That Was The Week That Was –1st Week April

 

Markets fell more than 200 points Friday on worsened jobs picture before closing down 41 on the DJIA. According to Mellody Hobson, CEO of Ariel Investments, talking on CBS news where she is a paid consultant, this was a warning to the Administration and politicians that they need to do something. Morningstar reported, ‘The economy serves up more warmed over gruel.’ The economic numbers were nothing that traders were not expecting, Johnson wrote, but this time the markets didn’t shrug off the bad news and acted accordingly. The sell-off isn’t an indicator of another recession, wrote Robert Johnson, CFA of Morningstar. This is a low-growth environment. Don’t expect, say some experts, including Ms Hobson, that 2013 is a break-out year. Longer Term More Assuring, continued Johnson. Auto Sales remain in the safe zone. Falling gas and commodity prices mean the consumer will start feeling better soon. Still there will be more immediate bad retail news. This is not an economy ready to zoom. Expect more plugging along.

Earnings Season!   ‘The consumer is still spending because they’re sick and tired hearing about the end of the world.’-Howard Silverblatt. Alcoa starts today, to report earnings, and you can bet nothing can move this stock. No great news, or moderately bad news can do anything to edge this stock either one way or the other. In 2008 it was trading around $40 and now $8.50. The big reports will be not on industrials or fast food but on the banks later in the week. That’s when JP Morgan and Wells report. Most analysts don’t expect anything out of the ordinary, and perhaps a small decrease here and there. If there is an extraordinary pop in earnings you can bet the markets will respond favorably.

 

There’s a slew of ways to take income from your investments. Most people think only of chasing fixed interest rates at banks, credit unions or buying bonds. I remember a day playing golf with three other old poops and one crying about the high yielding bond he owned that was called away. ‘What can I replace it with,’ he moaned. Now with bonds pretty well played out and the only way left for them is up, and when that happens things won’t be pretty, here are a few ideas on getting income:

• Stocks offer some remarkable dividends. Some pay more than the yield on the 30-year Treasury. Build an income portfolio as you would a anything else using a variety of sectors like telecomm, real estate, etc.
• Buy consumer  staple funds or stocks. Usually do very well in up and down markets.
• Did I write real estate? How about REITs? Shopping centers, apartment houses and the like all bundled up and paying a tidy yield. Yes, there are mutual funds that invest in real estate investment trusts.
• You can ladder your bonds. Make sure you stick with them to maturity. The longer the maturity the better the yield. Buy a five year, then another one for seven years, another out to 10-years; as one matures you invest farther out. If you buy bonds with insurance and die your family gets face value or market value, whichever is higher.
• Systematic withdrawal- target a % you want out from your total investment portfolio and the fund/investment company will send you a monthly, quarterly check for that amount. They’ll even deduct for income tax if its an IRA. You can get 4%to7% without hurting yourself.
• Annuities-always in the income business there are a variety of withdrawal methods that will get you a lifetime highest earning return and make sure either you or, in case you die, your family gets the principal back.
• Master Limited Partnerships send checks on the under laying equity. Usually gas, oil or coal.
• Mortgage bonds, real estate, emerging markets and other income producing assets can be found in strategic bond funds.
• Best bet is keep it simple and don’t think you’re smarter than the average bond trader- chances are you’re not. Always remember if it looks too good- probably is. 

NOW FOR THE REST OF THE WEEK’S NEWS & RECAP

Some Banks & Investment Types Play Games & Offer Extra-Ordinary Yield But Tied to the Price of a Stock. These are structured investments that are essentially bonds that pay a mouthwatering yield. I have heard of banks tying these bonds to investment names we’re all familiar with. As long as the stock stays close to the price at the time of issue everything is okay-dokey. But at maturity if the stock increases in value the bank gets the stock and the retail investor gets their money back.  The really bad news is if the stock tanks (like Apple did) and at maturity instead of getting all your money back (as you would in a normal bond) you get stock in the company. In the above case Apple at a big haircut and you have to wait for it to recover. This is sold and happens more times than you can imagine. Last year about 450 structured products were sold and linked to Apple. Lots more of these with other stocks linked to the bond than one would think.

Icky Monday Last. Tigers won their first game of the season but did it ugly. Middle reliever Smyly caused heart palpitations but Phil Coke stamped out any rally with 7 pitches in the 9th. The boy looks like he means business in 2013. Speaking of which the markets were just as ugly but finishing off 6 points on the Dow but the Naz was the big loser while gold drifted lower.

Domestic Auto Stocks Stuck & Here’s Your Problem. We own Ford and GM and both are doing well, acting like auto manufacturers and not like banks. Stocks of both have been moribund and investor impatience with them has been more than a little troubling. So what’s holding them back?

Analysts simply don’t like them. Ford is trading at half the average of the valuation of the S&P 500 based on comparison of P/E ratios. Only 1 analyst has a buy on the stock with 1 for GM and none for Toyota and Honda Motors. But there are 7 analysts who give strong buys for the semiconductor industries. If you’re wondering why- Here’s your problem! The average analyst has long memories, or not. The age of analysts may have something to do with traditional manufacturing versus semiconductors. Someone, at some time, has to take an interest to ignite any rally. The companies, while recovering, have broken stocks that have little analyst attention.

Tim Cook Listened! Last week I wrote how Chinese officials were on a rant on Apple  and I wrote that Cook should play nice- kiss-kiss, and that’s what he did in a letter posted on the company’s web site last week. Cook apologized for warranty issues and promised the company would replace and not just repair iPhones. He also said…well, it doesn’t really mean anything what he said and what they said, we know the Chinese can be very obstreperous when it comes to their businesses. And with one billion or so folks that could be in the market for a smart phone it is only smart to say,’ Sorry.’, and move on. Hopefully…

Yep, Tuesday Markets Up. Gold prices are falling off the table, as are silver’s.

Ouch! Simple reason why gold and silver are falling is that there are more and better places to make money in the markets. The Fed also signaled it may slow its bond buying later this year. Gold closed at $1568. and still fell in after-hours trading. Oil is off a touch as supplies are robust. The Dow was up 89 points.

Wanna Invest Like Warren Buffett only You Cannot Afford Buying Berkshire Hathaway- either A or B shares. BRK-A trades for $157,500 and the B’s are $105.14. In order to try and mimic ‘some’ of the Buffett’s portfolio the folks at ETF news suggest that you invest in an Industrial Average ETF ( or mutual fund) and a Consumer Staples ETF (or, again, mutual fund), and you should be able to replicate some of the Buffett’s investment portfolio. Sure, except the exact recipe percentage, the preferred's and other holdings that Buffett made and extracted from the sick and needy in 2008 and 2009. You get bare bones but not the price.

Last month I reported how the Federal Reserve made $89 billion and turned it over to the Government. Now we read that Fannie Mae and Freddie Mac, combined, made a net of $28 billion and sent that to the Treasury!  Critics of Fannie and Freddie say that they are making money on the difference between the cost of money and the cost of mortgage spreads. As costs on money increases losses could be reported on existing mortgages, so say critics. Naysayers may be reminded that the average mortgage is 7 years. This the length of time that it is either sold, retired or refinanced. All old interest rate properties should be washed out by 2019.

Markets Fell 112 Points on the Dow Wednesday. It was more than brutal earlier in the day but I think there is more to come. Gold was painful losing $22, and falling through support at $1550. Reason du jour is that comments that the Fed may lighten up in the bond buying department sooner than later this summer. Gold is now forecast to close at $1500 in 2014. Bank of Japan serious about getting from under the 15 year deflation cloud. The yen plunged after news of a concentrated easing plan was announced. (Deflation is like the economic bedbug, unwelcome and difficult to remove). Defensive holdings for conservative investors include utilities, consumer staples and health care.

Don’t Let Boo Birds Dissuade Your Convictions. Too many times you read, or hear, someone you think is smarter than you saying that buying such and such a stock is a fool’s errand. You dump your holding only to come back and see it’s tripled. Do your homework, follow the stock, put in stops for stocks and ear plugs for critics.

Markets up Thursday- Gold closed at $1552. Facebook announced a smart phone called Home.This should hurt Google more than any other firm. It’s not the phone but the setup when you open the phone it goes right to your Facebook page. This is where the mobility advertising is key. Google allows any app or program on their system and Facebook just took it right away from the folks that created it. Yep, you open and messages, et al right there. Zuckerberg said the ‘open Google’ technology would benefit Google more as other firms used the technology. And I got a bridge for sale!   More liquidity globally as G Soros says the Yen is headed for the basement. BOJ is determined to break the logjam of deflation. Still not everything rosey as short term things look bright but long-term many problems economically and politically. Experts say the markets are entering the 4th Spring Swoon as evidenced by Higher Treasury Prices. Flight to safety was also escalated by North Korea’s saber rattling. Get your buying list ready for later in the year. Auto’s had outstanding numbers and yet shares fell in both Ford and GM. Shares are less than they were in January. iPhone 5 will be best selling ever smart phone, reports Quentin Fottrell. Glitches in iPhone4S will be fixed and features enhanced. Not only will this outsell previous models but Apple keeps adding carriers. Currently Apple has 17,000 outlets up from 7,000 a year earlier. Mutual Funds, according to Investment Company Institute, took in more Investor Dollars last week. That’s the good news, the bad is that the dollars were just about evenly split between bonds and equities. Money markets and stable value funds assets fell. ICA states equity holdings in 401(k) plans down from 2009 by 4%.

Fear of Equities Continues to Be The Biggest Promoter for ‘Doing Nothing’ or ‘Earning Nothing’ Investors. Last time we saw this act was after WW2 and in the mid-1940s. The U.S.  bought and owned all short and long term bonds, more than today’s Fed. The failing of GM, Lehman Brothers & Washington Mutual (6th largest bank in the US), caused many retail investors to pause and continue to stay away from the stock market.

Reverse Splits were instituted in 13 Exchange Traded Funds several weeks back. What I found interesting was a huge exodus from the FAZ ETF, triple short Bear financial, on last Thursday. Friday markets tanked and it would have been the best bet of the day. I asked a buddy why and he said investors see the reverse and think they made a lot of money and sell. A reverse split simply consolidates shares. Citi did that on a 10-1 reverse and shares went from $5.00 to $50.00, values are the same but less shares.

Wal-Mart Schmart. The company had $5 billion of bonds maturing through October and Friday sold an equal amount in a 4 part offering.  The company’s weighed average coupon of 2.09 was about half the 4.02 paid on the approx $4 billion maturing so far in 2013, according to Bloomberg.

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

SECURITIES OFFERED THROUGH WESTMINSTER FINANCIAL SECURITES, INC. MEMBER FINRA/SIPC