That Was The Week That Was-4th Week April

 

GDP Numbers Were The Economic News of The Week! Morningstar reported that the US GDP was Not as good as the report suggested. Overall the report disappointed. The data, said Morningstar, seemed to reflect the reality of the impact of the fiscal cliff and tax increases. Consumer increased spending by 3.2% but that could have been because of increased utility bills – not exactly what the report inferred that Americans were freely spending money on goods and services. Government spending also continued its slump. Housing was mixed with existing home sales off and new home sales up. Manufacturing is continuing its funk, according to Morningstar. This week look to Personal Income, US Manufacturing, Auto Sales (should be up!), and Employment numbers on Friday. More into my blog but here’s a chart…:

 

 

 

When is it time to sell a Mutual Fund?

There are a variety of answers- from ‘don’t know’, ‘wrong many times before’, ‘it depends, it always depends,’ to the more fundamental reasons such as losing a key manager, two lousy market years in a row, change in portfolio direction’, to the inevitable basic reason; it’s run its course and time for a change.

Fixed income funds are on everyone’s radar to sell and not because their bad funds but simply because these funds have run their course. And of course any returns left in these funds is pretty much all in the rearview mirror, and in the imagination of some stubborn investors.

Investors don’t like change very much and once they’ve gotten used to seeing a fund listed on their statement feel like it’s one of the family. They don’t think how bad the fund is or how much damage hanging on to it can be; just that it’s been there a long time and the notion of getting rid of it is too painful to suggest.

If the fund is simply going through a ‘process’ of consolidation or growing pains I may recommend holding it. But for the long-bond funds the process is too darn long and some folks will need to wait an entire generation before seeing the kind of returns they got in the last few years.

Think of the fund you have to sell as a 30-year old living in your basement and just let it go. It makes it less painful if you think of it as all the money you’ll save. Got questions on this, let me know.

Monday saw markets go south and then Caterpillar reported earnings and markets slowly clawed their way into positive territory. It wasn’t much but enough to peek over the fence and make Bulls feel better about the day. Netflix reported earnings, mucho better than expected, and the stock exploded to the upside by 25% afterhours. IBM was trading in the area of $212 a share a few days back. Earnings season and an investor conference looking forward saw shares tumble to $190.00.  REITS may now be seeing prisons as part of their portfolio, so reports Dow Jones. The privatization of industries normally managed by the state is giving way to some interesting opportunities. 

Tuesday Markets Motored Out of The Garage, Stepped on the Gas & Kept Going! Gold was up 1% to close over $1400. The Dow closed up 152 points. New home sales rose 1 1/2%. Not all news was positive the Federal Reserve Bank of Richmond reported negative business conditions, the index falling to its worst levels in 6 months. Apple reported after the bell and had better numbers and announced a massive stock buy-back up 50 billion dollars for a total of $60 billion, and a 15% pop in the dividend to $3.05 a share. The company added another $8 billion into the bank this past quarter! iPhone and iPad numbers were up over 80% from a year ago (and this is the bottom of the reporting session for Apple as new products and better numbers extend late in the year). iMac sales were lower and margins fell (this is where the Bears make their point) from 43% to 37.5%. Shares bounced in after-hours trading.

Some analysts call this stock a fist pounding buy, others say its the buy of the year. There are others that think the stock has lost its mojo and will fall to the mid $300’s. Others think that increasing both the buy back and the dividend will see the company through this summer until new product launce this Fall and 2014.

Stock BuyBacks  generally are not fruitful, say the Motley Fool. They point to HP, Intel and Disney as examples where the company bought back shares at the wrong time and the result wasn’t pretty. But…said The Fool. IBM did it right. It was able to buyback shares and pop the dividend and get share price a moving that rewarded shareholders on all fronts. So maybe Apple with their new CFO can pull off the same trick?

News article pointed out that Baby Boomers are in denial about Long-term care needs. While this may be somewhat true I am experiencing my most senior clients seeing their policy premiums increasing 80% after decade or so of premium paying. There is no guarantee that the companies will stop with one rate hike. Companies are bailing out of the business of long-term care insurance because of their poor selection and premium management. They are finding that those clients who bought the policies are not dying or lapsing the policies fast enough and so the supposition is that certain companies are increasing premiums to drive Mom and Pop out of owning policies. The insurance industry needs to examine its own and commissioners determine how companies are able to do this to clean up their balance sheets. Clients will find it difficult to replace current policies as all rates have increased, plus some may have health issues. One way is the reduce lifetime benefits to 5 year and perhaps eliminate inflation increase benefit. This would keep premiums near where they were.

Samsung Reported Record Profits! The smart phone manufacturer also saw its record $1 billion penalty downgraded to a piffle $600 million. Oh, how we love those that are not our domestic manufacturers and reward them!

GDP Numbers Best Since.?! Fast Growing Expanding Economy?! Seems all is not in the numbers reports MarketWatch. A jump in defense and restock of inventories may give a false sense of growth. Expecting over 3% the first number was 2 1/2% and that was with a lot of ifs as the markets were lower all day and the Dow on Friday closed mildly up and the rest of the boys down. The Commerce Department provided the following GDP numbers of previous periods as a comparison on how lousy and weak this expansion is (think politicians doing nutin!):

1991-2007: 3.7%

1982-1990: 3.8%

1980-1981: 4.4%

1975-1980: 4.3%

TWINKIES ORIGINAL RECIPE BACK IN  JULY…BUT FACING TWINKIE SWEET COMPETITION! Hostess Brands, the original sold off their assets and proprietary products to several companies. Flowers Foods owns some brands but no Twinkies but has their own version on the shelves as does Blue Bird which bakes Bingles while Mrs. Freshley (honest!) sells Dreamies cream filled cakes.  stop me before I go into a sugar coma…

An Idea Who’s Time Is Not Now…or Tomorrow or Ever…Jim O’Neil, Chairman at  Goldman Sachs Asset Management, said that Central Banks (like our Fed) should own common stocks in their portfolio and not bonds, cash, precious metals and junk like that. (He didn’t say junk though). O’Neil asks the question, ‘In a great time to own equities and such an incredible time and opportunity why should central banks keep so much money in very short term, liquid things when they’re not going to ever need it?’  Anyone check Jimbo’s morning OJ…

This is Ed O’Neil…. 

And this is Jim…

Chart of 10-Year Treasury Last 30 Days!

A slowdown is a coming as the bond chart shows. Remember the yield on the 10-year was over 2% at the beginning of the year and last Friday ended up at 1.66%! If the stock market engine still showed plenty of get-up-and go the yield should have been at or above where it was in January. This could be the start of the slowdown that’s been brewing for the last few weeks. It doesn’t mean recession, too many good things, just a slowing down.

Sell in May Doesn’t Mean Sell in May… Howard Gold explains that selling everything doesn’t mean selling everything. There remains some bright spots, he explains, like housing and autos. Keep basic overall core investments but lighten up on risk. Sell in May doesn’t mean this…. 

Questions call Paul @ 586 295-0430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

Securities Offered Through Westminster Financial Securities, Inc. Member FINRA/SIPC

That Was The Week That Was-3rd Week April

 

China announced last Monday slower growth and metals went off the cliff. Taking them along for the ride were global markets, including our Dow, S&P and Naz. That was the news but if you’ve followed metals in 2013 you’d have seen that gold was going sideways and taking a slow fade right from the get-go; and so was steel and even aluminum maker Alcoa had good numbers for the quarter but couldn’t make hay. Earlier this year we saw big investor names like G. Soros cut their gold holdings and at the end of 2012 analysts were predicting gold to finish 2013 in the area of 1600 an ounce. Gold was (and is) being used as a currency replacement, rather than an inflation hedge.  According to some analysts the game is afoot and gold could lose another $200.00.

Slowing China growth from a robust 14% in 2007 to a now 7.7% in the first quarter of 2013 signals a real slowdown in demand for overseas Chinese goods. The Chinese are learning what US brokers, businessmen and traders experienced in 2008 by cutting back fancy credit card lunches and even the tasty ‘knife fish’, a supreme delicacy costing $220 wholesale now cost $13.00. Beijing, according to the WSJ, hopes that the higher personal income will increase personal consumption in order to ‘rebalance’ the economy from investments and exports.

Bloomberg Reported that China’s weakening economic expansion and slowing earnings in the USA sent copper into a bear market while global stocks fell last week the most in 10 months.

Profits dropped at S&P 500 companies 1.1% in the first 3 months of the year, the first decline since 2009. Kai Fachinger, portfolio manager at RobeciSAM AG in Zurich said, ‘Growth outlooks are weak and the earnings season hasn’t exactly started extremely positive. Many market participants have their thumbs closer to the sell than the buy button.

Copper ETF Fell Friday 1.8%. JJC is the symbol and it’s down over 13% year to date. Copper is an indicator of economic growth, especially in China. The metal’s slump doesn’t bode well for global economies.

Friday saw options expiration as all indices moved up slightly but still ended the week in the red. Tom Lydon of ETF Trends reported last Saturday that saw equity redemptions right after they reached all-time highs. Not much enthusiasm last Friday and, according to Sean Kelly at Knight Capital Group, Inc., there are buyers but not with any deep conviction. Investors should look this week to existing home sale numbers, new home sales durable goods, jobless claims and updated GDP numbers. 10 Tech Companies Report Earnings this week of significant interest to investors including Apple, Zynga, Qualcomm.

 

Inflation isn’t here…it’s not even in the neighborhood. It will eventually arrive, like a distant  cousin to a family reunion, and if you attended my February meeting you may be wondering what Kool-Aid I was drinking preaching on how to survive and benefit from coming inflationary economic times when it may be a year or two down the road. First I made it clear I didn’t think inflation of the 1970s and 80s would reappear. That was a ‘special’ time when government spending, commodity price increases and bank lending all came together in one wonderful time and place. We can certainly expect higher interest rates as monetary policy gets unwound. Morningstar talked about in a recent web interview that when inflationary times arrive it brings a recession. Looking at a 60 year history they found the magic inflation number at 4%. We’re at 1.8%, sayeth Ron Johnson from Morningstar. The median number, because of the 1970s, is 3.1%. When inflation does come you’ll probably notice it first at the gas pump and decide filling the old buggy more important than a new pair of jeans or going to the movies. The recession process starts from that point. First it’s the jean factory feeling the pinch from higher costs shipping goods to the store close to you and then having to take them back and eventually laying off workers because sales were poor. The laid off employees would then cut back on stuff they would normally buy, which would cause folks in other industries to lower prices, lay off their second shift and the process begins to spiral into ugly. While the US Government doesn’t count food and energy in its inflation calculations you should know that food and energy probably count for 20% of all spendable dollars. Inflation and recessions go together like fine wine, candles and Johnny Mathis CDs. And whenever I am asked when inflation will arrive I say that I don’t know the exact date but its usually when bank lending, interest rates, commodity prices and government spending all get out of whack at the same time.

Stuff I Found Looking Up Other Stuff. George Soros holds positions in 107 companies. Warren Buffett owns 41 stocks and Carl Icahn owns 16. Why should this make any difference to anyone is that some investors need thousands of holdings to feel comfortable when all they’ve done is reduced the chances of making money. Sometimes more- lots more- isn’t a lot better.

When Is The Middle-Class Going To Stop Protecting the Uber-Rich? The Obama Budget calls for a cap on contributions to individual retirement plans. Some financial writers are getting all hairy over the ‘proposal’. Seems the suggestion is to limit the amount of contribution to a calculation that buys an annual annuity income of $205,000, which is about $3 million. The bloggers are suggesting that this ‘budget recommendation’ is a serious threat to retirement savers. What saver are they alluding to? As a conservative I have to believe the middle-class spends more time fighting for the benefits of the rich than the rich spend time benefiting the middle-class. It’s time to stop! Hey, you listening?

In Japan REITS are a-Rocking…While our income producing Real Estate Income Trusts pay a modest 2%-3% the Japanese equivalent churn out an eye-popping 17%-18%!  Why are the Japanese funds paying higher? Not only do they pay income but also distribute an estimate of what the capital gains will be. The problem is with US REITs that hold Japanese REITS and if, and when, the yen stabilizes the Japanese may not be able to sustain such a handsome payout without selling some of their holdings. This will not destroy US based investment REITs but put a crimp in their returns.

GS sez Interest Rates will rise significantly in the next few years.  While Goldman predicts about others their stock has fallen since the beginning of the year and investors are flummoxed. Revenue from fixed income, currency and commodity trading is down at the investment bank 7% from a year ago and a full 25% less than in 2011. Tuesday Markets charged up the hill – getting some of what was lost Monday back. The Dow was up 158 but Oil fell farther back to trade under $90 a barrel.

Quick Quiz- What Countries Own The Most Gold? The total gold owned by nations and institutions is 31,695 tonnes. The US and Germany are the largest holders with Russia number 7. Mark Hulbert writes that gold’s fair value is $800 an ounce. It could be worthless if no one wanted it or could use it.I don’t know where he gets that number. The metal is underpriced to where it was in the early 1980s imputing inflation. According to some gold should be trading in the mid - $2,000 an ounce range. Again that’s based on where it was then and today.  John Paulson is said to have lost a $1 billion in the gold route in his hedge fund. Paulson said he isn’t selling and plans on holding ….until the last investor turns off the lights. Late word from one major mutual fund company that reported they were not selling their gold holdings as they viewed them as a long-term hedge.

Wednesday repeats as all indices down again. Gold fell a smidge, but just a smidge, and picked it back after-hours. Bank of America has serious issues in the mortgage department but I didn’t have to read the report in the WSJ to learn that. Either I got caught in the perfect storm of incompetence when I remortgaged one casa with them, or its a systematic problem the bank needs to get organized and fixed. I had Citi refi one place and Bank of America another and the difference was like watching the 3 stooges one one side and a well oiled professional team on the other –Citi- doing its job and doing it well.

Moody’s May Downgrade $12.5 billion in Muni-debt. Concerns in the $3.7 trillion muni-market are centered on certain cities and investors can expect a possible downgrade sooner than later. According to reports Chicago,  Cincinnati, Minneapolis, Santa Fe and Portland are in the risk rating company sights. Bankruptcies for both Stockton and San Bernardino, California. Bankruptcy wipes out any and all agreements including pension, benefits and loans.

Market Corrections Come From Strange and Always Unexpected Places.

Concerned investors should remember, if this slowdown continues, that housing is gathering steam, home prices are slowly increasing, job hires are getting slowly better and manufacturing is pushing ahead. The US is not full steam ahead by any sense of the imagination and the first quarter was a delightful surprise to many who thought the world would politically end. We will continue to report progress as we promised in 2008.

Curious what’s leading the markets down? It’s What lead them up!

This is the chart of FAS ETF 1 year. Its the triple leveraged Financial ETF and the fund is compared (red line) to the S&P. Now see that little ‘tail’ at the end of the chart?

That’s this chart below- last 5 days until market close on April 18th for the FAS’s. Because of the leverage the financial etf FAS is seen falling faster than the S&P ( red line) and is not an optical illusion. (You can see these charts on Yahoo.com).

Markets off Again on Thursday. Attention on the Boston maniacs rather than markets. Senate kills any compromise on gun law and according to news reports the NRA wins another round. The vote was 40-60 against. I have no problem with guns just some sensible sporting rules. 

Fitch downgrade Britain. And according to Bloomberg, no one cares. Rating agencies aren’t telling investors anything they didn’t already know. Bonds issued by the UK barely budged in price.

Chinese tourists spend $102 billion  on 83  million trips aboard more than any other people. I think I saw most of them last week at the Greektown Casino.

Finally- FDIC closed 3 banks Friday. 2 in Florida & 1 in Kentucky bringing the total ytd=8 banks closed.

Questions call Paul @ 586 295 0430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

Securities Offered Through Westminster Financial Securities, Inc. Member FINRA/SIPC.

That Was The Week That Was-2nd Week April

Happy April 15th!

 

Plagiarism is the sincerest form  of laziness. Since I got nothing last Sunday but Morningstar reports every quarter on the scariest numbers here are a few:

1. 6.7% Tax leveled on all deposits of less than 100,000 Euros in Cypress Bank Accounts.
2. 1,000 Euros only allowed to be taken off the island of Cypress.
3. 57% of US workers who have less than $25,000 in savings.
4. 49% of US workers who say they are not at all too confident that they will be able to save enough for retirement.
5. 6% retirees who said they retired after age 70 in 2013.
6. 26% percentage of current workers who expect to retire after age 70.
7. 12% Euro zone unemployment rate.
8. -14% Apple’s share price performance in the first quarter.
9. 2.27% dividend yield of the S&P 500 Index.
10. 60 million Window’s 8 licensees sold without any real excitement.
11. 20% of women’s pants at Luluemon removed because of unacceptable sheerness. I’ve been lead to believe the designer was canned…really!

Remember Jeffrey Vinik? In the 1990s he was the manager of Fidelity Magellan and known as the guy who changed the fund from a growth fund to a bond fund because he ‘thought’ the markets were going south. They didn’t. He sold stocks and bought fixed income. Markets didn’t tank for another five years but Vinik’s timing was so bad that Fidelity ‘excused’ him from the helm of their flagship fund. Today Vinik is a billionaire owning the Tampa Bay Lightening and managing Vinik Asset Management, a hedge fund. The news is Mr. Vinik isn’t doing too well in 2013 with OPM anymore than he did in the mid-1990s. Returns are pathetic and investors are running for the door, even as the firm announces restructuring of its investment management talent. Some things are just so easy to spot…

China Investment Company is a $500 billion sovereign-wealth fund. So far the fund has invested $6.3 billion in US companies between January and September 2012. In 2010 there was more that $5.8 billion invested in US industries. Now some places are rejecting investment from CIC. ‘Some politicians view Chinese money with suspicion,’ said the CIC fund manager Mr. Lee. A toll-road investment in Bellevue, Washington needed funding but the mayor told the Chinese their money wasn’t needed. CIC said it takes a low profile and while thinks the US is more open to outside investments than other countries the company doesn’t want to be seen as a ‘saboteur’ of industrial companies around the globe. The fund earned more than 10 1/2% in 2012 after posting a 4 1/2% loss in 2011. Maybe it’s that computer hacking and spying  that’s got us a little unnerved…

Rising Home Values Continue. Time Magazine reported, Rising home values have a broad benefit. Home values are seen as increasing by 6% a year from 2014 to mid 2017. Every $1 increase in household net worth yields 4 to7 cents in spending the next year. And, as everyone knows, spending is what drives the US economy.

Monday Markets Underwater Most of The Day then rallied to close up all across the board- even Gold moved up and so did Alcoa as they reported a 59% upside to profits. Don’t get too excited as this was a one time cost cutting and benefits even though the price of aluminum rose and cut into profits. Shares were up 15 cents in after hour trading. JC Penny board fired ‘store-within-a-store designed Johnson. They brought back the old team that was running old JC into the ground. The exercise cost Penny’s about a billion in losses in 2012. And, yes, according to analysts the old new regime has no plan. Expect this company to be doomed for some time.

I follow Cody Willard. He sez, Apple $1000 in 2-5 years. Okay plenty of wiggle room and who’ll remember anyway? Willard is also holding inordinate amount of cash and shorts on Goldman Sachs. Wednesday he wrote the First Solar was ready to move. FSLR closed up $36.32.

Stick a Fork in My Eye! 97 month car loans? I’ve never had relationships that lasted 97 months! According to Experian 17% of all auto loans were between 73 and 84 months.  Car makers have mixed feeling since the longer loan keeps buyers out of the showrooms longer. Lee Iacocca originated the 20% down and $56 a month for a 1956 Ford in…what was that year?

Best Bank Stock to Invest In? According to  Morningstar its Wells Fargo. Has a solid dividend of 3% and increasing. A sweet balance sheet and does nothing with smoke and mirrors. A simple approach to banking that makes it a delight to own. Morningstar also reported that banks will probably not be the earners they were before the crash as they have less leverage to earn.

Markets up Tuesday but Dow Transports were Down- Again. What wins ball games is solid defense! This year I am a big fan of defense instead of an all-out rambunctious offense. (1) Consumer Staples (2) Technology  (3) Real Estate (4) Health Care (5) Emerging Markets – both equity and bond. Own some or all in the above and you should whether rough spots better than most.

Can we talk? Penny’s fires uber-retail savant ex-Apple retail genius Ron Johnson in the mid-point of his grand experiment of turning the retailer into a bazaar of stores within the JCPenny store along with fixed prices, which, as consumer, we all hate. Hedge Fund manager William Ackman of Pershing Square Capital Management, and a cozy buddy of Johnson was invited to sit on the board, cheer from the sidelines and buy oodles of JCP stock using Other People’s Money in his hedge fund. He paid abut $25 a share for JCP which is now valued at $14.00. Before he was fired the board considered Johnson a retailing wunderkind. Johnson brought along other Apple alum which, most realistically, will certainly be shown the door. While we think the problems at Pennys may be fatal for the stocks for some time the problem is hedge fund manager Ackman who loaded up his hedge fund with JCP stock. This only reminds me of Woolworths and K-Mart. Now Ackman who derided the old management needs that very team to boost store sales and his huge wrong-way bet. The company is looking for $1 billion to assist in the remake of its old-self. Occasionally you can bet the jockey but a poor rider on a sick horse rarely wins the race.

Speaking of Apple…Google alum Marissa Mayer and now Yahoo Chief in Charge have been yakking. Infamous Siri, which cannot take a joke, is in great part hosted by Yahoo engines, and she may see other Yahoo partnerships, so reports WSJ. Apple is looking to separate itself from Google and Yahoo may be the perfect buddy. Yahoo doesn’t compete with Apple in the same areas as does Google, Facebook and Amazon.com. Yahoo does not own a mobile device, a search engine of its own (it uses Bing), or a social network. Marissa, speaking in Davos, said the firm was looking to build strategic partnerships. (hint, hint!)…nothing solid and maybe not for a-while.

Wednesday S&P Hit All-Time High & Held It. Japanese stocks rose higher as yen fell more- some 22% year to date. Cross currents between slow-growth, slow-down or continued stock market marching higher. Weakness in commodities dictate higher markets but Steve Reitmeister writes he is ‘uneasy’ about the current market. He gives four reasons:

1. Soft economic reports
2. Every Bull must rest
3. History repeating itself
4. Large Caps are now leading the market, safety is an issue for traders and behind the trade lurks a bearish attitude.

Same Day Different Room…Treasury yield forecast decline for 2013. Bloomberg reports that the world investor cannot get 100% out of bonds. The economies are struggling and the US economy is losing momentum, said Hideo Shimomura the chief fund investor at Mistubishi UFJ asset management. The 10-year is expected to top at 2.25% revised from 2.35% by year-end. Fidelity reported that the decline in global growth has kept inflation in check- so far this year. Has anyone checked the price of GS since the first of the year- off from its high of $160.00…

Effective May 1st- My New Phone- Old Numbers Kaput, Cancelled, Fini

New -586-295-0430

Microsoft May Have to Re-Invent Itself.

The operating system behemoth may be on the verge of being the new Microsoft. Intel may have to do something since its business is tied to the PC. MSFT stock fell 5% last week along with Intel and HP. Business and emerging markets appear to be the only markets left for them as mobile devices are the cutting edge of what’s happening now. The problem may be, according to the news in last week’s WSJ, that Microsoft may have come late to the party. Others say the company will do just fine and see higher share prices down the road.

Financials Reporting Friday Numbers Were Not So Pretty… Stocks were down 70 points but ended even and up for the week by the close. Gold kept falling- down another $69, closing at $1475, or officially bear territory. Not so pretty for either gold or silver since Japan entered the currency race to the bottom, getting admonitions from the US, of all places. Gold officially entered Bear Market territory and a few hedge funds are taking gas. Stephen Klein, portfolio manager at NY hedge fund AT, said, ‘Looks like gold has gone over a cliff.  Sentiment has changed.’

A One-Two Punch of lower consumer sentiment along with lower retail sales, both the lowest in nine months, helped to contribute to the volatility last Friday. Putting a soothing hand on the situation Michael Feroli, chief US economist at JP Morgan, said, ‘It’s not like things are falling apart, they’re just softening relative to a strong start to the quarter.’

Finally…Calamos Investment Committee provided this:

• Expect the US & Emerging Markets to lead the recovery.
• US equities are compelling by many measures.
• Investors should expect a sell-off.
• History shows a secular Bull Market. Focus on the long-term perspective.

Questions call Paul @ 586 295 0430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

Securities Offerd Through Westminster Financial Securities, Inc. Member FINRA/SIPC.