That Was The Week That Was-2nd Week August

  Impact Investing is going to be knocking at your door as ersatz financial planners embrace the newest buzz word and twist it into a sales situation. So before you go ga-ga over Impact Investing you should know what it is and if it is something that you need to pay attention to.  Unlike social conscious funds, where you can be 100% invested, impact investments take only a small portion of your total investment budget and use those monies to do something good along with the possibility of making money. In other words it is social investing at its purest. Impact Investing is, according to Ron Cordes, co-chairman of Genworth Financial Wealth Management, a big trend with college-age people who have an interest in social entrepreneurship and tackling global poverty. Currently the vast majority of products is affordable only to those of exceptional wealth. However, as time goes on, those money managers expect to bring product to more reasonable investment levels. Investors who have an interest in microfinance and poverty issues may want to explore frontier investment offerings. There they may find companies that tackle issues of health and poverty by investing in health care, commodity focused agricultural businesses and local financial firms that assist small local businesses. Those wealthy- uber-rich- may want to explore MicroVest a private firm that manages funds in the microfinance community.

Not Knowing What You Want Can Hurt You in Communication With Your Advisor. ‘What do you suggest?’, is what most investors tell their broker or financial planner. That, unfortunately, is the wrong thing to say. You are much better off saying, ‘I don’t want to lose principal,’ then to leave the destination of your investments in the hands of someone else. Many people give mixed signals when directing what risk and return their seeking. An entire group of ultra-conservative investors have been created since 2008. The problem is that if the advisor or broker is unaware of the change in basic investment philosophy future recommendations may still be made based on what the advisor has offered in the past.  Not knowing how to communicate is a serious problem, not only for the investor but for the broker as well. An investor needs to be specific on what they want and how they want their monies to be allocated. Inform your planner exactly how much you want to earn, how much you’re willing to lose and how much volatility you’re willing to accept from day to day. You’ll be surprised how much better your service and investment results will be once both you and your advisor are on the same page.

Breakfast Meeting Wednesday, September 19th- 9AM @ Sycamore Hills Golf Club, Macomb, MI. Here’s the deal- folks have been asking for info on fixed income investments: bonds, annuities, dividends and how they work, where to find them and risk involved that I am doing a talk about it next month. If you or you know someone (neighbor, friend or relative) who would like to attend by all means bring them but call for reservation. Coffee/tea and bagels and rolls. You have to call to attend so I know how many donuts, rolls, etc to order. 586-783 7080.

Markets Almost Evenly Split Between Bulls & Bears with a slight Edge to Bulls last week.

Buy Steaks Today and Invest in Cattle Later. Ranchers are forced to bring cattle to market much earlier than they thought just a year ago. The drought and cost of feed has been a double whammy forcing a glut of beef on the market. This temporary good news for beef lovers is offset on the future high cost of beef in the not to distance future. It takes about 20 months to bring beef to market but a full three years for the better flavored mature cattle. In other words by the time of the next ( 2015) Presidential campaign we can expect to see more moderately priced beef coming to market. Here are three investment ideas to take advantage of the shortage:

• DBA – invests about 19% in cattle futures.
• COW- invests 60% in cattle (approx) balance in hogs
• UBC- tracks the Livestock Index Total Return or about 55% cattle and 45% lean hogs.

 

The Great Generation Saved The World From Fascism and Created The Middle Class. They also got a great deal from Social Security. This marks the beginning of the children of The Great Generation who will never match their parent’s benefit dollar for dollar. People retiring today will never get back what they paid into Social Security because of higher payroll taxes. According to Associated Press on Monday a married working couple on average paid in about $598,000 in SS taxes- they can expect to get about $556,000 in benefits. Add the independent contractors, self-employed and business professionals who pay both ends of the personal and business taxes for themselves and you can see what a lousy deal it is for them.  

Some One is in Real Trouble… Peter Sand, CEO of U.K.’s Standard Chartered Bank has been accused of lying to U.S. regulators about laundering money for the Iranian government through United States banks. The accusation is that Standard ran about 60,000 transactions through the U.S. while stripping the real identity of those they represented.  The conspiracy holds severe penalties on money laundering, falsifying business records, obstruction of governmental administration, evading federal sanctions and an entire global list of misdeeds. Justice moves slowly as these allegations stretch back to 2006. 

What’s Not To Like About Amazon? The E-retailer is just about the best and seems to be getting better every day. Now Amazon delivery lockers set up at 7-11, drug and grocery stores across the country where working folk or apartment dweller can be assured of getting their packages without worry of someone stealing it off the porch, or the front lobby. So far about 50 or so lockers but lots more a-coming.

Finger-Pointing It’s the consumers fault for the coming recession, says Gary Shilling. ‘Opps,’ Shilling says we’re in a recession. Two reasons why (1) the consumer has tucked money back into the mattress and (2) the deep government debt. Shilling says that the debt plus foreclosed property pile-up will be with us for another four to seven years. Shilling still likes Treasuries as a place to invest saying that what we’re experiencing in the markets is the lull before the Nor’easter. He expects a new series of foreclosures within a couple of quarters. He points out that 12% of all mortgages are past due and 31% are underwater.  If this doesn’t curdle your porridge I don’t know what will.

Warren Buffett Drops Consumer Stocks. Citing challenges for consumer stocks like J&J, P&G and Kraft Buffett bought more bank stock (Wells and Mellon) and auto General Motors in the second quarter.

Tax The Rich?

Top Income Earners have earned more and paid more while bottom income earners have paid less or, in some cases, nothing at all. On Average the tax bite on the rich is bigger-except for those whose income mainly comes from capital gains and dividends. According to the IRS the top 400 taxpayers paid about 19.9% of their adjusted gross income in 2009 well above those with incomes between $100k-$200k who paid about 12%.

2009 Table- Where Do You Income Rank? Let the politicking begin!

 

Want To Make The Markets Boom? Eric Rosengren, president of the Federal Reserve Bank of Boston ( a non-voting regional president), urged that the Fed is missing the Congressional mandate of maximizing sustainable employment and price stability. The Fed, he argued, can do that by signaling that they would be an aggressive buyer of mortgage backed and possibly U.S. Treasuries. He urged that the Fed needs a pro-growth monetary policy and not one that is currently simply treading water.  The Fed should buy until both employment and price stability were achieved and not signal a time frame.

Markets See-Saw. Nothing sustainable due to lousy employment, do-nothing Congress, weak leadership and no-fix for the housing market. Investors betting on the Fed to step in and that’s all this is. Markets up again last Tuesday. There were only fair reporting numbers but future corporate profits will be lower as consumers have tucked themselves in for conservative ‘wait and see what happens in November’. My crystal ball sez if politicians don’t do something about the debt and taxes we’re in for a very long next four years. Business leaders also need from Washington  a firm set of rules on taxes and healthcare so they can hire.  Finally confidence allows consumers to open wallets.  Mark Hulbert in his commentary last week warned of a stock correction a-coming. He stresses that if the Bulls rush to the exits as quickly as they did the last time the correction should be mild- if not expect a more severe and lengthy market slide.

Google has a wad of cash…. and has smartly decided to invest the money in credit card debt and auto loans. These are called asset backed securities because someone bundles them up and sells them. Google, according to WSJ, isn’t the only company taking their excess cash and doing something constructive with it. Automatic Data Processing and 3M along with about 80 firms are buying these particular higher yielding securities. With yields low on bank and Treasuries cash rich corporations are finding a growing area of return. Fitch reports that only 1% of all auto loans are expected to default. In other news…Google, unlike Apple, buys from a variety of vendors the parts it needs for its consumer hardware.

Disney Profit Up 24%! Stronger than expected! Everything from movies, parks and media networks was up and the company reported 3rd quarter earnings at $1.01 a share versus last years of 77 cents. Morningstar like DIS to $50.00 (but may revise so watch for it), buy at $35 they recommend. The stock only pay a 1% dividend and closed last Tuesday at $49.81. Watch for any pullback as an opportunity if all remains same.

These are the people who will make or break the U.S. economy. No news just letting you know a lot of our problems are political.

CNBC Reports From The Smartest Market Brainiacs. Jim Paulson at Wells Capital doesn’t think Europe will blow up or China’s economy cool too much and the current ‘soft patch’ in the U.S. economy will not turn into a recession. But What Could Be ‘Game Changers’ in the Second Half of 2012? Here’s a list from the smart folk at CNBC:

• What’s the Fed Do. Expect something or nothing mid-September.
• Obama or Romney? And which party will control?
• Fiscal Cliff or Over The Edge? Politicians need to do or not do. Taxes could kill any recovery.
• Europe? Long road and still unclear if break-up or ‘Make-up’.
• China? Hard or soft landing for their economy?
• Policy wonks? Will politicians get back to work and fix or not?

2009 Obama Administration established a goal of 1 million electric plug-ins for our domestic electric cars to be installed nationally by 2015 –now that number is considered wildly optimistic. General Motors ( ) has sold less than 11,000 Volts. Nissan has sold about 3500 electric cars in the U.S. And the United States government has poured $1.26 billion of taxpayer money to promote their electric car agenda. Now China (the big country to the east) has offered to buy A123 Systems, manufacturer of car batteries and other electric stuff. A123 stock is trading at fifty cents (No, not the Rapper ) down from about $20.00 a share when the company went public in 2009. This story is not so much about our waste but news that since 2008 China has been on an acquisition chase of energy firms and has snapped up over 1400 companies. The U.S. (snooze) politicians may want to start to worry about the way China is simply buying proprietary U.S.intellectual property on the cheap. We pour in the dough-Wall Street punishes & scraps are picked up for a song. The deal will commence with a needed bridge loan before the deal is done. And yes, the U.S. needs to approve the deal….so consider it done. Makes you sick just thinking about politics, the government telling us what we need and Wall Street voting company stock into toilet paper. And our competitors benefit!

Markets Held Thursday. Jobless claims fell by 6,000 (every little bit…). Home prices climbed and consumer confidence fell. More slowdown in Europe and in China, as inflation and industrial production pressures Asian giant. Support for domestic markets appears to be 1400 on the S&P. Anywhere below expect a run for the exits in a very nervous market that has had a nice run. Markets Take Back What They Give? Trade and Sell when S&P moves below support and come back and buy when support level is reached. Look to my podcast on stock charting for clues to buy and sell. Conservative investors buy and hold over longer Simple Moving Average.

Lesson Uno. SmartMoney.com reports that investors have ‘shunned’ volatile shares leaving them at unusually deep discounts. Demand by investors for shares in companies that are perceived as safe have left them looking pricey (to some), and, according to Jack Hough, riskier. Utilities, for example, where earnings are spectacularly steady are 37% more expensive relative to shares of energy companies whose profits are based on oil and natural gas. There, the SmartMoney article reports, significant & compelling value in the auto, semiconductor, home builder and energy industries. J.P.  Morgan recommend Ford, Analog Devices, Lennar and ConocoPhillips.

CNBC reported on a special Treasury fund to prop up the Money Market Industry, When Reserve Primary Fund could not hold $1.00 par and broke the buck the Treasury quietly stepped in to quell nervous savers. The Treasury guaranteed in excess of $2.4 trillion of money market funds. This was when Lehman Brothers went bankrupt and many funds held Lehman paper. Those guarantees came pretty cheap to banks- just four basis points paid to the Treasury to guarantee (on the QT) their money markets. Who were those that needed backing? Only now do we know: BlackRock, BNY Mellon, T Rowe Price, Dreyfus and Legg Mason on the mutual fund side and JPMorgan Chase, Goldman Sachs, Morgan Stanley and Wells Fargo on the bank side. Back in 2008 when rumors were whispered we immediately used U.S. Treasuries for all our clients rather than the general fund.

Finally- Little Birds whispered in my ear Friday ayem that the rally was over and short oil and equities. Things were going to start their slide since the markets closed under 1400 on the S&P Thursday and as everyone knows 1400 was the magic number of support. Falling under 1400 was to be the kiss of death. Still equities managed a slight gain on Friday and S&P 500 index closed up at 1405- which could signal 1500. Reason for Bullishness is simply that the markets know things are so ugly that the Fed eventually has to step in with more easing- and more easing is an easy way to make money betting on the same side with the Fed. As long as there is hope for QE3 negative domestic and global fears will take a backseat. Expect something, so sayeth smart folk, from the Fed on this Wednesday.

Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Need someone on your side call Paul for an investment analysis.