That Was The Week That Was-1st Week July

  I wish I had a nickel whenever someone complained to me that not all their investments go up at the same time but they ALL go down at the same time. Buying different sectors and/or asset classes in one portfolio is called asset allocation. The concept of asset allocation, if done even moderately correctly, should have non-correlated assets moving one way while others move in another. It’s even okay for some investments to do nothing. The concept is to reduce risk and potentially increase return. Return is maximized by moderating down periods while the minimization of downside maximizes upsides. At least that’s the theory. Famed index fund creator Jack Bogle has preached owning only two assets- the total stock portfolio fund and the bond fund. He has said you can live your entire investment life rather well owning only those two. Unfortunately, in today’s world owning only two asset classes does not please the investment public or their investment managers. There are ‘holes’ to fill where investors and managers ‘think’ they see opportunities, and yes, even weakness.  Equity Markets are being see-sawed today on a regular basis. This is happening  more in times of discontent than perhaps in all the years I have been in this industry. This has frequently caused many equity asset classes to now move in tandem. So, for example, when a large cap value fund goes down along with the small cap growth fund it could mean that both hold similar investments; or both are being liquidated as investors rush to cash. (Apple is owned by various sector funds, for example). Even if an investor stretches their allocation to agriculture, real estate, metals and other more exotic and less correlated assets there is no guarantee of the perfect allocation in today’s world. But if you are complaining when some assets go up and others do not it is a ‘possible’ sign that your allocation is working. In this climate its hard to know for sure.

THE GOVERNMENT HAS FINALLY FIGURED OUT HOW TO TAX PEOPLE FOR DOING NOTHING. i got relations that’ll be awfully sore.

Justice Roberts, ‘ It is not our job to protect the people from the consequences of their political choice.’

White Castle. Home of the slider. The company has offered its employees health care ever since Cal Coolidge was in office. Jamie Richardson, President of the firm, said,’ Just because something is constitutional to us it doesn’t necessarily make it a good idea.’ Insurance premiums for  Nottingham Spirk, the company that makes the disposable SpinBrush electric toothbrush, among other items, was increased by 15%. The insurance company told the firm that the hike was based on anticipation of the new health care mandate.

Two Schools of Thought. Factory activity in the U.S. shrank in June for the first time since July, 2009. (That’s 2009 and not a misprint!) According to WSJ the rest of the world is slowing, too. Momentum is grinding to a halt as this appears to be a definitive proof that the European recession has reached the shores of the United States much like the flotsam from the Japanese tsunami . Not only are we seeing  slowing here but China is certainly slowing, even though they appear to be tossing money at building high quality steel mills in remote areas where nothing is happening. But…according to economist Gary Schlossberg at Wells Capital, this may be a ‘bottoming out’ period and good for the economy. A shortage of skilled workers also shows that businesses could hold off hiring until they get a better take of the future. Also, housing seems to be a bright spot in the U.S economy. Construction spending has increase o.9%, and Schlossberg says it could provide support later this year.  Home Builders according to MarketWatch may be 40% over bought.

Blackrock Called…and I spoke with the inside guy at the firm and we yakked about the abysmal price of oil. In fact the US of A has oil coming out of the wazoo. So much of the stuff is being stored that there is an official glut of oil. However, before you toss the energy funds away this could be a temporary situation. Blackrock explained that the U.S. could very well be a net exporter of gasoline this year. And reliance on foreign oil is slowly falling. But, with a slowdown in Asia and the E.U. the need for oil has slackened while production has slowed. A small but crucial respite  in the price of crude as dividends are still being paid on energy investments and reinvested at lower share prices. The value to investors  will be understood as the economies gradually get healthier. More of the stuff will be needed to fuel transportation and factories. Then as world-wide use increases the prices will rise. The strong dollar contributes to the lower price per barrel, and you should know that.

Fourth of July Eve as Markets Continued Their Ascent. A shortened trading day. It sort of felt like that Price is Right Game with the mountain climber yodeling his way up the hill as a contestant guessed the price of prizes. In other words- slow, steady with no real surprises. Gold for the day was off a bit, as was domestic crude. Brent oil hit a recent high as concerns over Iran saber rattling. The Dow ended up 73 points. David Rolfe of RiverPlace/Wedgewood Fund said in a WSJ interview that it was a good time to own Berkshire Hathaway shares, given their recent under-performance and Apple to $750. This is David… and this is not…

Everyone Who Had Their Power Knocked Off on Tuesday Raise Their Hand….! Not only did the storm race through town, knocking off all my civilized toys, but a new law in Michigan allows any blankety-blank to purchase semi-automatic firecrackers that replicate the sound of the London Blitz and reenact the event under my bedroom window. 

 Book Writer & Money Manager Howard Marks was interviewed by Morningstar’s Jason Stipp. Marks is publishing an illuminated edition of his original book that included his letters to shareholders. He points out that the individual investor may well be better off than the institutional investor for several reasons: Individual is more nimble, and can cut losses or move out quicker. (2) Institutional people have job fears if they do something wrong. (3) Then there is the institutional culture of competing with other institutions. Marks also says that European stocks should be cheaper even if an investor doesn’t know the EU outcome. He offers this as a chance of cutting risk in buying certain industries and stocks.  (Which goes in the face of common knowledge of not buying cheap stocks that could get cheaper or maybe I just didn’t understand the entire interview.)

TEVA –The generic drug giant got a boost Wednesday from Johanna Bennett at Barrons.com. According to Jo Teva stock could return 30% in the next 12 months. This is in the face of the shares dropping nearly 38% since April 201o. The analysis concludes that Teva is a cash machine with about $4 billion a year in free cash flow which would allow it to repurchase stock, boost its dividend (currently 2%) and invest in new drugs. Morningstar gives the stock 4 stars and a value of $55 a share up from its current est. $40.00.

Andy Griffith Museum in Mount Airy, NC.

and…

 

Heard  on the Frank Beckmann radio show….Many small to medium sized Michigan employers may opt out of providing health care insurance for their employees and instead pay the $2,000 per employee penalty, which is far less than the cost of health care. Employer provided health insurance may well be over.

Median Family Income drops 2% in 2012.

LIBOR pronounced lie ber is London interbank offered rate. Barclay’s CEO resigned when it was discovered his bank fudged numbers used in calculating Libor. The Libor number is supposed to mean the rate that banks will lend to each other and what they will charge consumes for loans. Bond rates are also calculated to some degree off the Libor numbers. By fudging numbers banks can charge customers more and themselves less.  It’s a way of making lots of money in plain sight. When asked one economist said the Libor was what banks did not charge each other but used to charge customers. There are eighteen global banking institutions that contribute to the Libor number. Investigators are discovering that there are about a dozen financial organizations that manipulated the Libor and Barclays is only the first in the dock. Experts contend that the cost could exceed one billion dollars, according to Thursday’s WSJ, on July 5th.

CBS News Reported by 2020 China Will Buy 30,000,000 autos a year.

Which brings me to Ford, which got a small bump last week, but nothing of substance. According to David Sterman of Street Authority, he likes the stock to double. Normally, David wrote, he would be a seller of Ford as news of lower earnings caused the stock to fall. But, he isn’t a seller of Ford as he thinks the news is overblown and the company is profitable in North America, and should do even better in the coming quarters. The company will have the new Escape and Focus in showrooms and this should spur new sales. He calls Ford a cash producing machine and believes that the company will have some $31.5 billion in cash in hand by the end of 2014.

Hasbro, Inc., is one of the largest companies in the toy business. Recently I’ve noticed several analysts posting their opinion of the company; and Morningstar gives it a four star rating. The ratings firms reports that they think that Hasbro has a significant lead over their competitors in the digital and entertainment sectors. They give the company a fair value of $43, in addition it pays a 4% dividend. The company also has a stock buyback program and has been increasing its dividend almost 15% over the last five years. With its huge licensing business well established ( Star Wars!), the company has a stable cash flow, according to Morningstar analyst Jamie Katz. 

Hold On! We Got Ourselves A Global Stimulus! Yes, sir, Bob, by gum, reports Friday of ‘coincidental’ bank action by the Bank of England, People’s Bank of China and ECB  that rates on benchmark short-term lending slashed (The ECB to (gulp) zero, the Bank of England to near zero and China cut by 0.31% to 6%). Plus the Bank of England announced an increased bond buyback program to cut long term interest rates. Central Banks in Kenya and Denmark also sought to cut credit costs.  With all that markets virtually ignored the action. On the home front domestic markets fell slightly as most traders were on holiday. Those who were not were waiting for Friday’s jobs report.

Last Year I reported to you about a Hedge Fund that promised Louisiana pension funds a ‘guarantee plus 100% liquidity’. ‘Buddy’ Fletcher ran the Fletcher Hedge Fund. In the early 1990s he reported that his fund earned 300%, and he was then viewed as a market ‘super star’. Hard times followed and the firm has filed for bankruptcy as clients have failed to get the ‘promised’ funds they had invested. No secrets, friends. More news on hedge funds in next week’s blog.

Friday’s Jobs Report Disappointed …as usual. The President has four more reports before the November election. If things don’t get better there could be a new occupant come January in the White House. ‘The’ Donald called the President’s policies, stupid. There have been moments over the past several years when there seemed to be promise of a jobs breakout only to see some global event trigger a regression. The Japanese tsunami and Arab Spring were largely to blame for a lack of economic progress last year.  Kathy Bostjancic, of The Conference Board, said, ‘This economy has no forward momentum and little help from monetary or fiscal policy.’ (I am scratching my head wondering when the last time I heard of any jobs related effort by our elected officials and I have to say Kathy is right.) Markets fell 1% on the news. The NY Times also reported that some companies will hold off hiring until they better understand the health care mandate and how it impacts their bottom line. Also, the Times reports, domestic lawmakers inaction on the upcoming ‘fiscal cliff’ creates uncertainty that is not conducive to hiring.’ …there is a lot of stupid going on in Washington.

Frightening…language Friday…as some internet financial sites deemed it fair to report that ‘Stocks Plunged!’. The concept of something plunging reminds me of 2008 or going over the Niagara Falls in a barrel. Certainly stocks fell but plunge wasn’t a word I’d use. Still stocks came back from their lows to close with the Dow off 124 points and  Naz off 39 and S&P finished  down 13 points. Gold and oil also off. For the week both Dow and S&P down but Nasdaq was slightly positive.  Tech took a beating Friday as did industrials. Global stocks like Cat came under pressure, as did materials. Nervous traders saw Spain’s 10-year note trading back to 7%.

Weak Jobs Could Drag The Fed Back Into The Game… The Ben Bernanke did say the Fed was prepared to do  whatever was necessary. According to the WSJ the more active central bankers believe that more action is justified because the economy isn’t making progress toward unemployment and inflation is low. What the Fed can do is still not clear. Some suggest that the Fed consider purchasing mortgage bonds as a more effective way of lowering a broad range of interest rates. Others suggest recommending not to increase rates until 2015, rather than late 2014. We can only wait and see what the Fed offers in the next few weeks.

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-5th Week June

  For some investors hunting for safety and fixed income higher ‘than ordinary’ yield opportunities  rarely ceases. They scour the earth and internet looking for deals. Investors are now cautioned that at some point, in the not too distant future, tactics need to change. United States Treasuries, at this point, don’t seem to offer much in yield (or appreciation) and, like a recalcitrant house guest, who has overstayed their welcome, common sense dictates that there has to be a parting of the ways. The ten-year Treasury sports an approximate yield of 1.65%, and it may well be overdone with whatever future appreciable capital gains to be squeezed out of it. It doesn’t seem conceivable that the Federal Reserve’s Operation Twist can lower rates even more over the next six months. Still, nothing surprises me in this fixed income market. Morningstar reported that the fixed income sector is at the ‘Foothills’ of change. Corporations that pay dividends are the du-jour Love-Child of Investors, and some public companies are instituting paying a dividend only to reap investment ‘needed’ dollars. The number of S&P 500 companies that are paying dividends has reached 400, a 12-year high.  A decade earlier companies that instituted dividends were considered ‘slow-growth-income’ and investors shunned them. Now investors are shifting their focus to both safety, income and growth. Many of the companies that had healthy dividends have seen their share prices increased to levels that investors may find uncomfortable. Still there are others, according to Wallace Witkowski, of Dow Jones, that may be just the deal for investors willing to buy and hold. The following companies have a decent payout and little debt. Here are four household names from Witkowski:

• Walt Disney
• CVS Caremark
• Colgate-Palmolive
• Cummins

What Some Experts Like: Morningstar reports that some investors think that stocks are not attractively priced. The analysts at Morningstar say ‘no-way’. The following are a few areas they’ve liked back in April of this year and some they still think have a lot more gas in the tank: Large Cap Value (stocks like GE, Abbott Labs and Johnson and Johnson); Energy sector (all beaten up and back in April energy was 14% undervalued and my little grey cells tell me the sector is undervalued a lot more in June!) and Financials (banks were downgraded by Moody’s last week but traders think this was way overdone. We’ll wait for earnings, there’s always a surprise.) 

Something Old, Something New and Someone May Be Blue….Managed Futures. Investors may see a new type of investment in their asset allocation from certain managed account firms- the Managed Futures Fund. Morningstar reported last week that Managed Futures usually have been reserved for Hedge-Fund-Like Investors, the Daddy Warbucks kind of folk but until now no investment firms have managed to bundle them into a mutual fund for us regular peoples. Managed Futures are now being touted as the latest Trend in alternative investing. The concept is that these un-correlated assets are able to reduce risk and increase return in an investment portfolio. The Managed Future fund invests in currencies and commodities to be bought at a future date and price. There are barely a handful of these funds to invest in and none have done an exceptional or even adequate job of preserving principal or making money. Read your statement and make sure you’re not buying something you possibly may not need and may cost you money.

Dan Dorfman, 82, Died June 16. Before Jimmy ‘The Mouth’ Cramer there was Dan Dorfman. Dorfman was so influential that the SEC instituted the Dorfman rule. Stocks he recommended 95% surged on average 13% and those he bashed lost just as much, if not more. Dorfman was huge in the 90s appearing daily on the now CNBC cable show and writing for Money Magazine. In addition you could catch him on Wall Street Week with Louis Rukeyser. In his later years he reported for the Huffington Post, after fighting off allegations of illegal insider trading. The sad thing is that the WSJ devoted a bare paragraph to his passing while the NY Times was more generous. What have you done for me lately in this biz continues even at death…

FYI…Fat is a problem in Kuwait. Read this somewhere but fast food, introduced by U.S. troops in-country, after first Bush war, is causing huge problem with Kuwait adults. Stomach staple operations very common.

Kraft Foods largest company to switch from shares on NYSE  to NASDAQ effective June 26th.  

Hunting for Greek ‘Gems’… George Elliott, founder of Naftilla Asset Management, has raised about $63 million to buy nothing but Greek stocks. Elliott, who says he has a history of buying distressed assets, refused to talk to anyone who had not taken advantage of the Russian currency crisis of 1999, the S&P 500 stock market crash of 2009 or the Argentine default a decade ago. He considers those moments the best investment opportunities in the past 20-years. Elliott is 39 years old.

Woody Allen’s School of Productivity. Funny man, director and writer has some rules of work that was shared in the pages of Bloomberg BusinessWeek June 25-July 1, 2012: John Lopez reports the philosophy:

• Have a Life
• Watch Your Margins
• Just Keep Swinging
• Don’t micro-manage
• Change slows you down.

Microsoft’s new tablet is super-keen- neat-o. Its thinner than Apple’s and made of ‘vapor deposited magnesium’. It’s called Surface and should arrive in October. The tablet’s protective cover also doubles as a keyboard. ‘ Golly- folks! It’s made of vapor deposited magnesium! How cool is that!   That’s almost better than kryptonite.

Once upon a time… a company called GMAC bought another company called Residential Capital. Rez Cap almost sank GMAC with its bad mortgage loans. Rez is bankrupt today and Fortress Investment Group, a hedge fund, is offering $2.5 billion for the mortgage business. GMAC was once owned by General Motors and today is an independently owned bank renamed Ally Financial. If you understood half of that – you’re a financial expert!

If you hold an investment longer than five days you’re considered a new millennium long-term investor. According to CNBC Monday the average holding period for the S&P 500 index is five days. True liquidity has not come back to the markets and short term players and high frequency traders rule. Partial to blame is ourselves as long-term fundamental investors.

Gosh! Markets were off a lot on Monday but came back off their lows to finish, well, off a lot but a lot less than where they were. The Dow was off 136 and the S&P lost 56 and everything else was off, and there wasn’t a whole lot of anything to blame except Europe. And, European politicians. Let’s not forget the pols. Sterne, Agee reiterates that Ford is still their top pick in the auto stocks.  They have a Buy on the stock and an $18.00 price tag. Earnings of $2.00 per share are still unchanged even though softness in European sales down 5.7% the first five months of 2012. Russia and U.K. sales have picked up the slack and South American sales are also down, and that weakness, according to Sterne, may continue through the rest of 2012. Industry fundamentals for Ford which include pricing and cost performance all remain on track. Shares have not performed as well as the company has with current share price closing last Monday at $10.19. On Friday news that Ford would not make analyst projected earnings caused the stock to be badly beaten up by Mr. Market. Shares closed to $9.50.

An Acquaintance of Mine Buys Only New Homes. He’s a snob about stuff like that. He gives a sniff of his nose when you say you bought a ‘used home’. You may as well have told him that you bought used socks and shoes and wear them. He’s a ‘new money’ kind of guy. And with ‘new money’ comes ‘new money’ rules. And so I thought of him when I read that ‘new’ home sales rose over 20,000 units more in May than was estimated by the Washington Tea Leaf Readers. There still is a record of ‘previously owned’ homes on the market but, according to Commerce Department, new home sales were up. That means that people want new and there is cheap money to do it with. Recently Toll Brothers broke ground on a new 2,000 home project in Orange County, California. This is a significant but small move. Overall Builders broke ground on 516,000 single family homes last month. Toll Brothers reported profits that bested estimates in the second quarter. I told you about watching home builders, now didn’t I!

Cody Willard wrote that Facebook is still a buy and every ‘tech’ money manager is trying to build their own FB position now that the stock has stabilized.

Consumer Confidence at 5 Month Low! Yes, I was shocked too (tongue in cheek) when I read that failure of the government to address jobs, taxes, housing and entitlement programs, while the stock market stagnates and Europe threatens to infect our economy has caused most Americans to lose confidence. U.S. companies, like Ford, are keeping an eye on the public’s attitude. Bloomberg, last Tuesday, confirmed what everyone knows and that is the stock markets fluctuates between gains and losses, in a narrow trading range that is almost impossible to predict. It’s not fun anymore! People are sick and tired of being sick and tired. Expectations are slowly dimming. Even people who have money are not spending as Darden Restaurants, owner of Red Lobster and Olive Garden, reported an unexpected drop in sales at their older establishments. The consumer is getting more cautious and even the drop in the price of gasoline is not luring the buyer out to play. Unemployment has held over 8% for over 40 months, the longest historical post WW2 period. The country cries for leadership and for the leaders to lead with confidence.

There is at least One Analyst with a Happy Face and Confidence! Tom Dwyer, Chief Equity Strategist at Canaccord Genuity, think the S&P has another 250 points of upside, at least! His reasons are a historic drop in interest rates, low energy costs and a slow recovery in housing. ‘It should spell gains for the market,’ he said to CNBC.

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-4th Week June

  Mid-year economic forecasting at Barrons.com was reported a few weeks ago. The range of conjecture from the group of experts shouldn’t surprise anyone who has  listened to talk-radio or ask their next door neighbor for financial advice. As one wag said Economic Forecasters give fortune tellers a good name.  For those that missed the article here’s a mini-recap of who said what. Scott Black minced no words when he said the U.S. economy was sputtering, but the markets were historically cheap. Unemployment, he pointed out was at 8.2% but counting those that have stopped looking or marginally employed and the real number is 14.8% (which I suspected but couldn’t prove). The rest of the world is in worse shape. Europe’s recession (our biggest single market) is causing an Asian slowdown for energy and commodities. Bill Gross, PIMCO C.E.O., and bond king extraordinaire, answered it would be another decade before the U.S. economy could stand on its own. He said the U.S. economy can ‘trundle’ along at 1%-2% growth, and hard to envision it growing faster than that. Mario Gabelli,  small-cap wunderking-, said if the president wanted to get elected he should have concentrated on creating jobs and greater clarity on the economy. He also said the markets would be up or down 5%, with lots of volatility. Marc Faber, a cynical bear who may be building his own bomb shelter, said things would be getting worse before they got better. But Faber always says something just as cheery, even during Christmas. It’s not surprising that Faber likes gold and Singapore REITS. Oscar Schafer said the private sector must provide the needed stimulus and politicians need to focus on the deficit. Fred Hickey said the world is worse off now than it was in January. He expects turmoil in the next six months. He said that the U.S. should think of more personal and federal austerity measures going forward. Fred likes gold mining companies and the Canadian dollar (no surprise!). Finally, Abby Joseph Cohen, predicted that we will continue to see economic expansion and that there will be political will to preserve the European Union. But, she cautioned, there will be an extended period of disappointing economic growth.  The bottom line is that things won’t necessarily get worse only may seem like it. Scary news will continue to pour out of doomster’s lips while healing continues. Both politicians and private sector need to get their acts together to make the process as painless to workers and shareholders alike.

Looking Ahead…Opinionated Alan Abelson, in his Up and Down Wall Street, Saturday, Barrons.com., notes and reports more of the same for the coming week and cites: ‘The Philly Fed index plummeted to…a low of 16.6..the lowest in 10 months…it doesn’t speak kindly of what’s happening in manufacturing, …a now-flagging economy….unemployment insurance remains at a six month high. China…disclosed that its manufacturing sector has stalled again….sending the Shanghai composite index ‘hurtling’ lower.’ Finally, Bank Credit Analyst gives credit for early moves by the euro folk but warns that progress is occurring at ‘glacial speed’. It continues that the path of least resistance for risk assets, for the near term, is down.’

Facebook Surges…shares powered ahead the week before by 6%. Chief technology officer Brett Taylor would be leaving the company for his own start up. News didn’t impact share price.

The company has been on a buying spree, recently purchasing Face.com, a facial recognition software company.

Support of Facebook is found  from two iconic companies- Ford and Coca Cola. Both announced last Tuesday that they planned on expanding their advertising on Facebook. Ford will spend, according to sources, about 25% of its total budget on digital advertising, this doesn’t mean it all goes to Facebook. FB closed Friday up at $33.08.

Put on a Happy Face! Each Morning, way before markets are open, and most people are up and about, I review the notes of the day before and jot them down for you to read at the end of the week. This morning Tony Bennett is singing ‘Put on a Happy Face’ on my iPod as I read Irwin Kellner’s opinion on the U.S. economy just a few hours after the Greeks voted to accept austerity, with about the same enthusiasm  as a prisoner choosing his method of execution. Kellner points out that a second recession is already here in the United States. He points to a slowing retail sales number, piles of goods in factories and a struggling housing market as tangible proofs things are ill. Not surprising, he concludes, that business and individuals are hunkering down. This in an election year, I may add, which does not bode well for the President.  Still the markets we’ve gotten to dislike, trade in a narrow range. On Monday the Dow was off a smidge while all other indices were slightly up.

Friendly Folks at Janus sent me their Fixed Income Outlook Newsletter. Instead of repeating everything Darrell Watters, Co-Portfolio Manager of Fixed Income, said you should know Watters and Janus like the corporate credit sector as the best risk adjusted return opportunities of all the bond sectors. The reason is that over the past year fundamentals have continued to improve, profit margins have been high and cash has been accumulating on balance sheets. Adding corporate income mutual funds, individual bonds and or ETFs may be a an excellent long-term source of income for investors right about here.

Markets Closed Higher Tuesday. Gold and oil were off. Investors were awaiting word on what the Federal Reserve would be doing to buttress the economy.

Secrets? A lot of people are plain fed up with what’s been going on with stocks, fixed income and the economy. They’re sure that there is some ‘secret’ to managing money with little or no risk. The secret ‘tell’ is in the indices. If a bank pays 1 1/2% on a 1-year CD and the 10-year Treasury yields 1.65% you just got to know that banks are buying business and that’s detracting from their bottom line. And if a bank fails and is taken over by another bank the new bank doesn’t have to honor the ‘promised’ rate of the failed bank. Nor does FDIC, which the higher limit of $250,000 expires in 2013, guarantee anything but principal. Some people make moves because they want to believe in some ‘secret’ that no one else knows. See the following sad story…

 Allen Stanford sentenced to 110 years. Stanford stole over $7 billion from 21,000 people over a 20-year period of time. He did it by recruiting financial planners, brokers, insurance agents and salespeople to sell his ‘better than any other Certificate of Deposit Savings Accounts’. These high paying saving rates were eye popping enough to steal entire family fortunes while Stanford lived the life of a billionaire. It was a Ponzi scheme second largest only to Bernie Madoff’s investment scam. It may take years for ‘clients’ to get a portion of the money Stanford stole. The same old bottom line is  If it sounds too good to be true…

Operation Twist Continues Through 2012.  This was announced Wednesday by The Ben Bernanke who also said the Federal Reserve had ‘other’ tools in case the economy weakened further. He did not give details. The Fed will continue to buy longer-term Treasuries, replacing shorter maturities in order to bring down or keep the rates low on the longer maturity government bonds. The result is that investors are expected to buy corporate stocks, with higher dividends. BCA Research pointed out that the path of least resistance for corporate bond spreads is to tighten in absence of a recession or a sustained and intense ‘flight to quality’.  The following chart from BCA Research illustrates the current cycle versus previous corporate spreads.

The Markets expecting more from the Fed fell slightly.

Big Fan of Energy. Investors are of two minds. One their glad they’re spending less at the pump and Two wondering if they should continue to hold their oil and energy funds. Remember as growth slows less energy is used to deliver goods and services and also keep factories humming. Second, and probably more important, oil is purchased in dollars. As the dollar strengthens oil gets cheap.Given time oil, through no fault of its own, will get dear without much of anything else happening except our dollar will lose its luster from investors looking for a safe haven. Investors who own energy funds should also look at their statement and see dividends being reinvested at lower share prices which will bode well going forward. 

 Time to perhaps put Starbucks on your ‘watch’ list. The company recently bought a ‘French’ bakery and now announced they will open this October their first Tea Only store. Tazo is a $1.4 billion brand. It’ll be their Tea store name. Also, Howard Shultz, recently returned as CEO, wrestled away control of packaged goods distribution from Kraft Foods (they were not doing the job).

Best Plans of Mice and Men… And just as the Fed finished confirming a continuation of their investment  policy Operation Twist markets fell 250 points  Thursday as Goldman Sachs told clients to short the S&P 500 index. Analysts at GS set short positions at 1285, or 4% lower than where the index was at the time. Energy and materials led the markets lower. Previously owned homes also weakened and prices declined    ( OMG- again!) in May. But the biggest monkey wrench into the machine of commerce was Moody’s the ratings firm. Moody’s downgraded the credit ratings of Citi, JP Morgan Chase, Bank of America, Goldman and Morgan Stanley. Crying ‘foul!’, Dick Bove of Rochdale Securities called it the most absurd thing Moody’s has done in the history of the company. (eh, where were you, Dick, when Moody’s  plastered AAA on mortgage bundles back in the day?) Moody’s explained that the banks would be earning less going forward as the economy cools. 

Friday Banks Rocked! 

Ignoring the downgrades by Moody’s investors snapped up bank shares as financials lead the market to a sorely needed up day. All the majors were up for the session, JP Morgan was one of the biggest advancers of the day along with Citi, Wells and  Morgan Stanley joining the party. In Europe markets were lower. Next week brings a test of what’s happening overseas and here at home. Watch Spain as banks there agree to convert their preferred stock to common, much as Citi did in 2009. Weekend news is the Spanish banks will ask for money this week and that the markets have been oversold. Lots of news to digest  right here at home this week as much of it involves weakness in the U.S. economy. Monday will see the release of the Chicago Fed activity index for May. Thursday will bring in jobless claims. But all the news could easily be set on its ear with the two day European Council Meeting in Brussels starting Thursday. Markets ended the session on Friday up and the Naz was the big winner ending up for the week. Gold ended at $1573 and oil barely peeked over $80.00 a barrel.

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