bears smile and closing with Fed Chairman Bernanke speaking from the annual policy-maker and academia confab at Jackson Hole, Wyoming where his words were met with a triple digit market surge.
• Housing is being blamed for the poor recovery and pundits point to the fact that every economic recovery has been lead by a strong housing revival. Even with prices at record low level, mortgage rates at all time lows of 4.35% home re-sales fell 27% and new home sales were off 12%. (Don’t blame the home market- it’s still about jobs. GDP also fell less then expected which boosted the Dow at the close Friday last.
• Meanwhile technical analyst Michael Kahn writes in Barrons last Wednesday that the markets are trading in a very wide range from ‘1130 on top, called resistance, and a wider zone between 1020-1045 on the bottom called support.’ He also says that the markets are ‘still working off the recovery premium that bullish investors priced into it during the July rally – a true upside reversal seems unlikely. At least, not without a slew of better-than-expected economic news to flip sentiment back to bullish.’ Assume the Fed chief’s pep talk on Friday as not counting as strong economic news.
• Dennis Berman reports in the WSJ, Cheap trading –the system that both Congress and the SEC worked decades to set-up: competitive and ‘flat’, shorn of hierarchy, where trades are routed to the best price on any open market and commissions are relentlessly squeezed (and which high frequency accounts for 2/3’s of all trading) has put the individual investor in a fix. Instead of smarter then the average bear investor types there are smart computers searching for fast and faster trades to make to earn a penny or less here, there and everywhere. This has crushed the small investor and causing the SEC to rethink the cheap is best route.
• Don’t expect deflation on Bernanke’s watch. A student of the Great Depression he is extremely mindful of the deflationary dangers. He is also not quick on the trigger to raise rates anytime soon.
• 100-year bonds?  With the 2-year note yield .5% and the 10-year at 2.6% bankers are bringing back the 1oo year bond. Life insurance companies and pension plans are ideal buyers of such bonds. This idea has been around and companies that have issued 100 year bonds in the 7-8% range have been Apache, Burlington Northern Santa Fe, Disney, Coca-Cola, Federal Express, IBM and Ford. The risk is that over the next century interest rates will rise that will diminish the value of the 100-year bond.
• August 13, 1979 cover story just beforethe bestest, wildest bull markets in modern investment history. ‘Nuff said?
• Steven M. Sears writes in this past week’s Barrons that there are ‘Street Conspiracy Theorists’. He concludes that traders are preparing for disaster while hoping for salvation.
• Finally, foreign bankers couldn’t get out of Jackson Hole fast enough, complaining about the unusual degree of pessimism they witnessed in contrast to the usual upbeat American can-do attitude. The consensus voiced by John Lipsky, IMF’s deputy managing director, the world economy is on track for a moderate recovery. Emerging markets were surprisingly stronger than anticipated.

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

 

Summer Reading- The New Messengers of Recession

 

 

For most of us, including my clients and friends, we’ve worked hard to get the few things we have and a lifestyle we were comfortable with until investment banks, Wall Streeters and government types did stupid things and changed everything for us. From what I have been able to read and observe few, if any, of the people that were involved in the diabolical machinations of subverting fixed income investments have paid any price at all. The only ones that have paid any price at all are those of us who had nothing to do with why we are in the economic toilet.

The government has thrown a lot of our money at the ‘other’ people’s problems and selling us on the idea that giving away our money to known alleged criminals  is for our own good. All that money handed out to complete nitwits will have to be paid back but not by the nitwits themselves but our families at some time in the future. There is no reason that you, me or the family next door should be involved in this mess but we are. If this doesn’t grind your toast, I don’t know what will.

The insult added to the injury are new books being published that are selling the idea that we should find solace and comfort in these new times. Time Magazine recently reviewed  three such new books appearing just in time for summer backyard reading because no one can afford to go to the beach this year.

Two of the books are selling the idea that we should be happy because we are revisiting the good old days. I lived those days and saw nothing so special that I would want to go and revisit them. John Robbins new book is, The New Good Life: Living Better Than Ever in an Age of Less. Pia Catton and Califia Suntree wrote: Be Thrifty: How to Live Better With Less.

This may be some new religion like Jim Jones promoting the People’s Temple but I am not having anything to do with it. If I had my druthers I’d opt for having my life that I had prior to knowing what CDOs were and how those man-made investments could screw up world economies. I don’t want to be thrifty, I am at an age where I don’t want to price check a can of beans or comparison shop my tidy whities. I don’t want to drink Kool-Aid instead of the ‘Real Thing’. I have eaten generic corn flakes, and I want real corn flakes with real milk not the reconstituted dried stuff. To try and tell me that I can find happiness and live better than I did years ago is simply wrong. Don’t spin me and the rest of the country like we’re idiots and we should roll over. Broke isn’t better than having money. Honest, it isn’t.

This is not a time for Americans to be rolling over and saying that we lost our lifestyle that we worked decades for and now we should be happy with what we have. I don’t like the idea of having bought a home over a decade ago and along with all the money I sank into major improvements I now should be tickled pink I can barely break even if I, or my relations, need to sell it. We should not be compromising and forgiving but making sure that those that got us here end up paying a price. That price to be paid includes every company that was involved in this economic maelstrom along with each and every person that participated. Our government doesn’t seem to think so.

There should be a new book written; Companies and People Responsible For The Second Worst Global Depression. Stripping all those who were involved of their assets and tossing more than a few of them into prison can be more effective than all the new laws being contemplated on how to prevent a Third Global Depression. That’s the book I’d pay for and read. 

If you have 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-3rd Week August

•   Last Monday markets were mixed with the Dow off 1 and the NASDAQ +8 and the stock market continued 5 days of losses. Hey, anyone want to play number 185? Box it, straight? Maybe we can make money that way…
• If I reported James J. Kilpatrick, arch conservative passed away a week ago, most Boomers wouldn’t know who I was talking about. If I reminded you, dear reader, that he and Shana Alexander were the first closers on 60 Minutes (they did Point-Counterpoint); or, that Dan Ackroyd and Jane Curtin imitated them on Saturday Night Live, ahh – now you know.
• Banks loosen lending standards but no takers.  Fewer credit worthy companies are looking for loans and competition is aggressive for their business, according to Bank of America exec Kathie Sowa.
• Oil and stocks now moving in tandem. (sigh)
• Markets moved higher Tuesday because…they were due!! The Street had some reasons for the triple digit move up and Morningstar Mid-Day had others. Wal-Mart announced a 3.6% rise in earnings. Reynolds Group buys Hefty bag maker Pactiv (betcha you didn’t know that). Producer prices also increased giving traders some relief from nightmares of deflation.
• It’s the fertilizer wars as mining giant BHP Billton went after Canadian potash provider Potash Corp and was robustly rebuked. BHP said it’s taking its offer to shareholders. All fertilizer firms rose on the news.
• In Michigan attendees to the Labor Day festival in Royal Oak will be allowed to saunter the boulevards packing heat. Organizers from Michigan Open Carry have won the right to wear their six-shooters proudly. ‘Draw, Deadeye!’  Common sense has finally left Michigan.
• Billionaire Stanley Druckenmiller calls it quits and closes his 12 billion dollar hedge fund. He is down about 5% so far this year.
• Barnes & Noble putting itself on the market. Bookstore may close its doors forever because it never did get the 21st century.
• Frightening essay by Minyanville’s founder Todd Harrison on why Druckenmiller and other hedge fund gazillionaires are pulling the plug and getting out of the business. They see no future for making money in the next 3-5 years, according to Harrison, and want no part of what’s coming. He sees no solution in an uncertain world. (see my blog on the Omen).
• Thursday markets fell snapping a 2 day winning streak. The DJIA off 144 points, off its lows of the day. It was all about (Surprise!) jobs. What the hell do traders think is happening all across the fruited plain? Profits up, M&A starting to gear up, Intel snaps up McAfee (for no other reason, it would seem, because Intel has cash up the kazoo). Intel, by the by, fell 3.9% while McAfee soared 57%.
• Dick Del Bello, senior partner at Conifer Group said Thursday, “ We’re in this tunnel that is not letting anybody feel good about where the economy is headed long-term.”  Leadership, Dickey, it’s all about the abysmal lack of leadership, confidence and trust.
• Lots of healthy M&A which usually leads the markets: sigh…

• Arguments swirl whether stronger bonds favor one economic scenario or another. Is it inflation or deflation? Brian Kelly founder of Kanundrum Capital said, ‘This is about capital preservation as baby boomers approaching retirement want to protect what is left of their nest egg.’

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

The Hindenburg Omen

If we didn’t have enough to worry about a reminder that a technical analysis pattern called the Hindenburg Omen suddenly popped up a week ago that is said to indicate a major stock market crash. Basically the theory is that under normal conditions the stock market may establish either substantial new highs or new lows but not at the same time. When that happens it indicates the probability of a market crash. Probability and not a certainty is the key word.

This news comes prior to the recent surprise closing of one of the nation’s largest hedge funds headed by Stanley Druckenmiller, a protégée of George Soros and  engineer of  the currency coup that almost broke the bank of England when he shorted the British pound. Druckenmiller wrote his clients a farewell note, bid them well and thanked them for their 30 years of trust. He said they would be receiving their money as the hedge fund liquidated its positions. The fund is down year to date about 5%.

The stunning part is that Druckenmiller’s fund is not a small start up but a substantial 12 billion dollar entity with an enviable track record and a manager who made money for his clients in 08 while most others did not. So why is Druckenmiller closing? The reason is even more ominous per Minyanville founder Todd Harrison as he sees this and other hedge firms ‘going dark’. Going Dark is simply that the smart money does not see making money in the markets over the next five to six years and fund managers prefer to do something fun with the money they have then work to try and make more. And, as I reported in TWTW blog, Harrison and company have no solution for what is on the horizon. No one it seems knows what is going to happen and they all fear the worst.

David Callaway in MarketWatch.com reported in August 19th column that as far back as 2004 investors and traders were ‘counting their blessings and profits, and saying, “when this thing finally ends it’s going to be ugly.” It was no surprise to them when in 2008 the markets collapsed.

Those now leaving the business know something and what they know, it seems, is that the bubble most certainly to burst is the bond sector. All this news is connected to the Hindenburg Omen.

Or is it? There are other reasons a-foot, Watson. According to Pensions & Investments hedge fund closings have surpassed debuts for the second year in a row. Omen-schmoomen, performance also fell with the average fund –19.29% in 2009. Toss in greater regulation by the Feds and a clientele looking to make money with little long term customer loyalty and you have a recipe why hedge funds are becoming extinct.

The answer to the slow demise of hedge funds is that with tighter restrictions, negative markets, more transparency and an eagerness to find and jail white collar criminals by regulators the fund management world is not worth the effort as it once was.

Technical analyst Michael Kahn, in his August 18th, at Barrons on-line, reported that before anyone panics on the Omen there are some facts missing from the story. He writes that analysts cannot even agree that there was a signal indicating the doom at all last week. He went on to write that some folk meddled with the composition of the NYSE-traded issues and there was wide disagreement even on the day the signal fired. 

Stocks, Kahn writes, are in the weak part of the seasonal cycle. The environment is weak for stocks plus there is the four-year presidential election cycle which suggests a major low is due in October of this year. Stocks are also fighting the bond and a floundering crude oil markets. So while Kahn is not panicking yet he is keeping the ‘door’ open for other technical evidence just in case. He finishes by offering, ‘A cluster of Omens would just make the bearish case stronger.’

There you have it. Someone with time on their hands added up the numbers and suggested a major meltdown in the offing. As yet that doesn’t seem to be the case but the case for stocks certainly appears dour.

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

 

 

Bonds – Is The Party Over?

  Near the end of 2009 and as recently as April of this year professional money managers, advisors and analysts have been warning us of ‘The Lesser Intelligence’ to be wary of bonds. All bonds have principal influenced by outside interest rates, usually determined by the Federal Reserve.  Rates also may be influenced by bond traders which often surprises the government officials who are of the mistaken opinion that they are always the ones in charge. The important thing to know is as interest rates increase principal decreases and as rates fall principal increases.

The fear by the Smarter Than Everyone set is that amateur investors have moved so much of their savings into bonds that when interest rates do go up most small investors won’t know what to do until they’ve lost a substantial sum of money.

Michael Santoli in the August 14th on-line Barrons wrote, ‘…in contrast to the purported economic malaise and acute risk aversion being foretold by teensy Treasury yields, the corporate bond market hasn't flinched at all.’

So far the apostles of fixed income doom have been wrong as bonds have enjoyed a remarkable year, outperforming most if not all major indices. The outperformance is due to the interest rates being forced lower and principal increasing. Yields on most domestic bonds is puny with the 10-year Treasury sporting a  2.68% current yield, down from 4% just this past spring. The fact that investors look more to perceived safety is evident as the dividend yield on the DJIA is at 2.65% which also offers an appreciation opportunity.

The lessons of 2008 are still very clear and lending, not investing, is where the small investor wants to be. Corporate America is taking advantage of it. IBM recently offered 3-year notes with a 1% coupon which was immediately snapped up.

The demand for bonds and fixed instruments is so aggressive that few individual issues are available for the average investor with short-term maturities and reasonably attractive rates of return unlike what someone could buy just 18 months earlier.

The Federal Reserve has signaled in plain Un-Greenspan-ish English that they plan on holding rates low for an ‘extended period’ of time. The experts think that this means rates may not be increased by the Federal Reserve at least through the spring of 2011. That doesn’t mean that the Federal Reserve can’t or won’t change their mind if conditions warrant.

What the Federal Reserve does plan on doing is something called quantitative easing or buying long-term 30-year Treasuries. This does not create more debt since the government is buying its own debt. It does provide for long-term rates to be lowered even more then they are now and create opportunities in mortgages and the loaning of monies by banks to businesses and individuals. The problem that sophisticated investors note is that the amount the government plans to buy of long term debt is not enough to encourage rates to fall. We will just have to wait and see.

Also today the markets are seeing more companies  with less than investment grade rating coming out to borrow money by issuing bonds. These are called high yield or junk bonds and they are filling a need for those investors looking to get a little extra return on their money. While there is a certain danger of default on these high yield bond issuers (about 10% with a historical mean of 5%) investors may want to set their sights on high yield bond funds where there is diversification and professional management rather then buying individual long-term issues.

Foreign bonds and emerging markets are also playing a significant role as investors scour the fixed income sector for any advantage to increase return. There are currency and political risks aplenty for those individual issues and it may be wise to only consider investing in mutual funds that specialize in those sectors.

As long as inflation remains a non-issue, unemployment a conundrum for the Administration and housing defaults as regular as an Activa junkie, investing in short-term maturity bond funds is just about the only game an investor can find.  That’s not to say it can’t or won’t change in a heartbeat.

If you have 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 – 2nd Week August

• Last Monday was lackluster with investors waiting for Tuesday’s Fed policy statement. The Dow +45 for the session.
• KKR drops plans for stock offering – not in this market, they say. The firm needs capital to finance expansion. It has IPOs in the offing namely Toys ‘R’ Us and HCA, Inc.
• Tuesday markets were lower waiting for the Fed’s analysis of the economy and any plans to jump start the slowing domestic apple cart. The Fed obliged by reiterating we’re in a slow down (Surprise!), promising to keep rates low for an extended period of time (Surprise), and a plan to buy more U.S. government debt. This news lead to the market recovering off its lows to finish down 54 points and yields on the 10-year falling to 2.779% (remember dear reader, it was at 4% in April). Technically, according to MarketWatch.com’s Michael Ashbaugh, we are still in a slightly bullish level.
• Wednesday the markets collapsed on no confidence and the Fed’s lukewarm response to the economy. All indices fell except gold. It was up slightly, although the gold ETF was down as investors redeemed shares for safer waters. Gold can move up while the ETF falls because of massive redemptions. Treasuries were the lifeboat everyone wanted to be in.
• Cisco reported after the market close Wednesday a 79% profit increase and the street rewarded the stock with a punishing 10% haircut. Macy’s reported a stronger outlook for the rest of 2010 and Nestlé's profit jumped 7.5%. The Dow was off 265 points for the session. As a friend said, it’s one step forward and two back with this market.  
• A wider trade gab signals weak growth. In late July the Commerce Department estimated growth at 2.4% but in about to revise that lower this month. Kevin Cummins, an economist at UBS, estimates second quarter growth at 1.25%.
• Ethan Harris, Chief Economist Bank of America Merrill Lynch said in MarketWatch, ‘Businesses have begun to reinvest and to hire, cautiously. But, lack of confidence is holding back a full blown recovery. CNBC reports that the Administration is simply having a tough time getting their accomplishments out to the public.
• Thursday markets off but no blood. Gold ETF still not connecting with price of gold.
• Friday morning Germany is Europe’s engine without a doubt. GDP rose 2.2% has NEVER been recorded before in unified Germany since 1990.
• Barrons reports good news is brewing at Starbucks ever since founder Schultz returned. Ask Apple, HP and Ford ‘cause they know it boils down to leadership.
• Wall Streeters whisper about the ‘Hindenburg Omen’, a technical indicator designed by Jim Miekka in 1995 and the correlation with his theory and actual market crashes. Seems some folks are nervous as some of the data used by the Omen were tripped this past week making September a very scary month. Then there are other investors such as Andrew Brenner at Guggenheim who said to his clients when he heard of the impending crash, ‘Seems like people are starting their weekend drinking early.’
• Firms issue record junk bonds for yield thirsty investors. The past week saw $15.4 billion sold.
• The Dow ended the week down 3.3%.
• Finally, Ben Quayle, son of the former VP. is running for Congress in AZ and sent campaign literature picturing him, his wife and two young girls with the heading, ‘We are going to raise our family here.’ The problem is Ben has no children and the girls were his nieces. (That’s okay, Ben, this simply shows your conservative values -renting kids is a heck a of a lot cheaper then bringing up your own.)  

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

Buy Low-Sell High or Is It The Other Way Around?

If you haven't learned   you should buy  cheap and sell dear you’ve been living in a cave all your years. The problem is some folks do that with almost everything except their investments. When it comes time to invest people want to make sure that the stock or fund is truly going to go up and so they wait until it does and then buy just about the same time other folks are selling.

If you think I’m kidding let me introduce you to G.O.L.D. Amateur investors wouldn’t give the time a day for the shiny stuff except when talking heads started to make noise and the metal traded per ounce right to the price of a used ‘66’ Volkswagen  bug.  All of a sudden people just had to have it because a ubiquitous someone said it was an answer for inflation and for the world’s soon-to-be-worthless paper money. Three years back they didn’t like it at half the price but suddenly it’s the rage and everyone’s got to have it in their portfolio.

When the markets tanked everyone was scared and wondered if this was the end of the world and would we be selling apples to each other till the end of days. After the lights did not go out and some respected investment minded folks stood up and said stock prices were rather reasonable people still thought it best to take a loss and put their money into money markets earning nothing rather than buying stocks or funds that were on sale. If stocks were cans of tuna fish and selling for half the price they would’ve been flying off the shelves.

The average investor today is more scared of losing money and is skeptical of buying opportunities.

I was there a year and a half ago when folks would call and ask if things were going to go to hell in a hand basket or would they lose everything they invested. I tried to tell one and all to continue to do the things they were doing and try to ignore the noise and hype but when the rest of the world is saying the opposite its pretty hard to be heard.

The people who came out ahead in this latest mess were the people who kept on buying and did not sell what they owned. Those that lost were those that sold and now wonder if they’ll ever get back a fraction of what they once had. In a world of unhappy people you have to put them somewhere near the top.

The reason I am bring this up –again- is that Bloomberg BusinessWeek magazine had a small piece last week that reported the average investor is notorious for buying high and selling low. The small investor appears to have a compulsion to do this each time there is a massive market correction. We saw this in 1987 and again in 2000. The only time I saw investors come out and buy cheap is when certain companies were about to, or did, file for bankruptcy and all the smart money had sold and the average investor thought they smelled a bargain and bought. We can name those companies as K Mart, GM and Enron, plus there were others but why make some folks feel worse then they already are. There is a rule that you do not buy company stock that is about to enter or that is in bankruptcy. 

Amateur investors also shouldn't chase a stock price simply because someone says so ( ala Ze Mouth Cramer). The fact is by the time Ze Mouth says it the bus has already left the station and amateur investors find themselves chasing it. The investor would be better off either waiting for the bus to come back to the station or find another bus to get from here to there. There are always funds and stocks that are selling at value prices.

If you want to be a buyer of value there are ways to do it without learning all the technical chart reading. One way is to watch the VIX. The VIX is the ticker symbol for the Chicago Board Options Exchange Volatility Index. It is a measure of the implied volatility of S&P 500 index options. It is calculated and disseminated in real time by the CBOE. It is also known as the fear index. When the index rises it usually corresponds to a fall in the S&P 500 index. Many investors use this as an indicator of buying cheaply.

chart of the VIX index 1990-2008 Wikipedia

If you were to draw a chart of the VIX and overlay the value of the S&P 500 index illustrating the trading over the same period you’d not be surprised to see as the VIX rises, as fear increases, the S&P 500 dips. You can see this by going to the finance site at Yahoo.com and clicking on their stock charts. Friday August 6th was a good day to see the VIX and S&P 500 work in opposite to each other.

This is not a perfect way to invest but it is one method where investors know the major stock index is down, Treasuries are usually up and you can be fairly certain of buying low. This is not to say that things will not go lower, they can. When they do go lower the VIX will go higher and the smart money should buy more. There is no guarantee that prices will reverse immediately or even in the near future. It does give an investor a simple tool to buy low when all others are selling. It certainly beats listening to others who probably know less then you about the economy and how markets work.

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

Can Someone Steal Your 401(k)?

Most people don’t think too much about 401k theft. After all there is plenty of protection from evil doers with multi steps just getting to your 401k account. A thief needs the account number, custodian, passwords or pin numbers, plus all the employer and employee information. Most folks think Forth Knox is safe but their 401k is safer.

People who have 401k plans normally do a quick eye-ball of their statements either paper copy or on-line and check if they’re account balance is up or down and leave it at that. Few really check to see if their monthly contribution was made, if there is a cash difference between one month and the next or if any funds in their allocation have changed. If a statement is late or missing a lot of us wouldn’t even know with everything else happening in our lives. The one thing employees never expect is having someone at their employer or working for their employer or 401k plan stealing from them. This is exactly what happens almost every day.

Steven Zavidow, who owns and operates 11 Burger King restaurants in the New York City area was arrested and charged with stealing over $260,000 from his employees retirement plan in July, 2010. He looted the plan and simply cashed checks at the local check cashing store.

In June of this year two Hewitt Associates who were responsible as customer service representatives transferred money from Hewitt’s 401k client accounts to their personal accounts. Neither thief knew what the other was doing while at the same company. They were stealing independently.

There are other examples but the important thing is that everyone who owns a 401k do some homework to make sure no one is stealing from their account. Here are some red flags and things to do to protect yourself:

• Make sure you get a statement each month or quarter and question if you do not.
• Check to see your contribution for the month was made and what date.
• Has the amount changed due to normal market fluctuation?
• See if your allocation has changed and if you own money markets if that has decreased substantially.
• Has any funds been added to or subtracted from your account.
• Has your employer recently changed the plan administrator or custodian and why?
• Has someone changed your address on your statement.
• Call the 1-800 number to double check your statement.

If you think something fishy is going on with your 401k account and you’re not getting anywhere with your employer go to the Department of Labor that specializes in this sort of theft. The local cops cannot help nor does it do much good to hire a securities attorney to chase your employer. One of the reasons the DOL was formed was to oversee retirement plans. You may visit their web site at www.dol.gov/ebsa.

If you have 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 – 1st Week August

•  ‘I don’t know how anyone can not be gloomy in this outlook,’ said Dave Rovelli, managing director of equity trading at Canaccord Adams in last week’s WSJ about the week ending. ‘It’s horrible- everywhere you look the economic news is borderline horrible We’re two years into this recession, and we’re not getting any better – we can’t even add jobs.’
• The week started with strength. Bang! Pow! Zoom! Monday it was like Batman & Robin crushing the naysayers as the Dow started strong and never wavered ending the day up 208 points. It was good to see, especially after a week where there was much anticipation but little delivery. Gold was off slightly.
• 2 Canadian gold mining companies merged in a deal that could produce almost 4 million ounces of gold a year. Gold is off its highs but up 25% from one year ago. Kinross of Toronto agreed to acquire Red Back Mining of Vancouver in an all stock deal.
• Tuesday stocks opened lower on lackluster data. Seems people are not investing but saving what they got. I think that’s the same blue’s song I’ve heard before. The Dow closed down 38 points. Factory orders fell in June, which surprised traders. The markets are in a holding pattern waiting for the important Friday’s jobs report.
• J. M. Smuckers is more than jelly & jam – the company plans on increasing prices of its coffee line- 9% which include Millstone, Dunkin Donut and Folgers.
• MasterCard & Visa are down 20% since Congress rewrote the rules on debit cards. That’s all I am going to say…hint…
• Toyota raises outlook. 
• Wednesday a lackluster day with the Dow closing up 44 points and ending +2.5% for the year.
• The uber-rich are not bashful in spending your money. Both Warren Buffett and David Rubenstein believe ‘everyone’ should pay some Federal income tax. Currently about 50% of Americans do not pay any Federal income tax, according to Bloomberg Businessweek. (Wouldn’t you love to know what these same folk thought when they didn’t have 2 nickels to rub together? Money makes people think differently then you and I.)
• According to research firm iMoneyNet the percentage of foreign bank obligations in prime money-market funds rose to 11.5% in July 2010 from 7.9% in July 2008. The percentage of foreign issuers in the U.S. commercial paper market rose from about 21% in 2007 to about 40% this April. This happening along with the continuing concerns about the solvency of European banks.
• Mutual funds showed a net gain for last week, according to iMoneyNet, with $3.34 billion invested mainly in hybrid and bond funds. Assets at money markets have also grown as investors seek higher returns. Stock funds, according to the same source, are still experiencing net outflows.
• Thursday Dow off 5 points as jobless woes jitters markets. Post Office declares $3.5 billion loss and plans on additional postage increase. I remember 3 cent first class mail.
• A Friday bad jobs report may not trip the markets even though bad news becomes evident to investors. It’s another sign of market irrationality according to Nick Godts at MarketWatch.com.
• Social security losing assets faster than expected. The recession has accelerated the loss of new money and it’s estimated that by 2037 the bank will be exhausted.
• Anticipating a better jobs report the Fast Money and Morning crowd at CNBC were positively giddy about a strong opening Friday. I sat and watched all the futures rise like sprinters into their blocks before the gun sounded. When the bad news hit it was like someone ripped open the bottom of a lifeboat as futures crashed. The jobs report showed no decrease in the private sector as the government laid off its census workers and unemployment held at 9.6%. The Dow fell 165 points until a late rally brought it 22 points close to even.  Over a trillion dollars, according to CNBC, sets in corporate coffers and will not be invested or divested until the government leads with confidence. The Dow still finished up for the week 1.8%.
• According to Sunday’s WSJ the bond market has remained a picture of bearishness. The 10-year is at its lowest since April, 2009. According to Jonathan R. Laing in Sunday’s Barrons it is time for the Fed to ramp up the printing presses. It’s called quantitative easing. The idea is to buy long-term government bonds and corporate debt. According to experts this was a far more effective tool in ending the ‘Great’ Recession. We may see the Fed implement this as early as this September.
• Finally, 1 bank was shuttered Friday bring the ytd total 109. In the decade of the 1930s 9,000 banks closed and this was with no depositor FDIC.

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

Economics of Same Sex Marriage

  The buzz spread across the nation is the over turning of the same sex marriage ban by California 9th District Judge Vaughn Walker. While many think this has religious or moral implications this is more about money and benefits than anything else. If same sex couples want to live together they will and just like heterosexuals they don’t need an official blessing to do so.

I was watching the news yesterday when the brouhaha was unfolding and wondered how many people would see the economic problems that this would solve and create? This indeed is more about money, taxes, benefits, insurance, social security, credit, tax benefits and estate planning then it is about being recognized by a higher authority.

Once same sex marriage is recognized officially across the nation it will create concerns in corporate and government  offices. Let’s go through some of the benefits that married folks have that single people do not enjoy.

• Spousal health insurance. One partner carries the plan for both and there is a premium reduction for a spouse.
• Mortgages, credit cards, loans become easier with dual incomes.
• Defined benefit pension plan benefits do not die with the worker but continue to the spousal member.
• Social security spousal benefits.
• Retirement plan tax deferred rollover to a spousal retirement account.
• Estate martial exclusion.

I am sure that given time we can come up with more but married couples do enjoy certain economic benefits that singles do not. At a certain point in life it makes more sense to be married then not.

So while there are certain people that scream it’s morally corrupt it really boils down to the money.

When same sex marriage becomes official it may cause corporate benefit managers, retirement plan administrators, insurance companies and government benefit planners to redo benefits and taxation of certain plans. It may also cause more heterosexual singles to marry simply for the benefits.

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

Beta & Alpha – What An Investor Should Know

There are hundreds of methods and theories to manage investments. Many are complicated and you need a math background to understand how they work. Others are simple. The most basic premise is to understand the more risk someone is willing to assume in any investment the greater the potential for return. In other words an investor should be compensated for taking extraordinary risk. In order to do that investors should know two extraordinary measurements on gauging risk and return.

Beta and Alpha are terms used to define risk and return within an individual investment or a portfolio.

Let’s examine Beta. Every investment has risk and it can be measured against the index or market as a whole. For example assume you want to invest in XYZ Domestic Market Fund you would want to compare the Beta of the fund against the broader index the S&P 500. If the Beta registers 1.0 it means the fund equals the broader market as to risk. If the fund registers less than the number 1 it has less risk and if it is more than 1 it has more risk or volatility.

Alpha is a measure of risk adjusted performance. Given the amount of risk and the historical return the Alpha number provides the answer to how efficient the investment or portfolio. A positive Alpha represents the investment has outperformed its benchmark, and there is value in taking the greater risk, and a negative means the added risk or any risk is not increasing the value of the fund or portfolio. This can be explained that if someone pays for premium gas and expects increased efficiency but when it doesn’t it is a waste of money paying for the more expensive petro. If the Alpha is zero it means it simply matches the index or market.

You can find these numbers, not easily I may add, on any Morningstar analysis report. Your broker/dealer will also provide one or you can call your fund company to send you the numbers.

Remember the Beta will be measured against the dominant index. If you are comparing bonds it will be against the bond index or  the Lehman Aggregate Bond Index and if it is domestic equities it is the S&P 500 index. Make sure that whomever is doing the analysis keeps to those indices and doesn’t compare bonds to equities.

These are important numbers and when examining an investment with a high Beta don’t assume the risk will correlate with the return. You need to see the actual Alpha number to get the rest of the picture.

If you have 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

•  Bloomberg Businessweek July 26th cover announced, ‘Do Not Buy Commodity ETFs’. A little thing called contango short circuits results and the ETF doesn’t share same investment result as the commodity it is supposed to track. (I already wrote about this earlier in the year.)  Whenever the Prez has lunch with a company CEO the stock goes up over the next 10-13 trading days. So reports the same Businessweek issue. Hey, Mister President, how about dining with a few fund managers?  
• Sweet! Monday markets moved 100 points higher after loitering in the pre-market. FedEx lead the transports while a jump in new home sales igniting the broader markets. Investors are still unconvinced despite nearly 73% of the S&P 500 reported better than analysts expectations.
• CNBC Fast Money reports FedEx reinitiates matching employee 401k contributions. Double dip doesn’t seem to be in the corporation’s crystal ball.
• Markets having a good earnings week but Treasuries still signaling ‘outlook uncertain’. A dip in the Treasury note yield indicates sluggish growth.
• Costco, Yum & Apollo Group insiders sold large blocks of their company stock. Hmmm,
• The SEC announced revisions in the 12b1 fees attached to mutual funds. The new 12b2 will be available sometime in 2011. More in a blog later.
• Oil finished July up 4.4% as it followed a stronger stock market & weaker dollar. Monday saw oil move over $80 a barrel.
• Visa disappointed and the stock tumbled along with Mastercard.
• Pimco chieftain Bill Gross loading up on long-term government bonds as he believes it’s deflation and not inflation the country will face next. Gross is rarely wrong. Government bonds and stocks paying significant dividends are part of the investment deflation hedge.
• Friday there was a slight scare but the markets corrected and finished flat as the entire week ended as one big yawn. For the month July was up over 7%.
• Finally the week ended with 106 banks closed year to date.

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