That Was The Week That Was-3rd Week June

 Buy What You Like and there is nothing wrong with that. Lots of investors get caught up in studying charts, fundamentals and annual reports (or doing what the herd is doing), and forget the most basic of investment criteria is to buy what you and others really like. Peter Lynch, the fabulous Fidelity manager, who made Magellan a must buy mutual fund back in the day, would say his best stock buys were those he found  when he really liked the service and product of the company. Lynch found The Gap when his daughter came back from a shopping trip gushing about the store. A client of mine discovered Panera Bread  stock because she so loved the cafe that she had to own a few shares. Another client called and said he loved Amazon, and so we bought a few shares and they’ve held up remarkably well through the sell-off and some experts believe there is more room to grow. I bought MasterCard back in the day (and sadly sold it too soon) because I loved the system that had no credit risk. Insurance companies were another sector I liked when interest rates were normal. If you find something you really like and others do too than maybe you should see if you can buy stock in the company.

Asian stocks jumped this Monday on news that the Greek pro-bailout party voted over the weekend to keep the euro zone intact. This confirmed two days last week of gambling by domestic traders that Greece would not leave the union. It was a narrow victory for the EU but it doesn’t mean all is well. Italy could well be next under the microscope and the G-20 meeting gets underway today for a 2 day meeting in Mexico. Europe will be on the agenda. On Wednesday the Federal Reserve meets and economists expect the central bank to explore more domestic easing.

If You Are A Daily Stock Watcher or Just One That Looks At Your Quarterly Statement the news lately hasn’t been pretty or nice. Daily stock watchers are loading up on anti- ulcer pills and quarterly readers wonder what the hell their broker is doing to earn his keep. Surely, they say, there has to be ‘something’ that’s making money. The fact that all equity indices have broken down since May 2012 tells you there isn’t much that hasn’t been touched by fear of European contagion. Even the darling stocks of 2012 have fallen on hard times, and here I’m writing of Apple that has given up 40% from its 2012 high. But, as we learned in 2009 not all bad things last forever. According to Tom Kilgore of Dow Jones, the markets may be ‘carving’ out a bottom much like what happened in 2009. ‘The daily volatility within a narrow range’, he writes June 14th, ‘is one characteristic of a bottoming process.’ Technical Analyst Bob Dickey explains, ‘The longer the bottoming out process the better the uptrend can be once the market breaks out.’ And as we all learned in basic money management – missing only a few days out of the year can make all the difference between huge profitable returns or no return at all.

Time Magazine Explored Global Misery

Writer/reporter Rana Foroohar, in the June 18th issue, concluded that the global economic mess is being served by bad global leadership and tepid tactics they employ. Instead of curing the patient leaders seem to be more worried about symptoms and trying to make them better. Monday last markets tumbled 250 points from top to bottom. They opened on positive news but when the news was examined markets pulled the plug and allowed it to sink. Whomever put together the loan to the Spanish made the contract so one-sided that once everyone understood the conditions they could see it for the joke it was.  The WSJ reported that instead of building confidence the bailout terms reflect repayment terms that fundamentally don’t address the economic environment. Loans would not be made directly to the banks but to Spain, which in turn would be responsible even if the banks fail. In other words lenders want to save the system but be guaranteed to have their loans repaid even if banks should fail.

John Hussman, portfolio manager of the Hussman funds, said the current financial system employed by global leaders is warped and stupid. ‘To restore the economy to growth there is no substitute for ‘allowing bad investments to work out badly.’ ‘The way to restructure a bank is to take it into receivership, write down the bad assets, wipe out the stockholders and much of the subordinated debt, and then recapitalize the remaining entity by selling back into the private market. Depositors don’t lose a dime.’

Who Loves Us, Baby? Foreigners love buying our homes at a discount is what’s happening…Five states are seeing huge number of foreign buyers. These are Florida, California, Texas, Arizona and New York. Richard Smith of Realogy Corp said foreign buyers are picking up two and three homes at a time and paying cash. Home prices in Miami, after falling by 50% from their 2006 peak, have turned up in recent months and were 2.5% above their year-earlier level in March. Survey shows that 55% of all buyers came from five countries: Canada, Mexico, China, India and the U.K.

 

 Markets zoooomed Tuesday! Investors think that the news is so bad that the Euro Leaders and the Fed have no choice but to up the ante for more of a stimulus, so sayeth Mark Hulbert at MarketWatch.com. The Dow jumped 163 points and the S&P added another 15 points. What leaders are doing may not be what’s in the best interest of anyone investors just don’t care.  The world didn’t end in previous sovereign debt crisis and may not when this one finally comes to a head.

• The Mexican peso devaluation.
• The government debt crisis in Thailand in 1997
• The Russian ruble devaluation in 1998
• Argentine debt/currency crisis in 2001

And more suppositions…Still it could get ugly with Finland saying ‘adios’, and leaving the Eurozone to go it alone, according to European news watchers who think the small country has had enough.

What they don’t teach at those Investment Seminars…Stocks reaching 52 week lows could very well go lower as Shorts pound them while stocks reaching 52 week highs could go higher…’

From one extreme? to another. Rating Firms rubber stamped bundled mortgage products with nary a peek under the hood. Only because they didn’t understand what they were examining. Now, working overtime, Moody’s, the rating agency, is on a path to downgrade banks such as Morgan Stanley, ultimately costing the firm as much as $9 billion. Downgrades cost firms more in borrowing costs. The frustration for the firms/banks is that fighting the raters is a losing battle. 

The chart above was published in Wednesday’s June 13th WSJ from Moody’s Investor Services Information.

 

Don’t Expect Much Going Forward…At Least For The Next Six Weeks. This from Bottarelli Research who completed their analysis of what’s happening with the admonition of ‘Not Buying Stocks Here’. The good folks and analysts concluded that in September the Bulls will attempt to take control. Until then there is little to do unless you want to invest in cash.  Markets fell Wednesday. Treasury Geithner said it would be fruitless for the United States to pressure Europe to solve their banking and sovereign debt crisis. He reasoned that the Europeans had plenty at stake and more would be explored at the G 20 meeting being held later in June at Big Sur.

A New Marketplace for Bonds? The WSJ reported that some institutions are looking at expanding the bond network. Thinking is not to replace the current over-the-counter trading of bonds but add a new electronic network to make bond trading easier for individuals to buy and sell bonds and reduce cost. The problem is that those organizing are the Big Traders and their needs may be in conflict with smaller ‘fund’ managers and the individual investor. The bond market dwarfs the stock market as for its listings but not for its activity as the below charts illustrates. The information came from the Securities Industry & Financial Markets Association and published in the June 14, 2012 WSJ.

Don’t Bet on Apple! Writes Hilary Kramer of Kramer Research. The stock is off 40% and she doesn’t think it’ll hit $1,000 a share. Kramer gives a laundry list of potential stumbling blocks and I’ll share a few here:

• Competition is everywhere
• Cannibalization of the Mac by the iPhone
• Apple TV =unprofitable
• Overzealous expectations on China market
• Unsustainable margins

She doesn’t see where the value is even though she  calls it a terrific company! There was no mention of price target just that there were serious reasons why Apple wouldn’t reach the $1,000 a share price. eventually, as long as they keep on-trucking…they very well may see that target price. Morningstar likes it to $740 and sez sell at $940.00.

Drama

It was that and more on Thursday as rumors hit the markets and shares soared on news that Central Banks were prepared with a ‘plan’ if the Greek vote goes against the wishes of the Eurozone. This is not how markets usually function (only in the oddest of occasions), but it’s becoming a permanent form of investment management. Stocks cheered the supposedly ‘intervention’ news. In the meanwhile stocks were up significantly on news that the economic picture was so bad that someone, somewhere in high places, had to do something. Plus the WSJ reported Foreign Investment in U.S. markets surged $28.7billion in the first quarter of this years, marking the 12th consecutive quarter of positive in-flow. The chart was published in the WSJ from info from the Commerce Department.  

Interesting… Louis Navellier wrote that investors should pay more attention to the CPI numbers that were released last week. The drop in Consumer Price Index was primarily due to the price of gasoline. The more money folks have the more they’ll spend. Lou writes that time after time consumers have proven that when they have a little cash they’ll spend it. And, since American consumers are the engine of growth, their spending is the V-8 engine of the U.S. economy (and probably the world).

Year-to-Date Sector Performance:

Markets staged a remarkable rally Friday. It seemed traders were laughing at a possible Greek default. Almost like river boat gamblers the market ignored the unknown and placed chips on the table that common sense would raise its head, and even if it didn’t the Central Banks would come running to the rescue. For the week markets were up and for the year the S&P was positive over 6%. Some would prefer the collapse of the euro and get rid of the nonsense of range bound markets and get on with the business of real healing and growth. Charles Gave of GavKal Research is one. He said money would flow to companies that didn’t depend on government spending. Those he liked would be J&J, IBM, Texas Instruments and SAP.

Questions, call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

That Was The Week That Was-2nd Week June

Risk. Investors understand that return in the equity and bond markets means accepting some risk. This may seem almost comical in explaining but some investors are still in a time-warp from the ‘70s’ where they would like twenty-percent return on their money with zero risk. A few folks out there think that there’s some investment secret. They’ll scour the earth, bend an ear to talking heads and believe anything anyone will say to them that is close to what they want to hear. People who first started investing around the 1970s were soon surprised to find that what went up also comes down. There is, however, a secret to controlling volatility and that’s Measuring Risk, using something called Beta. Beta compares risk in an investment portfolio against a definable index. In most cases an equity investment portfolio is measured against the S&P 500 index. If the portfolio has a historical performance of volatility less than the S&P 5oo it will be given a number less than One. If more it will be a Plus One. If it matches the index it is given a 1. An investment plan with less risk could have a number such as point seven-five or .75, or anything less than one. At point seven five (0.75)this is telling the owner of the investments that his or her investments have 25% less volatility than the S&P 500. Investments that are more volatile can be explained with numbers higher such as a 1.25 or twenty-five percent greater risk than the S&P 500. Every investment has its own Beta.

Risk Decreases As Time Goes By. Historical projections illustrate that the longer one holds the identical investment allocated portfolio the less risk one assumes. This measurement is based on the original contribution and Not on gains earned.

Investors Get Proprietary About Gains. It isn’t your gain until you cash out and put it in your pocket. Investors buy $1000 of stock and it may, over time, grow to $2,000. Mr. Market may take away the growth on the investment in one fell swoop and investors assume that it was their money they lost when in fact it was the gains on their money they lost. They may very well have their original investment intact but it is the gain on the investment that they lose.  It isn’t any less painful to lose gains but measurement of risk on gains plus principal can be illustrated using the same criteria illustrated over time.

Understanding Risk & Investment Efficiency are important components of managing an investment portfolio. Once an investor measures a portfolio against a known index then they can fully appreciate how well or poorly they are performing against the market as a whole.

Sell-Offs…The week before last markets on Friday tanked miserably. There were few ‘sweet’ spots and almost every index was down for the day. Only the pure Treasury and long-term corporate bond was able to gain a little or hold its own. Income associated investments that were allocated with stocks, bonds and cash were also hit but not as hard as pure equity investments. Utilities also saw some softness but not for the reasons that most would think. In a sell-off there is nothing sacred and positions are unwound with little thought as to losses, gains or safety of specific sectors. Leverage plays a huge part of professional managers positions. This along with options just aggravates the volatility of the market. Sell-offs, such as what we’ve experienced, have nothing to do with quality of holdings but fear.

 Secret to investing? If there was some hidden investment secret folks wouldn’t have to cheat and steal. Lately some of the biggest names in the business headed for the hoosegow as they were involved and caught in insider trading. There is always the goof that thinks there is some hidden trick to managing investments. There isn’t! Buying and holding quality at reasonable prices always wins in the end. Dividends reinvested during good times and bad usually account for, historically, 30% or more of the total return on investment.

If a stockbroker brags that they clear trades through a discount broker it ‘doesn’t’ mean that his customer’s trading costs are cheaper. It simply means the broker’s cost is less than going through a full-service or traditional brokerage firm. ITS NOT WHAT SOME SALESPEOPLE SAY- IT’S WHAT THEY DON’T SAY THAT HURTS… And a full service or traditional brokerage firm can and almost always discounts some trades to their bestest customers.

Monday Laura Metaj at Franklin Templeton called and asked if I needed some printed info on what was happening overseas to distribute to my clients. I said no, thanks, and that my clients were already over-loaded with information. Then I asked what Franklin Templeton’s thoughts were on the EU situation. In a five minute conversation we both agreed that the information from Europe was sketchy, the major players (France and Germany) cannot afford to see the euro fail and the smaller debt ridden countries cannot find themselves out of the Union. The loss would be catastrophic to all involved. In the meantime fear rules and the smart players are slowly buying quality to add to their portfolios.

 

Subtle was Monday last as Markets ended up mixed. Dow was off slightly as was oil. Everything else was up- slightly. To be honest it felt like it was the eye of the tornado. There has been too much fear too fast that has ripped a swath through portfolios that may take the rest of the summer to repair. Negative connotation is such that Mark Hulbert at MarketWatch writes that the correction phase is close to being over. He calls this the Hulbert Sentiment Index and it measures investor grief.

Our Friends at JP Morgan (the investment side not the banking side) sent us a news report illustrating a chart that shows even though, since 2009, markets fell and rose, the rose was always higher after every fall.  

Barrons and Others Report Starbucks is Buying a Bakery Chain with a ‘secret’ French recipe. The company is also hiring French baker Pascal Pigo to revamp  and refine the menu. Shares of Panera Bread may soon be feeling the heat. 

Zacks came out with the above allocation suggestions. Note no bonds, cash, high yield, emerging markets, mid-caps, real estate, commodities (gold, oil, etc). Nor is there a place in the allocation for option protection.

and, yes, Professor, they even spelled aggressive wrong!  

Facebook = $20.00 Yes, friends, that’s where whispers say the markets will knock it down to before starting to scoop shares up. Still folks at Allianz RDM Tech Fund offers up other Tech bargains to buy: Microsoft, Apple they like to $750-$800 a share, Google could see $650-$700 in the next 12 months. Finally they suggest Intel. 

The best kept secret in the Eurozone is Estonia. The country has worked out its debt, has a surplus and the economy is booming at 7.6% growth. When questioned they answered how they did it was through austerity and cutting everything. In three years they worked their way out of debt and into success.

Finally! Best week markets enjoyed in 2012 was last week. This was in anticipation of Spain asking for help and both sides of the Atlantic pitched in for a $125 billion bailout. This would not reduce Spain’s awful unemployment numbers of 25% or create anything other than quelling unrest among world stock markets.

Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

That Was The Week That Was-1st Week June

 

Markets Tank On Bad Jobs Report. Expecting  approximately 150,000 new jobs investors were surprised Friday to see less than half that amount were created in May. More bad news as jobs numbers for March and April were downgraded to less than originally stated. This by itself wasn’t the worst that the markets had to endure but also the lack of information coming from Europe and the increasing noise that not only would Greece be leaving the EU but a possibility of the euro being dismantled. This lack of transparency drives investors nuts and a selloff was on the way.

You Don’t Lose Money Unless You Sell. Most of us are grownup and know that. We also know that when there are days like last Friday when the Dow fell 275 points, the Naz lost 80 and the S&P 500 fell to 1278 (It was tickling 1400 not that long ago), that there is nowhere to go. The 10-year Treasury is under 1.5% and the 30-year is at 2.56%. Commodities, including oil are down, and gold is off its highs, although up on Friday.

I was having coffee last week with a client and said something to him that sounded a lot what George Soros said over the weekend. ‘Nothing can be done without German support,’ said Soros over the European problem. ‘The heavily indebted countries need relief on their financing costs. The Greek citizens may be frightened enough by the prospect of expulsion from the EU that it will lead to the government willing to abide by the current agreement.’ Soros explained, ‘But no government can meet the conditions so that the Greek crisis is liable to come to a climax in the fall. The likelihood is the euro will survive because a breakup would be devastating not only for the periphery but also for Germany.Germany is likely to do what is necessary to preserve the euro – but nothing more.’ Unlike the United States the EU is bound only by the euro and not by philosophy or politics. And that is their fundamental flaw.

Monday’s WSJ Spouted ‘Deja Vu’ All Over Again…

The above chart from the Wall Street Journal Monday edition puts it all in context. We have been here before. Central banks can only do so much and, as The Ben Bernanke has said over and over and over again, it is time for the politicians to do something. The journal article accompanying the above chart said that injecting more money into the system to lower rates cannot do much when rates are already at all time lows. Politicians keep treating symptoms and not the patient. Eventually, the Journal reported Monday, the patient will die.

There is Good News For U.S. Investors & Citizens. Inflation? There is no real inflation. The price of oil and commodities are down- but call that temporary with a strong dollar. Payrolls have shown a slight increase in the last 30 days. Auto sales were, again, up. Ford’s marketing chief noted Friday that the dismal jobs report shouldn’t impact sales as there was a significant pent-up demand for autos. After hour Friday manufacturing new orders were at the highest level in a year posting a 60.1, anything over 50 is positive for the economy. Add in strong earnings from across the S&P 500 sectors for the first quarter where 493 out of 500 outperformed the Street’s expectations and 44% showed double digit growth, and there is strength and growth (however mild) in this economy.

Heather Bousey wrote for Dow Jones that the poor jobs showing is the price Americans pay for a do-nothing (gasp!) Congress, focused mostly on austerity than job creation. She blames Congress for not acting on the American Jobs Act, which would have helped to reduce unemployment and create jobs. The private sector has added in the last 27 months 4.3 million jobs while state and local governments have been shedding workers since 2008, for a total loss of 660,000 workers.

Whitney Tilson said on CNBC that the dismal jobs picture is not as scary as one would think. There are 132 million jobs currently in the United States. He said he believes lawmakers learned from the collapse of Lehman a few years ago. Those who are doomsayers and calling for a catastrophe in Europe are missing an important point –“ World leaders won’t allow a complete collapse of the system.’

  Finally: Doug Kass- Sometime Bear & Doomster-Offered Up 10 Reasons Why He Is More Optimistic About U.S. Markets Than Ever Before:

• US Growth is superior to global growth.
• US Banks are well capitalized and liquid.
• US Corporations have strong balance sheets.
• US Consumer is more liquid and stable.
• US is politically stable.
• US has solid and transparent corporate reporting.
• US is not in a recession.
• US has a functioning and forward looking central bank that can be aggressive.
• US is rich in resources
• US is a magnet for immigration

 

INDEX STANDINGS  MAY 2012

and now for more news and updates…

Some swear by Target Date Mutual Funds…but Chuck Jaffe disagrees and I agree with his disagreement. In case you don’t know Target Funds are age or year based allocated actively managed mutual funds. The closer you get to retirement, or the target, the less aggressive the fund becomes. Target Funds are better in company retirement plans than simply using money market as a default investment but not as part of an investment scheme (lots of folks do that!). In fact, investing in a Target Fund should be all you do if you embrace the concept that the fund and its managers will get you from here to there in reasonable risk(less) fashion. The fact is the labeling of Target Funds is not specific for exactly what is under the hood, and Jaffe wants you to know that. There are almost 50 different categories of Target Funds. The fact that the managers are all vying for investor money tells you that all is not equal or risk(less) under the same individual Target Date fund banner. Better hire someone to help you choose before making a wrong choice and assuming all will be well down the road.

Before The Economic Collapse Designing and Implementing a Retirement Income Was Relatively Easy-Peasy. If you retired in the early 90s chances are you created an income plan based on historical returns and started pulling six to eight percent per year out of your account for income. As stocks and asset allocated investments trended lower advisors reluctantly tried to get clients to take less income out in order to stretch principal as long as possible. Today smart advisors are suggesting no more than three and a half percent withdrawal rate from portfolios. This, they point out, would preserve principal and still provide ‘sufficient’ income for the retiree. The definition of ‘sufficient’ is in the mind of the designer. There is a lot of math that goes into these calculations-specifically how to preserve principal. It seems, from what I read, most advisors do their calculation for middle-income earners on the same premise as if they were the uber-rich. And, this, we know, is that they are not. It therefore makes more sense to create and provide income that is needed and not an income plan that fits certain mathematical formulas. Income design is just as complex as investment planning and usually needs more than just the retiree to plan and implement.

Lets Think About This For A Second…if NASDAQ didn’t screw up the Facebook IPO and Morgan Stanley played things square would there be as much ‘bad publicity’ on Facebook as there has been? And…

Usually Options Play Is Not Available on a stock so soon after its Initial Public Offering. But someone doesn’t like Facebook (or maybe the other way round?), and offered option plays a week after its open. The exchanges make the rules on when options become available. This could make volatility in the stock even more so. There is a list of criteria before allowing shares to be traded on the options market- volatility and number of shares traded  are just two. But, me-thinks this decision was made long before the Facebook IPO. Shares in FB fell below $30 Tuesday.

Options Play on Facebook could drive the stock to $25 by mid-July (probably sooner), so wrote WSJ. Still, the Journal reported, many analysts are recommending the stock to clients at $40 to $48 a share.

With all the FB Noise…Apple shares are still below $600.00 CEO Tim Cook held a meeting where he enthused about new and exciting things the company was involved in. He also said the company would provide greater transparency, more than when Jobs was at the helm, with no inkling of what could be on the horizon. On CNBC the gang mused about the possibility of a new television (Apple has been working on that for ages) and a smart-phone wallet. The company is working closely with Twitter, and its important you know this going forward. Cook told his audience to ‘stay tuned’ as to whether the company would develop a plan with Facebook with its iPhone. Tim Cook, not to be confused with Steve Jobs.

 

Domestic Markets Up Handsomely Tuesday…. but I wouldn’t read too much into it…Oil below $90. and gold fell to $1549, even as some Central Banks added to their stores.

June a Turning Point for Markets? loads of meetings and other stuff…Worst 30 days in the last two years.

Wednesday Markets open down on worries over Spain! Quick, name three things we can’t do without from Spain? (A) Spanish Olives …(2) ?….(3)…?

A tricky question- what about Greece?

• Has the biggest production facilities for nickel.
• 15% of the world’s olive oil production
• 46% of Western Europe’s Magnesium
• Biggest producer of bauxite in the EU
• 5th in the world for asparagus exports
• 7th in the world in cotton export
• #1 in commercial shipping SOURCE WORLDPRESS.COM

10-year Treasury Dove to 1.620%

as the flight to safety continued Wednesday. The Dow lost 161 points, Nasdaq –34 and the S&P 500 lost 19.  It lost significant more to 1.45% yield through Friday.

The Question We Have To Ask Is ‘Do EU Politicians Have the Will & Desire to Hold Together Their Creation?’

Remember This Latest Market Spiral Started With JP Morgan Chase Announcing a $2 Billion Trading Loss. That had nothing to do with the EU…or, well, it was a loss as they tried to hedge and prevent losing money on any issues with the EU. 

Scary Talking Heads Are Out There…especially on Talk Radio. These folks are having so much fun during times of stress telling whomever that the world is ending. Even the Mayan calendar has been updated…

Sunny or Dreary For Stocks? muse the ‘Getting Technical’ Michael Kahn @ Barrons.com. For the answer Michael drags out a chart of the S&P 500 illustrating the 200 day moving average (prices of the S&P over 200 days as shown below) and states if the Bulls have their way they’ll keep things north of the 200 day moving average. He said that over the past week the 200 day acted as ‘support’ and resistance. On Friday the S&P closed at 1278. This was just below the 200 day average. 

Everything Acting Like Dead Weight? Commodities, especially precious metals, you’d expect to move up in worrisome times but investors are running to safety. That safety is the U.S. dollar. When the dollar rises it makes other stuff cheaper. A cheap dollar makes oil more expensive and the reverse is true. As investors its not too early to start putting together ‘Wish Lists’ of stocks you always wanted to own when the ‘Price Was Right.’ That day will soon enough be coming.

The Stocks That Make Sense Owning When the Economy is Working…. Material stocks like those that manufacture aluminum, steel, fertilizer and chemicals are the raw stuff that other companies need to make other stuff. These companies, according to Jeff Reeves, have trimmed the fat and have illustrated profitability. You can follow Jeff’s reasoning and buy stocks in those companies that include DuPont and Dow or invest in a mutual fund or ETF that concentrates on owning material funds. When the engines of commerce start humming you won’t be disappointed.

Questions call Paul @ 877 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.