retirement interruptus: That Was The Week That Was

Sell on rumor was all the rage last week as fears of Greek contagion spilled over to Italy and Spain. Moody’s downgraded Ireland Tuesday adding fuel to an already speculative and explosive situation. The Moody’s downgrade, according to traders, proved this is a headline driven market. Some of Europe’s biggest banks called in lines of credit in anticipation of default by either Italian of Spanish financial institutions. Not only did that acerbate a bad situation it may hasten a crisis. European politicians seem to be kissing cousins of ours as they appear to stand on the sidelines doing little to assist or defuse the situation.
‘Fasten your seat belts, it’s going to be a bumpy week.’- Along with debt woes on both sides of the Atlantic major corporations will release earnings the week of the 18th. Among them Goldman Sachs, Morgan Stanley, Microsoft, Yahoo, Intel, IBM, AT&T, GE and Apple, Expect good numbers but more important key in on ‘going forward’ or the guidance companies give for the future. Still there are analysts that believe the S&P 500 is undervalued as compared to other investments.
Investment rules state that an investor needs to have and read a current prospectus to get the fund’s mission statement, ownership, costs and what is allowed and not by the fund’s management. All the information has to be factual. Hooey, said the Supreme Court, in answer to a lawsuit against Janus Mutual Fund management. According to the high court, ‘A fund’s investment advisor may not be sued for securities fraud due to misstatements made in the fund’s prospectus.’ Notably the Court was ruling on Janus Funds allowing certain investors to trade in and out of their funds to the detriment of long-term investors. The fund paid the fines and restitution while fund management allowed the rapid trading that was in direct conflict with the prospectus.
Four Industries with No Future- according to writer and investor James (I Need A Haircut) Altucher: Casinos, Cell Phones, Health Care Providers (drugstores will take over) and alternative energy industry (fracking in Texas alone could make the U.S a bigger oil provider than Saudia Arabia).
There are two worlds working here. There is the overall economy which is slowly grinding on with an over 9% unemployment rate, no paycheck raises in ages, slowly increasing inflation and homes value underwater. Then there is the corporate investment side that has recovered nicely, has more money banked today than it did before the crash and is making obscene profits. The Naz hit a 10-year high last week. Talking heads and self-proclaimed investment experts confuse one for the other.
Jason Zweig –‘Inflation, since 2007, has eaten away 9% of your purchasing power.’

Thinking of buying a summer cottage or winter ski chalet and worried prices may escalate? Not so sayeth Doug Ramsey of investment firm Leuthod Group who calculated that single-family housing starts would have to soar 60-70% from their current half-century low of 419,000. He goes on to state every bubble (including housing) works thusly: a steep decline lasting 3-4 years, followed by a brief rally that ends in years of stagnation. He uses the Nikkei as an example of it trading at less than a third where it peaked 22 years ago. Shop on, dear second home buyer, you’ve got lots of time and prices on your side.
Worries over Greece contagion felled markets Monday as all indices down dramatically. Concerns now over the financial health of Italy and Spain. Euro under 140 and expected to continue its move down. The EU is expected to announce another plan to stem the tide. The best plan being considered a EuroZone Bond where banks toss their Greek and miscellaneous PIIG debt to extend it out and distribute along with zero coupon bonds. This would be much like the old Brady Bonds that were issued for emerging market debt. By pairing PIIG debt with a zero coupon bond investors would be guaranteed not to lose all their investment.
After hours Monday last earning season officially began as Alcoa crushes numbers! Concerns about missing were never in doubt. On Monday July 18th Credit Suisse analyst Richard Garchitorena reiterated a Strong Buy on the stock with a price of $20.00 a share. Morningstar has it at $19.00 a share. Shares of AA were $17.58 in May, 2011 but closed Friday at $15.48. Ford stock continues its fall and sentiment for auto stocks in 2011 is not getting better even though Ford beat estimates.
Technical analyst Michael Kahn for Barrons.com write that stocks (before Monday) reached their price ceiling. He believes we’ve reached fair value on the S&P 500 index. He concludes with the financials lagging the broader market during the recent bull run may signal an end to the Bulls and banks may fall another 10%. There are others that think differently but chartists are stubborn- usually right- eventually.

Put me in, coach! NFL union and owner representatives met for marathon 15 hours on Thursday to thrash out an agreement. The same day the White House and representatives from both parties got together to solve the nation’s debt crisis and spent a grand total of 90 minutes. Guess who’s serious about their business and who’s not? By the time you have a donut the meetings over.

Invest your money in emerging stable democracies, wrote Matthew Lyon from London, a city with its own share of high unemployment and inflation woes. Citing Renaissance Capital that has studied 150 countries from 1950-2009 once a country reaches a per-capita gross domestic product of $10,000 per year it is what the bank terms an ‘immortal democracy.’ It can find no country with those numbers that has been overthrown (politically stable) Even GDP $6,000 may be relatively safe. What that tells us is that Russia, Brazil and Turkey but not China- yet – quantifiably attractive places to invest.
Cisco, according to The Street, may finally be getting some respect- and a return to a decent stock price. It currently ranks as the cheapest Dow component based upon a variety of metrics. The company has finally decided to cut costs and margin expansion. This on firing workers, installing a dividend and buying back shares.
The Ben Bernanke spoke on Wednesday and markets cut their gains in half at the close. You don’t have to be an Inspector Clouseau to finally figure out the Street has no confidence in The Ben Bernanke. The Fed Chief said that there was more that the government could do but it would involve going into untested waters and he didn’t know what the outcome would be. Michael Pento, senior economist at Euro Pacific Capital in New York said, ‘Bernanke thinks the answer to everything is printing money. …He’s doing what he does best, which is counterfeit the U.S. dollar.’ Markets fell on Thursday after The Ben Bernanke said that the Fed would not immediately create another QE3 stimulus program. But he didn’t rule it out either.
The U.S. Budget deficit, for the first nine months of 2011, less than a year ago by a significant amount- however spending was double that of revenues.
(whisper) Hedge funds scour web in search of social gaming companies like Zynga to invest in.
Oil still a tad under $100. See how well the government use of releasing millions of barrels of Strategic Reserves has worked to reduce the cost to the consumer. Just about every investor should own an energy mutual fund.
Investors motivated by fear and not greed according to Morningstar Friday July 15th. Confidence is so low and for good reason – Hello, Washington.
Thursday was a good day for some stocks as Google was up huge- profits up 36% and the stock soared 12% in after-hours trading. Morningstar says lots more to run for this stock. Earlier JP Morgan unexpectedly posted 13% profit and started an early morning run for stocks before The Ben Bernanke opened his mouth and killed the rally. Jimmy (The Mouth) Cramer called JP Morgan a Rock Star!
While American lawmakers dither (meetings in the White House every day that last an hour or two? Come on!) Asian investors worry-and voiced their concern on what was happening in Washington, D.C. but also said they had little alternatives for parking their cash.
The Italian government did a preemptive strike to announce their budget deficit will be less than the government’s target for 2011 and 2012. Italy’s economic minister also said he expected 16 growth-boosting measures in a bill to increase Italy’s economic activity ‘significantly’. The Italians are getting their act together- or certainly trying- and we cannot or won’t?
Food as an investment makes sense to me. Instead of an Ag ETF how about Monsanto? MO, according to Hot Research, is getting ready to explode. The company acknowledges it’s all about ‘seeds’ and not chemicals. The company boosts the best hybrid corn seeds in the world- accounting for 43% of total operating income. China won’t allow Frankenstein seeds into the country but will have to import corn to a growing nation of corn lovers. Each American consumes- 36 bushels- of corn per year. It is used in everything from Cheese Whiz to ketchup. Hot Research puts an Outperform on the stock closing Wednesday last week $74.13.
Ze banks all of a sudden charging! From playing dead the last few quarters and being the least productive sector financials catch fire. Citigroup profit explodes on Friday – up 24% beating analysts expectations. Shares still fell Friday after a slight bump in price.
For all us not so technical investors Dunkin’ Brands is getting set for its IPO- price $16-$18 a share and looking to sell 22.25 million in 2011….Investors not only get the donuts but also Baskin-Robbins in the same deal. No date set. Yum?
Wha Happened to recent IPO LinkedIn? shares have soared past $100 with unjustifiable valuation according to analysts. (Someone is buying!) Realistic price should be closer to $45 a share.
Dirt Devil up for sale. Current Hong Kong based owners bought the iconic sweeper from Hoover for about $100 million cash and now want to cash-out and are asking over $900 million.
Big News Friday that 8 Banks failed the EU stress test and then we find out that these are smaller regional sized banks. This is important because of fears of (see where we started the week) contagion from Italy and Spain and can the banks withstand losses of magnitude. Critics, Andrew Lim of Espirito Santo Investment in London, said can’t be much of a stress test if none of the big firms did not fail.
Where to invest going forward? I get a call from inside wholesale rep for JP Morgan last Friday who says large cap growth is the place I gotta be. On the flip side Global Strategist for JP Morgan Jan Loeys says in Barrons.com interview. a week ago Saturday, that small-caps and emerging markets are better places for you and me.
Consumer prices drop for the first time in a year! The CPI fell to a seasonally adjusted 0.2% in June, matching expectations. At the same time jobless claims drop to 405,000 the lowest level since April. (not enough to get excited about)
Conoco Phillips plans to split into 2 companies. On one side an oil refiner and on the other an oil producer. No major has attempted this although similar energy breakups with second tier oil producers have happened.
Quick name someone in Washington you’d vote for- again! (thought so)
Finally- a bad week ends up. All green as Friday mercifully comes to a close. Great numbers for those companies reporting, banks and Google. Oil ends up a tad under $98.00 and gold hit new highs. WSJ exec fell on his sword for his boss of 50-years. Little time given in the Journal this past week for News Corps troubles as stock fell $2.00 a share. Morgan Stanley analysts downgraded Google (even as others upgraded the stock) from overweight to equal weight with a $600 price target.