That Was The Week That Was-1st Week September

 

The Message on Thursday was Clear- This is no ordinary September for the stock market. On ECB ( European Central Bank) news that they’ll be buying bonds, much like our Federal Reserve, the global markets celebrated. The Dow was up 245 points to close at a four year high. For a few hours investors forgot lousy numbers coming from China, glum economic news from Europe, same old unemployment numbers  and concentrated on bidding up stocks all across the board. If Wall Street was trying to signal that they approved of the president they couldn’t have sent a stronger signal than the one they did on Thursday. But, I wouldn’t want to bet on that.

Unemployment numbers were worse than expected. Still unemployment fell to 8.1% as more people opted out of the labor force. 

 

Voters are Investors, at least some of them are, and in a few weeks we’ll know who the President will be for the next four years. There’s lots at stake and analysts and investment types are already mulling what sectors they’ll be buying depending on who wins. But before I report what the smart people are recommending lets review what happened a week ago last Friday.

 The Ben Bernanke gave his long anticipated speech at the end of August and said The Federal Reserve would soon fire off another round of bond buying in an effort to boost the economy and bring down the unemployment rate. Benefits of a QE3 would outweigh the costs, he said, while pointing out that continuing high levels of unemployment would wreak structural damage on our economy that could last for many year. He also pointed out that the economy still faces many dangers, including self-inflicted wounds by the Congress and the administration. There doesn’t seem to be any question that a stock market (artificial as it may be) boost is coming. It could be September or December, that we don’t know but we know its coming and the markets know.

If the President is re-elected Bank of America analysts suggest that Health Care providers such as hospitals and also health care insurance plans would benefit. Life science, diagnostic and pharmaceutical distributors would be positive choices as would alternative energy providers.

 If Romney reaches the White House -Oil, coal, defense stocks such as General Dynamics and Raytheon.  Add transportation such as rails and the education stocks that have been regulated to death under the current administration and probably let free under Romney. Telecoms because of their high dividend payout and the new tax policy will also benefit as will packaging and foresting companies that have been regulated tightly under the Dems.

  Hang On- ‘It’s going to be a bumpy ride,’ according to Oakshire Financial, an investment firm that manages currency and futures trades, warns that we are in an artificially induced liquidity driven equity bull market that will last three or four months and end badly. It is fueled by too much cash, a lot of foreign money pouring into our markets and rising costs of goods and services.

Support for the S&P 500 is 1400, say the experts that know such stuff. Thursday before the Bernanke speech the S&P 500 closed a twitch under 1400 - (1399.99 or some such number)- signaling dire consequences if it did even slightly break and close under 1400. That it didn’t happen and markets rebounded on the following Friday, along with gold reaching new 2012 highs, is telling.

Bonds- this is the time to bet with the house. As bond yield falls bond principal rises. Which is what Bernanke wants is to lower the long end of the Treasury, making this bet almost a no-brainer.  Earlier in the year when The Fed Chief opted for no interest raises until 2014 I urged investors to seek the long –end of the bond maturity.

The Folly That is Facebook..? Not so fast, dear friends. There is something amiss which I cannot explain since I am not a Facebook member (It’s a compliance thing),  but the short sellers and the press are just loving it! I haven’t read this much virulent  malignant prose against a company or  person since Richard Nixon occupied the Oval Office.  Facebook is again in the headlines with financial scribblers a-wondering what the poor employee-shareholders are going to do once their November stock- lock-up expires? Why, the news writers lament, the stock is already shedding value faster than a middle aged geezer exuviates scalp follicles. Once multi-millionaires the fools, who are the Facebook employees,  will be barely able to get a fraction of that in today’s marketplace? I remember sticks and stones being tossed at Jeff Bezos, CEO of Amazon. Bezos was reinvesting in infrastructure rather than allowing billions build up in the corporate coffers. Today Amazon is the world’s largest retailer and does a wonderful job delivering what it advertises. You don’t read bad things about Bezos anymore. Mornngstar still likes the Facebook stock to $32.00 and recommends buying it at or under $19.00. Employees and current shareholders will do the sensible thing and hold shares, cancel the BMW until 2013 and jot down some names for their I told you so bread and butter notes.

The U.S. Consumer is Baaaaack! Here is more news the WSJ, Bloomberg and Fox get wrong and then had readers hunker down in their bunkers awaiting the cataclysmic end. But past reports were wrong. Robert Johnson at Morningstar wrote, that consumer spending is on the mend. The May/June slowing was a ‘statistical fluke’. Which means someone screwed up in the reporting and no one corrected them. When writing reports that move economies…Remember the rule its’ i before e unless it’s after c or you’re trying to spell foreign in which case there is another rule for that. The fact is that July’s consumer numbers rebounded sharply hinting that June’s numbers were not correct. There was strong back to school sales, retail stores reported. Putting the cherry on the sundae Home Prices in most areas showed a strong increase. Plus, Pending Home Sales posted gains. The good news Johnson reports is that the housing recovery has continued long enough it is no longer considered an anomaly. There may be more good news with Apple and Microsoft in the headlines for this fall. A new smart phone and a new operating system is sure to gather consumer buying interest.

Housing! Bank of America and Citi have started a program (small by any standard but still a start (something the Administration hasn’t done nor the Congress), to keep folks in their home and stop the hemorrhaging of real estate values. The deal is to have those who are under-water and behind in mortgage payments rent their existing homes back from the bank, rather than being kicked to the curb. The contract is for three years to rent, the bank forgives the debt, takes over the home and the owner loses any equity but gets to stay where they are and rent at a cheaper price than buying. It’s taken these smart people four years to figure this out and even now doing it at a small number in select areas of the country.

Futures Traders Blast Regulators. A court appointed receiver started work planning a multiday auction this fall to liquidate the Peregrine Financial Group’s Russell Wassendorf’s personal property acquired by stealing $215 million of customer’s money. Wassendorf was the CEO of the defunct futures trading firm and jailed for stealing hundreds of millions of customer money. Much of that from farmers who were hedging their crops. How the hell does someone steal $215 million over almost 20 years and get audited by regulators regularly and get away with it? If Wassendorf didn’t run out of money and try to commit suicide he’d still be running the shop. It wasn’t the regulators that caught him any more than they latched onto Bernie Madoff, who confessed to his kids. On top of that Wasendorf, much like Madoff, had close ties to the industry rules and regulatory commissions. This  clearly show that clients need to police their own accounts at least once a year. Call the firm that holds your assets and confirm that the assets that are listed on the statement are indeed there. As simple as that. And don’t call the number on your statement- Look it up!!

It May be The Luck of The Irish. A country that has been battered and bruised economically may once again be saved as an exploration drilling well off the County Cork has a potential field of over a  billion barrels of oil. At present Ireland imports 100% of its oil. It now stands to be a big player in the oil patch and just may find itself out of the European real estate mess it got itself into many years earlier. Providence Resources announced the find after successful drilling and exploring the deep water field since this past March. Experts called it ‘the well that just keeps giving.’

Madison Square Garden Deux? Two years back or so I was entertaining the idea of buying shares in the Madison Square Garden Initial Public Offering. But ‘experts’ talked me out of it saying management ‘Family’ was either lazy, incompetent or both. The Garden is NY’s famed venue for shows and sports. In addition the company owns the Knicks and Rangers! The reason I mention this is because investors can’t know what is going on behind the scenes. The Garden has turned out to be a ‘double’ for investors in about two years! Flash forward 2012 and the Empire State Building may be going public. The problem is with the 2,000 or so owners who purchased shares in the building back when both duck-tails and poodle skirts were fashionable. The building had been owned in part by the Helmsleys and with both their deaths Peter and Anthony Maklin are attempting to bring the Empire State plus 18 additional properties to market in a Real Estate Investment Trust. The problem is that the current 2,000 owners, most who have had shares passed down to them, don’t want to have anything changed. They get a very nice, somewhat substantial, income from the building. Plus, one $10,000 original unit in 1960 is valued today at $300,000. If the deal goes through the small investor’s stake in the ESB is diversified with additional mid-town NY office buildings and a development site in Stamford, Ct. If the Malkins are able to convince 80% of the current small shareholders watch for this REIT to come to market relatively soon. REITS provide relatively high level of income, special tax considerations plus a very liquid way to own real estate. You can also buy real estate through several mutual funds and exchange traded funds.

Up or Down 2012? Mark Hulbert of MarketWatch came out after Labor Day writing what most of us think we know in our heart- the markets will close higher December 31, 2012 than they are today. Since 1896 when the DJIA was created there was a better chance of the Dow finishing higher the last four months of the year if they were ahead of the year-to-date by Labor Day. Hulbert also cautions that September may be a rough month and he sees weakness. But the rest of the year stocks will make it a happy-happy Holiday.

Short Sellers are the Insects of the economic world. And I mean that in a good way. There is a country, somewhere in Asia, where natives look forward to marauding armies of ants that swoop through their villages, cities, homes and businesses and eat all      the nasty, unwanted bugs like creepy crawlers and roaches. Then the ants leave. Short sellers are something like those cleansing army of insects by invading en masse’ and exposing weakness in companies- it could be financial or in the executive suite. Sometimes short-sellers spot chiseling in the board room before regulators. According to Matt Andrejczak at Dow Jones the four big short bets going forward are: Radio Shack, J.C. Penny, Sturm Ruger and Green-Mountain Coffee (who’s patents expire this fall).  Did you know you can buy an Exchange Traded Fund that shorts an index? Call me if you want more information.

Last Week Started Ugly. The U.S. economy is slowing at the same time numbers show that China and Europe are both weakening. The Dow was off 100 points in about a wink and a nod almost from the opening bell but closed the gap by almost half at the close. This was also the 3rd straight month in August of contraction for manufacturing. Autos had great sales boosting double digits from all three domestics. Traders don’t seem to be ultra worried as the Ben Bernanke promised stimulus if needed.

Most Americans Don’t Understand the Basics of Investing.  The WSJ printed this news last Wednesday. The president of the Finra Foundation said, ‘There are a lot of people who think they’re good at handling their money but their behavior tells you otherwise. Those people are going to be difficult to reach and to educate because they don’t think they have a problem.’Local School Administrators and Teaching Professionals refuse to allow investment professionals on campus to teach because of a fear that students may use those same professionals to manage their money. I called the head of the Macomb Community College Community Education Department and was told that they were not interested in having someone like me who was an investment professional for that exact reason. The head of the department said she wanted students to be able to ‘go it alone’. I wonder what would happen if medical schools used that same reasoning and hired only professional teachers and no doctors with real patient experience.

PS- the sad part is that many people rely on their insurance agents for financial guidance and those agents know little more than their clients.

Our Friends at BlackRock shared this chart with me that I’ll share with you…

accounts with growth & income (dividends) beat out bond only portfolios over the long haul.

Waiting for The Stock Selloff That Never Came.  If you’re wondering why your mutual fund or ETF is lagging the indices is because managers have bet on a market decline that never materialized. Don’t just blame the retail manager. Hedge funds, as the charts illustrate, haven’t been that much better. Now managers may have to start buying. This will bid up the market making any sell-off even more painful. That’s the dilemma- play catch up or not.  

Vrrrrrm….Jack Hough in Smart Money slips on the swami’s towel and says if you missed buying stock in Ford now may be the time. August was the best for the auto maker in five years. Jack also calls Ford stock a bargain today. For example the stock sells for around 7xs this year’s profit forecast- or less than half the broader market. FactSet expects the dividend to double by 2015, Also, the company is now rated investment grade by S&P and Moody’s.

 

 

Zacks.com reports investors shouldn’t be ‘fraid of September. The Facts for September (gateway to Halloween):

• Since 1950 the average movement for stocks in September is just –0.8%.
• 5 of the last 7 September’s have been positive.
• 3 of the last 6 Septembers during election year have been positive.

Bill Clinton’s political commercials scoff at the oppositions desire to return to policies that brought on the economic collapse but he fails to mention that he was the one that killed Glass-Steagall that was part of the Banking Act of 1933 that limited what commercial banks could and couldn’t do. (He’s hoping you won’t remember.)  He said it best at the convention, ‘It takes some brass to blame someone else for something you did.’

For the Week Markets Were Up. Globally everyone was in the pool but U.S. was far from the top in a slew of upside for all markets. Italy was up almost 7%, Spain +6%, China +4%, Germany 3.5%, Brazil +2% and we were up 1.82% on the S&P 500. And just between you and me the Ben Bernanke QE3 won’t create 2 million more jobs. What it will do will keep rates low so banks can make more, keep bond investors scooping up easy pick’ens and Wall Street happy-happy. Business creates jobs and too much political uncertainty from D.C. for any sensible exec to start en-masse’ hiring.

Finally- FDIC closed one bank in Minnesota bringing the 2012 total to 41 closings and 1,000 others on the ‘troubled’ list. 

Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money. Call Paul when you need someone on your side.