That Was The Week That Was-3rd Week March

It’s Amazing How Much Bad Free Advice You Can Get On The Radio. I’m driving back from my accountant’s office last Saturday and listening to ‘talk-radio’. I only listen to talk shows while I am in my car, and Saturday the station I tuned in was hosting a ‘financial show’. A caller came on the air and asked the host what he should do with his ‘risky’ investment that mimicked the S&P 500-Index. Instead of asking the guy why he thought the S&P was risky the radio advisor right away came up with an ‘ off the cuff’ investment allocation that he proceeded to tell the caller would fit him to a T. The amazing thing is that there were no questions by this ‘expert-financial radio host’ about the caller. The radio host knew nothing about the person’s assets, job, age, inheritance, savings, investments, martial status, children, aged-parents, responsibilities, health, income needs, marginal tax bracket, earned income; or what part of the country he lived. The only thing he did know was that the guy thought the S&P 500 –Index was ‘risky’. Rather than ask and then explain that the Index was well diversified, had market risk and not extraordinary risk, paid a small but consistent dividend and had a history of providing returns, that over the long-term, exceeded the total sum of inflation plus most marginal tax brackets; the host instead decided to show off his financial acumen by performing an on-air asset allocation. This was about as brilliant as someone calling their doctor and having them diagnose their illness by hearing them cough over the phone. You really can’t fix stupid.

Speaking of Bad Advice… An argument between a bank and a client ended in settlement last Monday, according to the WSJ 3/16, in ‘Markets Main’ section. The bank gave the client bad advice that cost the client $9 billion. (That’s with a B) The settlement included the bank providing more advice to the client only this time for free. As Robert Daines, a lawyer and teacher at Stanford said, ‘It’s a bit like complaining of a hair in your soup and getting a discount on your next bowl of the same soup.’

This is Doctor Doom, aka Marc Faber, who is nicknamed for his well known bearish take on U.S. stocks. And when asked on CNBC March 12th on the program Futures Now, where he would be putting his money today he replied, ‘If I take a 10-year view, I think I will make more money in blue chip stocks.’ Yep, it may have caused  the sky to fall when the doomster said that.

 

  What Are You Worth? The Federal Reserve reported last Thursday March 12th that household net worth hit a record $83 Trillion (that’s with a T) in the 4th quarter last year. Most of the gains were due to increase in real estate plus household stock holdings rose with the broader markets. At the same time total debt (including government and business) increased by 4.7%.

 

30+Years Ago Americans Were Warned That Oil Would Soon Run Out & Our World Would Be a Cold & Dark Place Unless We Did Something- Quick!  The United States needed a reasonable energy policy back then, as they do now. Well, we know what happened. It’s like all warnings of bad things to come politicians and regulators did what they always do which is nothing, and business took over the problem.  The petro industry fixed the problem so well that today we’re actually swimming in the stuff and the price of oil is less than half of what it was a little over a year ago. Inflation is not even on the horizon because of the price of crude. Petroleum is a key ingredient to inflation. Petroleum is used in many products plus in the cost of transportation of those products, and with the price so low, and getting lower, it doesn’t appear that the Federal Reserves goal of 2% annual inflation will be met anytime soon. We could soon see $40 a barrel oil, and have it here for a very long time, according to one expert. The U.S. is buying 5 million barrels of oil for the strategic reserves, not because they need it, but because it’s on sale! The strong dollar has a lot to do with the current price of crude and when the dollar dips you can bet that the price at the gas pump goes up right quick. That won’t, according to some, get the price back to $100 barrel. It may, however, level off to around $60 by the end of this year. On the flip side energy firms that are in the U.S. are still poised to unleash more oil that’s been capped and waiting in drilled wells. According to WSJ 3/13/2015, Markets Main, the IEA (International Energy Agency) reinforced the prospect of a prolonged slump in energy prices, and said the U.S. output was surprisingly strong in February, even with the glut, and the black gold rapidly filling all available tanks. Just a month earlier the IEA said that price recovery was inevitable because U.S. production was likely to cool. No such thing happened. What is really happening is that U.S. producers are drilling wells but holding off on fracturing and water to free oil from shale formations. They are storing the oil in the ground which allows them to tap it quickly when prices recover- and oil will flood the market again. So it looks like maybe we should party like it was 1960s, or maybe 1990s, buy that gas guzzling SUV, crank on the heat or A/C, open the windows, and forget about conservation. It may be a very long time before we really do run out of oil.

MARKETS UP HUGE MONDAY THE 16TH MAKING UP FOR FRIDAY’S LOSSES. WEAKER DOLLAR, LOWER OIL.

 

And this made me smile…

How Much of An Interest Hike by The Fed & When?  It’s what inquiring minds want to know. According to the March 16th Washington Post the best guess is a ‘bupkis’ rate hike of a quarter of a point, and it could come as soon as June, but don’t be surprised if that date is pushed to September. Ed Yardeni, president and chief investment strategist of his own investment firm, said when the rate hike does come it will mean absolutely nothing. The central bank is still in uncharted territory and does want to be very cautious, said Kenneth Rogoff, a Harvard economists professor and former chief economist at the IMF. He also thought the first hike would be a quarter point.

Don’t expect a return to double digit returns on fixed income, dear reader. The days of money markets paying 8% are long past us and far ahead of us. The Federal Reserve will approach rate hikes slowly and methodically. They understand that raising interest rates could have a disruption not only on capital markets but on domestic tax payers ability to pay their bills.

 

MASS HYSTERIA?

How will a rate hike impact the markets? Best guess is when you base your calculation on a stock’s fair value on future earnings, dividends, cash flow and other financials; the net present value is essentially the same regardless of when the Fed raises rates. John Graham, a Duke University professor told Mark Hulbert of MarketWatch.com that he was hard pressed to come up with any rational valuation of equities in which a difference in three or six months in the timing of interest rates has a material impact on the fair value of common stocks. Hulbert concludes, There are plenty of things to worry about these days. But the timing of the first rate hike is probably not one of them. MarketWatch.com 3/17/2015

Wednesday was ‘The Day’. It was a right fine lollapalooza of a trading day too as Markets were off their feed for most of the day until the Fed indicated that they would raise interest rates slower than they foresaw just a few months ago because of a softening of the economy. Once word of the Fed’s scaled back intended pace hit The Street the party was on. Yes, there is nothing like ‘Free Money’ to whet the appetite of investors and the DJIA closed up 227 points, S&P 500 Index +25 and the Naz settled for +45 points to close a tad under 5000. The Dow closed over 18,000 for the day. You can expect (maybe) a rate hike, based on Wednesday’s statement, in December rather than September; but it could be sooner if the Federal Reserve thinks an increase is warranted. The reason for the change in the Fed’s statement was that ‘economic growth has moderated somewhat’, while export growth has weakened. Interest rate hikes will be implemented when further improvement is seen in the ‘labor market’ and when inflation rate of 2% is achieved. Bob Pisani explained it best by stating at CNBC that Janet Yellen put things in simple terms at her press conference so that even those too stupid to understand the subtleties of the Fed phrasing would understand their intentions. CNBC, WSJ,3/18/2015.

Business as usual.

 

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