Wednesday, August 31, 2011
Destruction = Destruction II
The president is about to introduce a highway bill designed to "save a million jobs"...
Not, alas, a highway bill designed to "save a million highways"...
My friends, there's a distinct difference...
The former implies that were it not for the 9+% unemployment rate, there'd be no need to spend billions on highways... And were there no need to spend billions on highways, billions would be applied elsewhere... The question is, if the bill passes, what exactly is the elsewhere we're going to sacrifice?
And what happens when the highways are done? Using Washington's logic, we better amend the bill to add six hour work days and three hour lunches for the labor... Sure, that'll get the economy on the right track...
To reiterate my previous column's point;
Plan A, we spend billions and gain absolutely nothing long-term...
Plan B, we gain something... (could be paying down the debt, not raising taxes, etc...)
Not, alas, a highway bill designed to "save a million highways"...
My friends, there's a distinct difference...
The former implies that were it not for the 9+% unemployment rate, there'd be no need to spend billions on highways... And were there no need to spend billions on highways, billions would be applied elsewhere... The question is, if the bill passes, what exactly is the elsewhere we're going to sacrifice?
And what happens when the highways are done? Using Washington's logic, we better amend the bill to add six hour work days and three hour lunches for the labor... Sure, that'll get the economy on the right track...
To reiterate my previous column's point;
Plan A, we spend billions and gain absolutely nothing long-term...
Plan B, we gain something... (could be paying down the debt, not raising taxes, etc...)
Tuesday, August 30, 2011
Politically Inspired
This stuff has to be politically inspired...
Article in Today's NY Times:
Where Pay for Chief Execs Tops the Company Tax Burden... At least 25 top United States companies paid more to their chief executives in 2010 than they did to the federal government in taxes, according to a study released on Wednesday.
You don't even need to read the article; the title says it all... And of course it made no mention of the personal income tax the CEOs paid...
In fact, think about it, since the corporate loopholes are so ridiculous (I sympathize btw), the more they pay the CEOs the better!!!! That's how Uncle Sam gets the "much needed revenue"...
I say we lower the corporate rate to zero!! That way the people who ultimately get the pay pay the tax!!
Ps: Of course the article goes on to cite Warren Buffet's recent plea to tax billionaires.... This is the same Warren Buffet who just did the $5 billion dollar deal with B of A (did a couple of others at the height of the crisis)... A deal that nets his company a mere 14% tax rate on the zillions of income it'll receive on this and other deals just like it in the years to come, which is a big part of what makes those deals so attractive... and I'm all for it... Berkshire will no doubt put that money to better (job-productive) use than Uncle Sam....It's the hypocrisy that gripes me........
Pss: Really? Someone really paid for a study??
Article in Today's NY Times:
Where Pay for Chief Execs Tops the Company Tax Burden... At least 25 top United States companies paid more to their chief executives in 2010 than they did to the federal government in taxes, according to a study released on Wednesday.
You don't even need to read the article; the title says it all... And of course it made no mention of the personal income tax the CEOs paid...
In fact, think about it, since the corporate loopholes are so ridiculous (I sympathize btw), the more they pay the CEOs the better!!!! That's how Uncle Sam gets the "much needed revenue"...
I say we lower the corporate rate to zero!! That way the people who ultimately get the pay pay the tax!!
Ps: Of course the article goes on to cite Warren Buffet's recent plea to tax billionaires.... This is the same Warren Buffet who just did the $5 billion dollar deal with B of A (did a couple of others at the height of the crisis)... A deal that nets his company a mere 14% tax rate on the zillions of income it'll receive on this and other deals just like it in the years to come, which is a big part of what makes those deals so attractive... and I'm all for it... Berkshire will no doubt put that money to better (job-productive) use than Uncle Sam....It's the hypocrisy that gripes me........
Pss: Really? Someone really paid for a study??
Destruction = Destruction
The MSN Money headline this morning reads;
Irene, The Stimulus Package? Hurricane Irene was a devastating storm, but it may end up giving the economy a much-needed boost.
I am forever amazed at how such fallacy survives in the face of common sense...
If you struggle with this one, read on:
Picture the cartoon:
A pile of money next to a perfectly good factory next to a vacant lot...
Picture a hurricane destroying the factory...
Picture the reconstruction: The workers, the concrete, lumber, glass, paint, and the manufacturers and distributors of said materials...
Picture the brand new factory and the pile of money moving through the economy...
So then:
Destruction = economic growth, right?
Hurricane good thing (economically speaking), right? Hmmm...
Now picture the scene without the hurricane:
Pile of money next to a perfectly good factory next to a vacant lot...
Picture the construction of a new factory on the vacant lot (with all the materials and labor mentioned above) next to the perfectly good building...
Picture the brand new factory AND the remaining perfectly good factory and the pile of money circulating through the economy...
I.e., Double the output for the same amount of money!!
So then:
Destruction = destruction, right? Right!
Hurricane bad thing (economically speaking), right? Right!!
Irene, The Stimulus Package? Hurricane Irene was a devastating storm, but it may end up giving the economy a much-needed boost.
I am forever amazed at how such fallacy survives in the face of common sense...
If you struggle with this one, read on:
Picture the cartoon:
A pile of money next to a perfectly good factory next to a vacant lot...
Picture a hurricane destroying the factory...
Picture the reconstruction: The workers, the concrete, lumber, glass, paint, and the manufacturers and distributors of said materials...
Picture the brand new factory and the pile of money moving through the economy...
So then:
Destruction = economic growth, right?
Hurricane good thing (economically speaking), right? Hmmm...
Now picture the scene without the hurricane:
Pile of money next to a perfectly good factory next to a vacant lot...
Picture the construction of a new factory on the vacant lot (with all the materials and labor mentioned above) next to the perfectly good building...
Picture the brand new factory AND the remaining perfectly good factory and the pile of money circulating through the economy...
I.e., Double the output for the same amount of money!!
So then:
Destruction = destruction, right? Right!
Hurricane bad thing (economically speaking), right? Right!!
Monday, August 29, 2011
Doing Freedom
0.85 people, on average, earning $47,000 per year, dot each square mile of the United States... 850 Rwandans, earning $1,200 per year, squeeze into each square mile of their Sub-Saharan home... What would you think if I told you there was a country where the average number of citizens per square mile are piled 18,000+ high? Talk about population density! And you thought the Rwandans had it bad...
To make matters worse, this massively overpopulated country is essentially void of natural resources...
So how on earth can people survive under such conditions? Quite well you might say...
Here's what Singapore has going for it...
*A per capita income of $62,000
*A 2.2% unemployment rate...
*14% real GDP growth...
*5.8% wage growth...
*2.8% inflation...
*More millionaires (in U.S. $ terms) as a % of households (15.5%) than any other country on the planet...
So how can that be?
Two words; FREE TRADE!!
Singapore has:
*Multiple free trade agreements...
*One of the five busiest ports in the world...
*The most open economy in the world (World Bank ranking)...
*The most business friendly country in the world (World Bank ranking)...
*Ranked #2, behind Hong Kong (with 16,000+ people/square mile) on the Economic Freedom Index...
What about us?
While Singapore is doing freedom as we speak, and benefitting mightily for the effort, the U.S. has slid from number three to number nine on the Economic Freedom Index... And therein lies the problem my friends! This move away from economic freedom is precisely why our economy is barely moving at the moment...
Simply put; a growing government = a slowing economy...
*Data taken from reports citing the following sources: Singapore Dept of Statistics, U.S. Dept of State, U.S. Library of Congress, CIA World Factbook and the Monetary Authority of Singapore...
To make matters worse, this massively overpopulated country is essentially void of natural resources...
So how on earth can people survive under such conditions? Quite well you might say...
Here's what Singapore has going for it...
*A per capita income of $62,000
*A 2.2% unemployment rate...
*14% real GDP growth...
*5.8% wage growth...
*2.8% inflation...
*More millionaires (in U.S. $ terms) as a % of households (15.5%) than any other country on the planet...
So how can that be?
Two words; FREE TRADE!!
Singapore has:
*Multiple free trade agreements...
*One of the five busiest ports in the world...
*The most open economy in the world (World Bank ranking)...
*The most business friendly country in the world (World Bank ranking)...
*Ranked #2, behind Hong Kong (with 16,000+ people/square mile) on the Economic Freedom Index...
What about us?
While Singapore is doing freedom as we speak, and benefitting mightily for the effort, the U.S. has slid from number three to number nine on the Economic Freedom Index... And therein lies the problem my friends! This move away from economic freedom is precisely why our economy is barely moving at the moment...
Simply put; a growing government = a slowing economy...
*Data taken from reports citing the following sources: Singapore Dept of Statistics, U.S. Dept of State, U.S. Library of Congress, CIA World Factbook and the Monetary Authority of Singapore...
How to Cure the Hiccups
Did you know that if you stick a Downy sheet in your pants pocket, mosquitoes won't come within a mile? That an unwrapped bar of soap under your covers cures Restless Leg Syndrome? That having someone hold your ears while you drink water stops hiccups? That you can have 25 inch biceps and a 25 inch waste, just like the person on the label, if you use Freak Of Nature protein powder? That if you hire Joe Sharpguy, a broker with We-Timers Investments, you can time the stock market perfectly?
Now Google "fabric softener for mosquitoes", "bar of soap for restless leg syndrome", "hold ears for hiccups", "protein powder", and "timing the stock market" and you'll find plenty of anecdotal evidence to support every one of these notions...
Beginning with the latter:
If Mr. Sharpguy isn't a trillionaire (cause he would be if he could time the market) don't even think about it... The next time you see or hear someone on national tv make a prediction, Google him/her... I promise (I've done it a hundred times), if he has a track record (other than the one you'll find on his website), you'll ask yourself "what is that network thinking, parading this joker around as a market-timer?" But don't be so hard on the network, they're just catering to the needs (naivet
Now Google "fabric softener for mosquitoes", "bar of soap for restless leg syndrome", "hold ears for hiccups", "protein powder", and "timing the stock market" and you'll find plenty of anecdotal evidence to support every one of these notions...
Beginning with the latter:
If Mr. Sharpguy isn't a trillionaire (cause he would be if he could time the market) don't even think about it... The next time you see or hear someone on national tv make a prediction, Google him/her... I promise (I've done it a hundred times), if he has a track record (other than the one you'll find on his website), you'll ask yourself "what is that network thinking, parading this joker around as a market-timer?" But don't be so hard on the network, they're just catering to the needs (naivet
Thursday, August 25, 2011
Different This Time??
In my two-and-a-half decade career I've come to observe that, in terms of cloud formations, no two financial storms are ever exactly alike - it is indeed "different this time". When it comes to human nature however - as you may agree (if not relate) as you read the following (Q and A) essay from the past - it's seldom "different this time"..
February 22, 2008
The following is a brief continuation of our pretend Investor/Advisor conversation. As you
Wednesday, August 24, 2011
QE Infinity
When I think about our monetary policy (which I do a lot these days), I become a little confused, because it's so darn easy to understand... The Fed, chaired by Ben Bernanke - the kid who (legend has it), at seventeen, taught himself calculus - employs a policy so simplistic and, alas, so seemingly ineffective...
George Mason University Professor Don Boudreaux, blogging at cafehayek.com, puts it this way;
George Mason University Professor Don Boudreaux, blogging at cafehayek.com, puts it this way;
"It’s as if a person who is bleeding to death because of a gunshot wound in his stomach is brought to a physician. The physician correctly realizes that the patient is losing massive amounts of blood and, also, correctly understands that such blood loss is dangerous to the patient’s health.
So the physician prescribes massive infusions of blood, period. If the patient doesn’t recover, the physician orders that the volume of blood-infusions be increased. If the patient dies, the physician will forever blame himself for not increasing the volume of blood-infusions even further.
If the patient does recover, the blood-infusions will be praised for saving the patient.”
I.e., the Keynesian-minded supporters of QE 1, 2, 3, Infinity, and fiscal stimulus (be it payroll tax holidays, cash for clunkers, money for Milk Duds, unemployment insurance extensions, etc.), would have us believe that the economy struggles because the programs were too small… That the volume of infusions needs to be stepped up substantially and right away… And if they’re not (stepped up), and we double-dip back into recession, the insufficient volume of infusions will be the cause…
Like I said in A Thousand Miles per Gallon, we’re (for the moment) “at the mercy of a few very bright, academically-gifted appointees who’ve proven to be most adept at test-taking and, alas, mess-making…”
I.e., the Keynesian-minded supporters of QE 1, 2, 3, Infinity, and fiscal stimulus (be it payroll tax holidays, cash for clunkers, money for Milk Duds, unemployment insurance extensions, etc.), would have us believe that the economy struggles because the programs were too small… That the volume of infusions needs to be stepped up substantially and right away… And if they’re not (stepped up), and we double-dip back into recession, the insufficient volume of infusions will be the cause…
Like I said in A Thousand Miles per Gallon, we’re (for the moment) “at the mercy of a few very bright, academically-gifted appointees who’ve proven to be most adept at test-taking and, alas, mess-making…”
Stay tuned…
Tuesday, August 23, 2011
Too Much Tape
Once or twice a week my 22 year old son and his buddies let this old(er) guy join them in a pick up game of basketball... Several weeks, and a ten-pack of athletic tape, ago I deflected an opponent's pass (I'm crazy quick) with the tip of my left index finger... Two months later my doctor and I go over the x-ray showing, to my surprise, no fracture...After his polite admonishment I asked if I should splint it, he chuckled "uh yeah, you should have the day you injured it"... "Oh... so now what?"... He referred me to a hand therapist, I'm thinking Hand Therapist!- finger stretches are something I can do all by myself thank you...
Now here I am two months later, four months since my heroic defensive maneuver, and my finger, still swollen, will bend maybe a quarter inch... So I show it to my Chiropractor buddy and he refers me to an orthopedist... Now I'm really bummed... I'm thinking surgery, which means no working out, which means no basketball for God knows how long, which has been my problem all along - fearing that if my finger got the attention it needed I'd be out of commission for weeks... You see I subscribe to the philosophy of the great Tom Petty, "you never slow down you never grow old"...
Sad thing is, if I had gotten right to it, my finger would be good as new right about now and I'd be playing basketball and working out like my old (er than my basketball mates) self... As a result of my intolerance to short-term-pain (of treatment and recovery), my recovery is taking much longer than it should have (in fact it's completely stalled at this point). And now I'm thinking I've exacerbated the problem - I'm guessing I'll not only need treatment for the injury itself, but to undo the damage done by delaying the inevitable as well...
Sound familiar? Sound like the world's present state of affairs? Think bailouts, shadow inventory (homes yet to be foreclosed on), unemployment benefit extensions, QE's 1, 2 and maybe 3, Eurozone banks, etc... I wonder - if we had taken our medicine right away, if we hadn't tried to fix our problems with soooo much tape - if we wouldn't be feeling a whole lot better right about now....
Stay tuned...
Now here I am two months later, four months since my heroic defensive maneuver, and my finger, still swollen, will bend maybe a quarter inch... So I show it to my Chiropractor buddy and he refers me to an orthopedist... Now I'm really bummed... I'm thinking surgery, which means no working out, which means no basketball for God knows how long, which has been my problem all along - fearing that if my finger got the attention it needed I'd be out of commission for weeks... You see I subscribe to the philosophy of the great Tom Petty, "you never slow down you never grow old"...
Sad thing is, if I had gotten right to it, my finger would be good as new right about now and I'd be playing basketball and working out like my old (er than my basketball mates) self... As a result of my intolerance to short-term-pain (of treatment and recovery), my recovery is taking much longer than it should have (in fact it's completely stalled at this point). And now I'm thinking I've exacerbated the problem - I'm guessing I'll not only need treatment for the injury itself, but to undo the damage done by delaying the inevitable as well...
Sound familiar? Sound like the world's present state of affairs? Think bailouts, shadow inventory (homes yet to be foreclosed on), unemployment benefit extensions, QE's 1, 2 and maybe 3, Eurozone banks, etc... I wonder - if we had taken our medicine right away, if we hadn't tried to fix our problems with soooo much tape - if we wouldn't be feeling a whole lot better right about now....
Stay tuned...
Monday, August 22, 2011
Sunday, August 21, 2011
All You Need to Know!
The (most outspoken) "experts" tell us that the surge in the price of gold is a sure sign of a coming recession, if not depression... The gold price is simply telling yours truly that a lot of people (driven by emotion) are bidding on gold and a lot of gold-holders are reluctant to give it up (that is for anything less than $1,800 an ounce) - hence the record nominal price...
I can recall the "experts" in the late nineties telling us, with regard to tech, "we're in the third inning of a nine inning ball game and we have to entirely re-think how we view stock valuations in this internet age." As it turned out, if we were indeed in the third inning, that game got rained out in the fourth, and wasn't rescheduled until 80% of the original players were cut from their respective rosters...
You see, ultimately, the issue is never the price of any single commodity, the prospects for a given sector, or for that matter the present trend in stock prices, the issue is your financial plan... If you're young, you're an investor - in long-term global economic growth... If you're older, you're also an investor, but because you are taking, or are about to take income from your portfolio you have less exposure to the market's inevitable ups and downs. I.e., your money in stocks (save for perhaps dividends) is not currently used for income... Now if your advisor has warned you, prior to the recent sell-off, that (as part of your personal plan) you need to find a way to reduce your monthly distribution, and you haven't, now is indeed the time to take his/her advice... On the other hand, if you're younger, or older for that matter, and have the wherewithal to increase your exposure to stocks (long-term $ only!), now could be a very opportune time - not saying we won't move lower still...
The other day my neighbor says to me; "stocks are the only thing nobody wants to buy when they're on sale".... A wise man indeed...
Now forget about Europe, forget the unemployment rate, forget the Fed, forget regulations and forget tax hikes; the following (my Jan '08 commentary), in the simplest (yet most pertinent) of terms offers everything you need to know and remember about the market and your portfolio...
A Stock Market Conversation
January 2008
The stock market, I
I can recall the "experts" in the late nineties telling us, with regard to tech, "we're in the third inning of a nine inning ball game and we have to entirely re-think how we view stock valuations in this internet age." As it turned out, if we were indeed in the third inning, that game got rained out in the fourth, and wasn't rescheduled until 80% of the original players were cut from their respective rosters...
You see, ultimately, the issue is never the price of any single commodity, the prospects for a given sector, or for that matter the present trend in stock prices, the issue is your financial plan... If you're young, you're an investor - in long-term global economic growth... If you're older, you're also an investor, but because you are taking, or are about to take income from your portfolio you have less exposure to the market's inevitable ups and downs. I.e., your money in stocks (save for perhaps dividends) is not currently used for income... Now if your advisor has warned you, prior to the recent sell-off, that (as part of your personal plan) you need to find a way to reduce your monthly distribution, and you haven't, now is indeed the time to take his/her advice... On the other hand, if you're younger, or older for that matter, and have the wherewithal to increase your exposure to stocks (long-term $ only!), now could be a very opportune time - not saying we won't move lower still...
The other day my neighbor says to me; "stocks are the only thing nobody wants to buy when they're on sale".... A wise man indeed...
Now forget about Europe, forget the unemployment rate, forget the Fed, forget regulations and forget tax hikes; the following (my Jan '08 commentary), in the simplest (yet most pertinent) of terms offers everything you need to know and remember about the market and your portfolio...
A Stock Market Conversation
January 2008
The stock market, I
Thursday, August 18, 2011
Marty Market View First Audio Released :)
[podcast]http://www.betweenthelines.us/wp-content/uploads/Memo1.mp3[/podcast]
Wits Withstanding
Let's say you just came into a large chunk of cash and have a 5+ year time horizon... Assuming your wits are about ya - i.e., you know you should buy equities with a considerable portion of your fortune - what would you wish for, in terms of global sentiment on this day you are to establish your portfolio? Would you want a world brimming with optimism about the future, or would you prefer doom and gloom?
You'd, wits intact, of course choose the latter (i.e., doom/gloom = cheaper stocks)...
So then, if you're an investor with an established, globally diverse portfolio, with a 5+ year time horizon, irregardless of recent results -
same question... same answer...
Here's another way to look at it... You're either of the two above, and you're considering the previous 10 year market results... Would you hope to follow a decade of huge gains or one of flat to slightly negative results (just looking at stock indices)?
Again, wits withstanding, you'd go with the latter - simply because you'd presume the prospects for the next say 5 to 10 years would be better coming off of a (relatively) sour period, as opposed to following a raging bull market... Of course that's assuming you've overcome the otherwise ubiquitous (among consumers) whatever's-happening-now-will-happen-forever attitude...
My point; the best periods tend to follow the worst (not a near-term prediction mind you) - or - in the immortal words of Sir John Templeton;
"Bull Markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria"...
Now if you're thinking Japan - the land of the long recession, of policy mishaps, of zero interest rates as far as the eye can see - to you I say; read It's Not All About the U.S. Economy ...
Think global my friend...
You'd, wits intact, of course choose the latter (i.e., doom/gloom = cheaper stocks)...
So then, if you're an investor with an established, globally diverse portfolio, with a 5+ year time horizon, irregardless of recent results -
same question... same answer...
Here's another way to look at it... You're either of the two above, and you're considering the previous 10 year market results... Would you hope to follow a decade of huge gains or one of flat to slightly negative results (just looking at stock indices)?
Again, wits withstanding, you'd go with the latter - simply because you'd presume the prospects for the next say 5 to 10 years would be better coming off of a (relatively) sour period, as opposed to following a raging bull market... Of course that's assuming you've overcome the otherwise ubiquitous (among consumers) whatever's-happening-now-will-happen-forever attitude...
My point; the best periods tend to follow the worst (not a near-term prediction mind you) - or - in the immortal words of Sir John Templeton;
"Bull Markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria"...
Now if you're thinking Japan - the land of the long recession, of policy mishaps, of zero interest rates as far as the eye can see - to you I say; read It's Not All About the U.S. Economy ...
Think global my friend...
Wednesday, August 17, 2011
Tuesday, August 16, 2011
A Week in Review 8/8 - 8/15/11
Still dizzy from last week's roller coaster ride? While there was more to it - margin calls, institutional buying, etc. - here are the basics on how last week played out...
Day 1: Panic
The Monday following Standard and Poors' downgrading the U.S. to AA+... The media, with sensational passion, spewed the (supposed) obvious; lower credit rating equals higher cost of money which equals less consumer spending which equals a double-dip recession which equals death for the stock market... Short-selling traders (like a pack of wolves) smelled the mounting fear, circled their prey and attacked at dawn... panic set in, the Dow plunged 600+ points...
Day 2: Shorts Cover
Having sold borrowed shares, traders executed their buys at the then-depressed prices and pocketed the difference... The prey (hearing echoes of the wise telling them to never panic), fearing the previous day's reflex would prove disastrous, panicked back in, the Dow rallied 400+ points...
Day 3: Panic
News from Europe had the French financial sector in disarray... The media spun a Lehman-style credit crisis, the wolves gathered, the prey conceded, Dow down 500+...
Day 4: Shorts Cover
News that Germany's Merkel and France's Sarkozy would meet the next week and come to terms with the Eurozone's woes... Corporate insiders scooped up their own company's shares, seeing value at current levels... The wolves covered their shorts, the prey reenact Day 2... The Dow gained 400+...
Day 5: Calm returns
Retail sales up, volume subsided... The Dow climbed 100+ pts...
Day 6: Merger Monday
Google bids for Motorola, a couple of smaller deals follow, the Dow popped to the upside 200+...
Result: The market sits higher than the day-before-downgrade level - yet still 10% off the recent high... Some traders made out, others got killed (as always)... The panic-stricken, having succumbed to the short-sellers, took it in the shorts (as always)... True investors, those who buy companies based on their intrinsic value, didn't flinch and were none the worse for wear...
Day 1: Panic
The Monday following Standard and Poors' downgrading the U.S. to AA+... The media, with sensational passion, spewed the (supposed) obvious; lower credit rating equals higher cost of money which equals less consumer spending which equals a double-dip recession which equals death for the stock market... Short-selling traders (like a pack of wolves) smelled the mounting fear, circled their prey and attacked at dawn... panic set in, the Dow plunged 600+ points...
Day 2: Shorts Cover
Having sold borrowed shares, traders executed their buys at the then-depressed prices and pocketed the difference... The prey (hearing echoes of the wise telling them to never panic), fearing the previous day's reflex would prove disastrous, panicked back in, the Dow rallied 400+ points...
Day 3: Panic
News from Europe had the French financial sector in disarray... The media spun a Lehman-style credit crisis, the wolves gathered, the prey conceded, Dow down 500+...
Day 4: Shorts Cover
News that Germany's Merkel and France's Sarkozy would meet the next week and come to terms with the Eurozone's woes... Corporate insiders scooped up their own company's shares, seeing value at current levels... The wolves covered their shorts, the prey reenact Day 2... The Dow gained 400+...
Day 5: Calm returns
Retail sales up, volume subsided... The Dow climbed 100+ pts...
Day 6: Merger Monday
Google bids for Motorola, a couple of smaller deals follow, the Dow popped to the upside 200+...
Result: The market sits higher than the day-before-downgrade level - yet still 10% off the recent high... Some traders made out, others got killed (as always)... The panic-stricken, having succumbed to the short-sellers, took it in the shorts (as always)... True investors, those who buy companies based on their intrinsic value, didn't flinch and were none the worse for wear...
Monday, August 15, 2011
Saturday, August 13, 2011
Consumption, Construction and Connection
Apple, Bayer, Camden Property Trust, Caterpillar, Conoco Phillips, Daimler AG, Google, Home Depot, IBM, Intel, Liberty Capital, Merck, Nestle, Novartis, Oracle, Pepsi, Pfizer, Polycom, Samsung, Starbucks, State Street, Time Warner, Union Pacific, Wells Fargo.
I pulled the above names from the top twenty five positions (alphabetized) of funds (a couple from each) that currently occupy the equity portion of our clients' portfolios. The total number of holdings for these funds exceeds three thousand - however seventeen hundred are held by the small cap index fund which accounts for just 5 to 10% of our typical portfolio. The average number of holdings, not including the small cap index fund, would be two to three hundred. Therefore, if you're our client, you're diversified in a big way.
I'm typing this on an Apple product, I get headaches every now and then, I'm often held up in traffic while heavy machines plow the road ahead, I drive a Daimler-made car, I use Google daily, I frequent Home Depot, my office computer is run by an Intel chip, the kids drank Nestle Hot Chocolate last week (camping) and I bank at Wells Fargo. And I no doubt use the products of, or am exposed to, most or all of the other companies on my list.
The question is; will credit rating downgrades or European financial sector woes keep the hoards away from the iPhone 5, the headache victim from the aspirin, the Pepsi drinker from the Pepsi, the coffee drinker from the coffee or you and me from the internet? Nope.
The problem (if volatility unnerves us) is; the media, through sensationalization, commands our attention, and our monthly investment statements reflect the price per share of our holdings on the very last day of the previous month. When buyers are in the mood to buy at lower than thirty day ago prices, we see the price decline in dollar terms on page one. We don't see the billions worldwide consuming the products and services produced by the companies whose share prices determine the present paper value of our portfolios.
Provided the next default, downgrade or recession doesn't end the world as we know it (understanding that such events will lead to great volatility in share prices), I'll continue to advocate owning global franchises in the appropriate quantity (based on age and temperament), rotating among sectors when called for and rebalancing the mix among stocks and fixed income assets twice each year.
In other words; the equity portion of your portfolio represents your share in the profits derived from the propensity of people worldwide to consume, construct and connect. And when you consider the longer-term trajectory of growth in population, infrastructure and desire in the emerging markets of the world, share price volatility means virtually nothing - that is if you're not currently a seller.
I pulled the above names from the top twenty five positions (alphabetized) of funds (a couple from each) that currently occupy the equity portion of our clients' portfolios. The total number of holdings for these funds exceeds three thousand - however seventeen hundred are held by the small cap index fund which accounts for just 5 to 10% of our typical portfolio. The average number of holdings, not including the small cap index fund, would be two to three hundred. Therefore, if you're our client, you're diversified in a big way.
I'm typing this on an Apple product, I get headaches every now and then, I'm often held up in traffic while heavy machines plow the road ahead, I drive a Daimler-made car, I use Google daily, I frequent Home Depot, my office computer is run by an Intel chip, the kids drank Nestle Hot Chocolate last week (camping) and I bank at Wells Fargo. And I no doubt use the products of, or am exposed to, most or all of the other companies on my list.
The question is; will credit rating downgrades or European financial sector woes keep the hoards away from the iPhone 5, the headache victim from the aspirin, the Pepsi drinker from the Pepsi, the coffee drinker from the coffee or you and me from the internet? Nope.
The problem (if volatility unnerves us) is; the media, through sensationalization, commands our attention, and our monthly investment statements reflect the price per share of our holdings on the very last day of the previous month. When buyers are in the mood to buy at lower than thirty day ago prices, we see the price decline in dollar terms on page one. We don't see the billions worldwide consuming the products and services produced by the companies whose share prices determine the present paper value of our portfolios.
Provided the next default, downgrade or recession doesn't end the world as we know it (understanding that such events will lead to great volatility in share prices), I'll continue to advocate owning global franchises in the appropriate quantity (based on age and temperament), rotating among sectors when called for and rebalancing the mix among stocks and fixed income assets twice each year.
In other words; the equity portion of your portfolio represents your share in the profits derived from the propensity of people worldwide to consume, construct and connect. And when you consider the longer-term trajectory of growth in population, infrastructure and desire in the emerging markets of the world, share price volatility means virtually nothing - that is if you're not currently a seller.
Robin Hood is Great Fable, but....
Pundits tell us that the U.S.'s chief lack is that of leadership? I watched the President deliver a speech last Monday, the lower right corner of the screen delivered the Dow Jones Industrial Average... During the course of his speech his nation's equity market coursed its way to a triple-digit decline... His offering; extend unemployment benefits, extend the payroll tax holiday, create an infrastructure bank, and extract a "fairer" amount of taxes from the haves... I.e., government spending, government spending, government spending and higher taxes...
Clearly the market has had enough... It no longer buys into the notion that the government, through redistributive fiscal policy, can buy economic growth... It understands that while Robin Hooding makes for great fable; in reality nobody eats when we take from the skilled archer's quiver and hand his arrows to a man without a bow...
As for leadership, trust me my friends, we're looking for it in all the wrong places... If our aim is economic growth, the leadership we're after can not come from Washington, it cannot come from individuals whose adult lives have been devoted to leading themselves to public office (left and right alike)... It must instead come from the private sector, from individuals whose lives have been devoted to leading successful businesses - while growing jobs, and the economy, in the process...
There's a virtually uncountable wealth of capital waiting to be deployed if Washington would simply get the hell out of the way... I.e., back off on the regs and lower corporate tax rates... And yes, by all means, close all the corporate tax loopholes - we want capitalism, not cronyism...
Nobody makes the case against redistribution better than the late great economist Milton Friedman... Two minute video below...
http://www.youtube.com/watch?v=Hrg1CArkuNc&feature=youtube_gdata_playerhttp://www.youtube.com/watch?v=Hrg1CArkuNc&feature=youtube_gdata_player
Clearly the market has had enough... It no longer buys into the notion that the government, through redistributive fiscal policy, can buy economic growth... It understands that while Robin Hooding makes for great fable; in reality nobody eats when we take from the skilled archer's quiver and hand his arrows to a man without a bow...
As for leadership, trust me my friends, we're looking for it in all the wrong places... If our aim is economic growth, the leadership we're after can not come from Washington, it cannot come from individuals whose adult lives have been devoted to leading themselves to public office (left and right alike)... It must instead come from the private sector, from individuals whose lives have been devoted to leading successful businesses - while growing jobs, and the economy, in the process...
There's a virtually uncountable wealth of capital waiting to be deployed if Washington would simply get the hell out of the way... I.e., back off on the regs and lower corporate tax rates... And yes, by all means, close all the corporate tax loopholes - we want capitalism, not cronyism...
Nobody makes the case against redistribution better than the late great economist Milton Friedman... Two minute video below...
http://www.youtube.com/watch?v=Hrg1CArkuNc&feature=youtube_gdata_playerhttp://www.youtube.com/watch?v=Hrg1CArkuNc&feature=youtube_gdata_player
Sunday, August 7, 2011
Debt Ceiling, Double A+ Rating and Italian Debt Notwithstanding
* Smart investors own the stocks of companies that sell to consumers all over the world...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* When Apple releases iPhone 5, miles-long lines, all over the world, will form 24 hours in advance...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* You're reading this either on a phone or a computer that you purchased within the past three years - i.e., during or immediately following the worst recession since The Great Depression... Not the debt ceiling,the double-A+ rating nor Italian debt will keep you from buying your next...
* You'll, with no hesitation, buy your next box of Corn Flakes, gallon of gas, ice cream and your next pair of sneakers -Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* Ten years from now you'll say "in my wildest dreams I couldn't have fathomed today's technology"... Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* Ten years from now you'll be driving a different car...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* Ten years from now, Apple will look like Intel and Microsoft do today and some other company, now an infant, will dominate the technology space...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* Ten years from now someone you love's life will be saved by a miraculous new medical procedure...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* You know someone who boasts having sold near the recent peak and his/her name is not Warren Buffet... Ask Buffet (wealthier (from buying stocks) than any market-timer on the planet) where the market's going and he'll tell you he doesn't know nor care and that he simply buys the stocks of great businesses and keeps them forever...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* Two years from now I'll ask if you remember that week following the downgrade to AA+ rating and you'll say "huh?"... You barely remember last year's flash crash (Dow dropped 998 pts intraday on May 6)...
* There's a world of opportunities within and beyond our borders... The smart investor (you, me and Mr. Buffet) wouldn't dare missparticipating, even for a moment...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* When Apple releases iPhone 5, miles-long lines, all over the world, will form 24 hours in advance...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* You're reading this either on a phone or a computer that you purchased within the past three years - i.e., during or immediately following the worst recession since The Great Depression... Not the debt ceiling,the double-A+ rating nor Italian debt will keep you from buying your next...
* You'll, with no hesitation, buy your next box of Corn Flakes, gallon of gas, ice cream and your next pair of sneakers -Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* Ten years from now you'll say "in my wildest dreams I couldn't have fathomed today's technology"... Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* Ten years from now you'll be driving a different car...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* Ten years from now, Apple will look like Intel and Microsoft do today and some other company, now an infant, will dominate the technology space...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* Ten years from now someone you love's life will be saved by a miraculous new medical procedure...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* You know someone who boasts having sold near the recent peak and his/her name is not Warren Buffet... Ask Buffet (wealthier (from buying stocks) than any market-timer on the planet) where the market's going and he'll tell you he doesn't know nor care and that he simply buys the stocks of great businesses and keeps them forever...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
* Two years from now I'll ask if you remember that week following the downgrade to AA+ rating and you'll say "huh?"... You barely remember last year's flash crash (Dow dropped 998 pts intraday on May 6)...
* There's a world of opportunities within and beyond our borders... The smart investor (you, me and Mr. Buffet) wouldn't dare missparticipating, even for a moment...Debt ceiling, double-A+ rating and Italian debt notwithstanding...
Saturday, August 6, 2011
My ASS+
Three times in the span of thirty seconds the cable news reporter (Saturday morning) said "the U.S. is now riskier than France"... Say what? Standard and Poors replaces three A's with two A's and a plus sign and the U.S. is now riskier than friggin France? The same Standard and Poors (along with Moody's and Fitch) that kept three A's next to the letters AIG and two next to the name Lehman Bros literally minutes before each collapsed? My ASS+!!
For starters, the printing press, alas, works every bit as good today as it did last Thursday... And the chances that the U.S. will default, literally, as opposed to inflationally (printing to pay its bills) on a penny of its debt over the next couple of decades, even while operating status quo, is somewhere in the neighborhood of... uhhh... like zero percent... I'd take the U.S.'s treasury debt over France's, when we're talking safety, any day of the week...
Now you're going to love this: In late '08 the big three agencies, S&P, Moody's and Fitch, were hauled into Congress for a tongue-lashing after entirely failing the investor leading into the credit crisis. Here's one of their henchmen's riposte:
"An important part of our analysis was based on a review of governmental support that had been applied to Bear Stearns earlier in the year. "Frankly, an important part of our analysis was that a line had been drawn under the number five firm in the market [Bear], and that likely number four would be supported as well." "Our opinion applies to whether we believe an instrument will pay or will not pay."
Well now, apparently a major premise upon which they based their ratings no longer applies... Cause if a U.S. government backstop were the primary excuse for awarding a top notch-rating, and if their opinion indeed applies to whether an instrument will or will not pay, the one institution on the planet that passes both those tests with flying (red, white and blue) colors is the U.S. government...
Now if they rate a country based on debt-to-GDP, or whether it has the revenue to cover its current spending, well then that's a whole different proposition altogether... In that case, our AA+ would be a gift...
Personally, I have no problem with the downgrade, in fact (my patriotism notwithstanding) I applaud it - in that it's yet another signal to politicians that business as usual just isn't going to cut it in the months and years to come...
As for the media, if catastrophe was their spin for the debt ceiling debate, AA+ stands for American Armageddon plus some...
Bottom line; don't get all spun out over recent events... In fact, take heart, for a change of course (albeit this is a big ship we're turning) is at hand...
Stay tuned...
For starters, the printing press, alas, works every bit as good today as it did last Thursday... And the chances that the U.S. will default, literally, as opposed to inflationally (printing to pay its bills) on a penny of its debt over the next couple of decades, even while operating status quo, is somewhere in the neighborhood of... uhhh... like zero percent... I'd take the U.S.'s treasury debt over France's, when we're talking safety, any day of the week...
Now you're going to love this: In late '08 the big three agencies, S&P, Moody's and Fitch, were hauled into Congress for a tongue-lashing after entirely failing the investor leading into the credit crisis. Here's one of their henchmen's riposte:
"An important part of our analysis was based on a review of governmental support that had been applied to Bear Stearns earlier in the year. "Frankly, an important part of our analysis was that a line had been drawn under the number five firm in the market [Bear], and that likely number four would be supported as well." "Our opinion applies to whether we believe an instrument will pay or will not pay."
Well now, apparently a major premise upon which they based their ratings no longer applies... Cause if a U.S. government backstop were the primary excuse for awarding a top notch-rating, and if their opinion indeed applies to whether an instrument will or will not pay, the one institution on the planet that passes both those tests with flying (red, white and blue) colors is the U.S. government...
Now if they rate a country based on debt-to-GDP, or whether it has the revenue to cover its current spending, well then that's a whole different proposition altogether... In that case, our AA+ would be a gift...
Personally, I have no problem with the downgrade, in fact (my patriotism notwithstanding) I applaud it - in that it's yet another signal to politicians that business as usual just isn't going to cut it in the months and years to come...
As for the media, if catastrophe was their spin for the debt ceiling debate, AA+ stands for American Armageddon plus some...
Bottom line; don't get all spun out over recent events... In fact, take heart, for a change of course (albeit this is a big ship we're turning) is at hand...
Stay tuned...
Thursday, August 4, 2011
Euphoria This Ain't
Imagine that three years ago you experienced a terrible traffic accident - you barely survived...
Euphoria This Ain't
Imagine that three years ago you experienced a terrible traffic accident - you barely survived... You've since recovered physically, in fact you're healthier than you've ever been... You're now driving down the highway in your new, bigger, safer, paid-for car and your tank is full of gas... The speed limit's 70, but you're in the far right lane doing 30...
Your head's twitching like a finch in a swarm of gnats as you look left, right, over your shoulder and into the rearview mirror... You have places to go and the means to get there, but, still reeling emotionally, and seeing nothing but roadblocks ahead, you refuse to step on it...
This my friends is the plight of today's CEO... I've stated here recently that corporate fundamentals - earnings, margins, balance sheets, valuations - look great, but economic fundamentals - jobs, GDP, Europe, etc. - look ghastly. And the government roadblocks - deficit, debt, uncertainty over taxes and regs - look gargantuan...
Make no mistake, if restoring confidence is key, as I'm sure it is, this recovery's going to take a while...
In the meantime the market's going to suffer its fits and starts - as it always has... 10% corrections, as I keep saying, have been annual events - as of yesterday, we're there... The previous one occurred in May of last year (we almost got there again last July)... And remember folks, double digit corrections always come accompanied by apocalyptic fear...
If you're long the stock market you can take comfort in John Templeton's famous words; "Bull Markets Die on Euphoria"... I'm not making a prediction, but clearly, euphoria this ain't...
Stay tuned...
Your head's twitching like a finch in a swarm of gnats as you look left, right, over your shoulder and into the rearview mirror... You have places to go and the means to get there, but, still reeling emotionally, and seeing nothing but roadblocks ahead, you refuse to step on it...
This my friends is the plight of today's CEO... I've stated here recently that corporate fundamentals - earnings, margins, balance sheets, valuations - look great, but economic fundamentals - jobs, GDP, Europe, etc. - look ghastly. And the government roadblocks - deficit, debt, uncertainty over taxes and regs - look gargantuan...
Make no mistake, if restoring confidence is key, as I'm sure it is, this recovery's going to take a while...
In the meantime the market's going to suffer its fits and starts - as it always has... 10% corrections, as I keep saying, have been annual events - as of yesterday, we're there... The previous one occurred in May of last year (we almost got there again last July)... And remember folks, double digit corrections always come accompanied by apocalyptic fear...
If you're long the stock market you can take comfort in John Templeton's famous words; "Bull Markets Die on Euphoria"... I'm not making a prediction, but clearly, euphoria this ain't...
Stay tuned...
Wednesday, August 3, 2011
Tuesday, August 2, 2011
It's Not All About the U.S. Economy (Long-term)
I implied recently that the debt ceiling debate may be putting a ceiling on the market, and that when the ceiling's lifted stocks could rally... And for about 40 minutes Monday morning, that was looking like the case... However, as the market peaked its head out it saw weak GDP growth, a weak ISM reading and weak consumer spending... I.e., the market is no longer worried about our ability to pay our obligations but rather about our ability to grow...
In my recent column Time to Worry? I said that if the debt ceiling debate doesn't give us that overdue 10% correction, I'd begin to worry... As I type the Dow's off 200+, which would put it roughly 400 points above that 10% (from this year's peak) decline mark... Always keep in mind; a 10% market decline can't occur without a significant decline in sentiment. I.e., things get really ugly on average once a year...
Here's the thing folks, short-term, it's all about traders' focus... When they've focused (of late) on earnings, profit margins, balance sheets and prospects they've bid stocks higher... When they've focused on leading economic indicators, they've bid them lower... The question is, looking forward, can corporate fundamentals stay so positive if the economy slows? The answer; of course not (generally speaking)... but it's not all about the U.S. economy...
Think about it; how is it that the U.S. economy has been barely crawling out of the last recession and the likes of Google, Apple and IBM say earnings have never been better? Two things: It speaks to the fact that smart people are forever looking to gain efficiencies, and it speaks to the growth in overseas markets... 66% of IBM's*, 56% of Apple's** and 50% of Google's* earnings come from foreign markets, particularly emerging markets... Here's the bottom line:
*Emerging/frontier markets account for:
In my recent column Time to Worry? I said that if the debt ceiling debate doesn't give us that overdue 10% correction, I'd begin to worry... As I type the Dow's off 200+, which would put it roughly 400 points above that 10% (from this year's peak) decline mark... Always keep in mind; a 10% market decline can't occur without a significant decline in sentiment. I.e., things get really ugly on average once a year...
Here's the thing folks, short-term, it's all about traders' focus... When they've focused (of late) on earnings, profit margins, balance sheets and prospects they've bid stocks higher... When they've focused on leading economic indicators, they've bid them lower... The question is, looking forward, can corporate fundamentals stay so positive if the economy slows? The answer; of course not (generally speaking)... but it's not all about the U.S. economy...
Think about it; how is it that the U.S. economy has been barely crawling out of the last recession and the likes of Google, Apple and IBM say earnings have never been better? Two things: It speaks to the fact that smart people are forever looking to gain efficiencies, and it speaks to the growth in overseas markets... 66% of IBM's*, 56% of Apple's** and 50% of Google's* earnings come from foreign markets, particularly emerging markets... Here's the bottom line:
*Emerging/frontier markets account for:
It's Not All About the U.S. Economy (Long-term)
I implied recently that the debt ceiling debate may be putting a ceiling on the market, and that when the ceiling's lifted stocks could rally... And for about 40 minutes Monday morning, that was looking like the case... However, as the market peaked its head out it saw weak GDP growth, a weak ISM reading and weak consumer spending... I.e., the market is no longer worried about our ability to pay our obligations but rather about our ability to grow...
In my recent column Time to Worry? I said that if the debt ceiling debate doesn't give us that overdue 10% correction, I'd begin to worry... As I type the Dow's off 200+, which would put it roughly 400 points above that 10% (from this year's peak) decline mark... Always keep in mind; a 10% market decline can't occur without a significant decline in sentiment. I.e., things get really ugly on average once a year...
Here's the thing folks, short-term, it's all about traders' focus... When they've focused (of late) on earnings, profit margins, balance sheets and prospects they've bid stocks higher... When they've focused on leading economic indicators, they've bid them lower... The question is, looking forward, can corporate fundamentals stay so positive if the economy slows? The answer; of course not (generally speaking)... but it's not all about the U.S. economy...
Think about it; how is it that the U.S. economy has been barely crawling out of the last recession and the likes of Google, Apple and IBM say earnings have never been better? Two things: It speaks to the fact that smart people are forever looking to gain efficiencies, and it speaks to the growth in overseas markets... 66% of IBM's*, 56% of Apple's** and 50% of Google's* earnings come from foreign markets, particularly emerging markets... Here's the bottom line:
*Emerging/frontier markets account for:
In my recent column Time to Worry? I said that if the debt ceiling debate doesn't give us that overdue 10% correction, I'd begin to worry... As I type the Dow's off 200+, which would put it roughly 400 points above that 10% (from this year's peak) decline mark... Always keep in mind; a 10% market decline can't occur without a significant decline in sentiment. I.e., things get really ugly on average once a year...
Here's the thing folks, short-term, it's all about traders' focus... When they've focused (of late) on earnings, profit margins, balance sheets and prospects they've bid stocks higher... When they've focused on leading economic indicators, they've bid them lower... The question is, looking forward, can corporate fundamentals stay so positive if the economy slows? The answer; of course not (generally speaking)... but it's not all about the U.S. economy...
Think about it; how is it that the U.S. economy has been barely crawling out of the last recession and the likes of Google, Apple and IBM say earnings have never been better? Two things: It speaks to the fact that smart people are forever looking to gain efficiencies, and it speaks to the growth in overseas markets... 66% of IBM's*, 56% of Apple's** and 50% of Google's* earnings come from foreign markets, particularly emerging markets... Here's the bottom line:
*Emerging/frontier markets account for:
Monday, August 1, 2011
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