Back to basics . . .

The investment markets in the last year have been in an upheaval. A lot of people have had large paper loses they are trying to understand and overcome related to their finances. As we push forward in looking at personal finance and our financial plan, it can help to re-establish some baseline thoughts.

Every decision closes off alternatives. The opportunity cost is what a person gives up by making a choice. This cost, commonly referred to as the trade-off of a decision, sometimes cannot be measured in dollars. Decision making will be an ongoing part of your personal and financial existence. This, you will need to consider the lost opportunities that result from your decisions.

This is especially important in this economy/financial environment. It is real easy to want to take your money and hide, rather than look for hidden opportunities in a dismal market. Another choice is to get ultra conservative when the rate or return will be guaranteed or reasonably assured, rather than look for a long-term potential for a nice return - though with a bit of risk.

Decision making is a circular, ongoing process in which current decisions influence future choices.

What does this means for your personal financial plan? Well, you need to "work" the plan - so get it out, look at it, evaluate the goals (do they still work?), and see where you are in attempting to reach those goals. Do you need to re-visit you risk tolerance in light of the markets over the last year? Do you need to re-visit your time horizon in light of the same? Maybe that "early retirement plan" is out the window (maybe it is, maybe it isn't - maybe the time line needs to be adjusted by a few years).

I always tell my student, if in my later years, you see me pushing you a cart saying "Welcome to Wal-Mart", I want that to be my choice, not my necessity!!!

So . . . . take the time to re-look at your financial goals - look at your savings, budget, spending habits, time horizon, ability to deal with risk, and the current plan. Does it still make sense? If not, adjust the plan! If so, you need to work the plan! The people who make money, long-term, in the financial markets understand risk, time, opportunity cost, historical perspective, and have a knack for a little speculation! If you can control your greed factor - you too can succeed.

Like the saying goes with reference to the bull (thinks market it going up), bear (thinks market is going down) -----

There is the bull . . . . the bear . . . . . and the hog . . . . . . and hogs get slaughtered!

Moving into Fall . . .

Well fall is officially here and we once again take a good look at the U.S. economy, the government's intervention and programs, alternatives for investments, and planning for the future!

The U.S. stock markets (Dow, S&P and NASDAQ) have continued a slow but steady rise up, stopping a large stone's through from 10,000 on the Dow, we did see over 2000 on NASDAQ and over 1000 on the S&P. These are all very large percentage increases over the lows of March 6th! Are we out of the woods yet???? Gold hits about $1000 and ounce and stays there; other commodities are doing well too!

There are signs, both good and bad, that the economy is gradually doing better, though job losses continue as do bankruptcies and foreclosures. President Obama has been able to push almost all news to the back burner and through the spotlight on health care reform. Lot of talk (and yelling) from a number of different stakeholders, and I fear we are far from resolving anything.

I don't think there are too many people who don't think something needs to be down with health care, but as I feel for my fellow citizens who don't have coverage, I do realize that I will have to help pay for those without. So, how will that happen, will I have higher co-pays, deductibles, or will I have less "coverage", financially, for the claims???

The safety of investment dollars caused many to pull back their exposure to the "stock markets", though the banks, credit unions, government paper (money markets, CDs, T-paper, etc.) have such low yields, historically, that the mattress isn't looking too bad either! There is money to be made in both the U.S. and foreign markets - in stocks, bonds, commodities, real estate, etc. - but like always the opportunities can be few and far between. You need to act quickly as "deals" are short-lived.

We all need a plan in a financial cycle like this. You need to know what you goals are, your risk tolerance and your time horizon. You need to decide whether any of these have changes between now and a few years back when you decided on them. Don't let emotion drive your decisions - they tend to be "bad" ones when you do that!

In the days to come, we will talk about the aspects of this planning, so stay tuned!

July economic outlook

There are signs - my friends! NOt all are positive, but there are enough positive that continues to quench the thirst of those hopeful for an end to the recession without worrying about inflation - are having the stock markets rise again!

I know, easier said than done, and though I do feel we are moving in the right direction with some of these issues, I'm not convinced we can do this all with the huge debt load we will be carrying for the next 7-10 years.

Existing home sales have risen for the third straight month. Home sellers are starting to get multiple offers which is a good sign. After some time with jobless claims in a decline, there was an uptick in new jobless claims of about 30,000 (though not too bad overall).

The Dow closed above 9000 today, the S&P above 960 (which means that 1000 is only a whisper away!). The NASDAQ had its 12 consecutive up day which would lead you to believe that tech stocks are doing great! As always, you can never be exactly certain what any of this means. Though Apple is now about $157 a share (I remember buying it in the $80s and watching a quick move of about $10 a share and I got out, watched it fall and did it again - I missed the up on this one - maybe it wil split 2 for 1!), Microsoft did not meet expectations. More earning reports are on the way, which will confirm an overall direction for the market or cause some confusion if a number of companies come in lower than expected.

A lot of investment advisors are talking about buying banks - though I think you must be very selective to do this. I am still a believer long-term in the BRIC countries (Brazil, Russia, India, and China), and would buy anything related to energy, infrastructure, utilities and technology.

Future of the markets

Well, we have lost Ed McMahon, Farrah Fawcett, Michael Jackson and Billy Mays and Bernie Madoff has been sent up the river for 150 years! What is the world coming to?

Global stock markets have been improving since March, though recently they have suffered a slight dip. China and the rest of Asia has had a nice year with up 40+% from the lows. Global markets did originally fall farther than the U.S. market did, so they also need to rise more to get back. The U.S. market seems to be moving in the 8300 - 8700 range on the Dow and can't seem to break out for long in any direction. Small caps (primarily technology) seems to be where new money is moving, with the thought that as business gets better, organizations will have tio increase spending on technology which rapidly advances, but where money has been on the sidelines for the last year. Companies, like a lot of the individuals were not buying much of anything. Except for Apple Computer (AAPL)

Oil and precious metals will occaisionally move, then bounce back down. I had expected higher summer gas prices at the pump (I am currently paying in the mid $2.00/gallon range), and though summer just got started, that price seems to be in a holding pattern as well.

Interest rates have moved up slightly, though there is no immediate fear of inflation. That may be difficult to comprehend with the large outpourings of cash from the federal government with TARP and other programs. It seems certain that President Obama will have to go back on his "no new taxes to the middle class" campaign promise in order to pay for the trillions of dollars of spending.

Government paper is stable, currently at:

1.1% for the 2-year
2.5% for the 5-year
3.5% for the 10-year
4.3% for the 30-year

The markets continue to fluctuate . . .

Since the last blog post, the markets, in general, have not done much - though generally in an upward direction as far as value goes.  In the U.S. the general consensus is the recession will be over by the end of the year.  Oil prices have started back up, and after brief periods of rest at various resistance levels, generally continues to move higher.  It is easy to predict summer gas pump prices (at $3.00) as in many places in the country, we have already reached that mark.  Overseas there are markets increasing and the BRIC countries  (Brazil, Russia, India and China) seem to be a place to focus on for future growth to your foreign investments in your portfolio.

It is still not clear what the auto industry will look like, now that both GM and Chrysler have filled for bankruptcy, and Ford is burning through cash at a rate which would indicate they have less than a year to "live" without a rebound in the economy.  The government continues to bail out certain industries and state issues, though this continuing printing of money is selling us to China!

So, with all of this going on, what am I looking to do for future investments in my portfolio?  My focus going forward, works for me - it may not work for you as you must re-evaluate your risk tolerance and time horizon along with the goal for your funds.  I plan on investing a lot overseas as I see the greatest opportunity for long-term growth.  I will be underweighting U.S. and Western Europe and focus on the BRIC and less developed countries.  The only industries I am focusing on is Energy, Infrastructure and Healthcare in that order.  One can also look at the corporate bond area of the intermediate maturity level for decent yields.

This is what I am doing, what do you think?

Markets fluctuate, but don't portend any LT trends

World markets have for the most part risen (in typical roller coaster fashion) since the March 6th low point of 2009.  In the last 7-10 days, the markets have quickly erased all 2009 gains, though today is a good start to a new week.  As I have said many time, the biggest issue of determination of prices for investments is not anything to do with "quality" or specific numbers, but really about perception of how things are versus how things will be.  So, it is nothing more than a great big guess, and if a large group of investors guess in a certain direction, it becomes a self-fulfilling prophecy of ended there.

The time-honored investment philosophy of "buy/hold" seems to be gone by the wayside or at least not being admitted to at cocktail parties like it once was. The auto manufacturers and dealers in the U.S. are disappearing or being down-sized.  Oil has started creeping back up and trades regularly between $50-60 a barrel.  Speculations is for $2.55 a gallon for gas prices, this summer.  Layoffs and business closures are still happening, though there is some evidence that this is slowing.  Housing has not recovered, though there are pockets of growth (and sales) in the country, as well as people now getting multiple offers (though many people are still looking for a "steal").  

Internationally, I believe emerging markets will be the first to show great improvements.  India is having a nice upwards run of double-digit gain for the year.  The rupee (India's currency) has benefited as well.  In Asia, things are starting to look a little rosy, though in Europe there is speculation that the markets, though getting a boost this week, will be worse than the U.S. markets.  Many predict another downturn shortly, as percentage run ups (like to around 18 PE for the S&P) are unfounded by the fundamentals and believed to be "wishful thinking" that things are returning to normal.  "Normal" still seems to be 2-3 years away.

Though there still is a lot of negatives in the world markets, hope springs eternal.  Now that Spring is finally here (based on the calendar), we can see if the public is confident in employers, their government, and themselves to begin "living" again!

Easter weekend!

As the U.S. markets pause for the Easter holiday, we can pause and take a look back at the first 3+ months of 2009.  The Dow this week finally hit and stayed above 8000!  This is quite a run up from a March 6th low of 6,500!  However, I would venture to say that we are still not out of the woods, and I would really like to see a SLOW move up in these indexes around the world, as too quick will precipitate sharp rises and drops and the inevitable sell offs (profit taking) that are more of a panic action with the mindset of the general public.  There is still too much of a polar opposite that isn't related to the reality of the value equation.  When there is any good news - things go up WAY too much.  Any bad news yields the opposite result but in the same excesses.

As far as industries go, there is some upwards movements (see Wells Fargo), but there are still more problems than solutions in the financial institutions.  There is some interest in building materials and builder stocks, though I believe that there will be some mergers with the home builders which will eventually make them stronger.  Commodities will still be an interesting play as inflation is still a distinct possibility with all the government money printing going on. The U.S. dollar still making positive moves against foreign currencies, gold and silver still up and holding their own, and oil is hovering just under $50 a barrel.

Turning to the U.S. automakers - Ford appears to be the strongest, though they have about one more year of cash (at this current rate of burn through), GM is still tinkering with bankruptcy (though I believe it will be controlled with them hanging on to Cadillac, Chevy and the foreign operations and brands; while attempting to liquidate or just close everything else), and Chrysler has less than 30 dates to complete a merger with Fiat or it receives no additional money from the U.S. government.

For those of your with a long-term time horizon (10 years plus), I think there are some small glimmers of opportunities in this market.  You need to look real hard for those companies that have a product/service that is still needed during a recession like we have now, and when fixed, will still be needed in as large a quantity (or more) than now.  Look for cash flow, look for some earnings, or at least a slowing of losses, look for little to no debt.  And when you find it, you are buying it somewhere between 30-50% off!  It is easy to make money with those types of purchases!

Good week for the worldwide markets!

There is a lot of speculation on Wall Street, Main Street and throughout the global financial world as to if we have hit bottom.  I personally believe we have (for me it was when we hit below 700 on the S&P).  Now, this is not to say that we will not still be on a huge roller coaster ride for the next few years, especially as it only takes a hint of bad news anywhere in the world (or a stray comment from Obama, Bernanke, or anyone else in Washington) to knock the market down hundreds of points.  However, the month of March has shown us that all we need is a little positive (or less, reduced negative) and the markets will slowly rise.

Wall street is about speculations, perception, and prognostication --- rarely if ever about reality.  Although it operates on the basic economic principles of supply & demand, those who participate have a tendency to like extremes and quick reactions!  There is a feeling of "panic" that someone is going to miss out on an "up" or "down" chance and the "herd" mentality is rampant.  Those who generally make money do so when they go in a different direction than the herd.  It is difficult to have the patience and the faith when all logic tells you that you are so wrong and everyone else is right.  You need to take emotion out of it and do your homework to get back to that long-term focus most of us need to have to be in this market.  Timing is everything.  If you were close to retirement a few years ago, proper financial planning for retirement would have told you to take some money off the table (equity markets) and have less than 50% of your money in the equity markets.  Though bonds did take a hit in this market, they generally come back faster than the stock and stock funds (assuming no bankruptcy of the issuer of individual bonds), and short-term debt plus cash would keep you in good shape and you would not have been hit too hard during the last year.

There are a lot of good investment options out there both foreign and domestic, stocks and bonds, as well as other areas like real estate (many areas of the country are on sale 50% off).  Retirement planning in the traditional sense, was still viable, may need to consider a slightly different approach.  Check out the retirement plan adjustments you should consider.

You should be continuing to invest in your 401k, 403b as well as any traditional and Roth IRA accounts.  Dollar-cost or Value-cost averaging will assure that, over time, you will get good cost structures for your investment dollar and make sure that you don't sell out at the low and buy in at the high!

Ah . . . As the Financial World Turns

When I was a youngster, before my mother went back to work, she would watch soap operas on television.   I remember three specifically: As the World Turns, General Hospital and Days of Our Lives (". . . like sands through an hourglass, these are the days of our lives").  It is inevitable sitting on the couch, that you may glance at the television to see what all the fuss was about.  Though I remember very little, I do recall that you didn't need to watch it every day.  If you disappeared for a few days (or even weeks) and then came back to watch an episode, you could really "catch up" pretty easily.  There was not a lot going on that would change day to day.  I think this has been happening with our current financial crisis and the financial markets in both the U.S. and abroad.  That is . . . until the last week!

U.S and foreign stock markets have been enjoying about a 5 day rally, with a lot of companies (banks and financial institutions) showing very positive growth.  The retail sector, though not great, did not suffer as bad in February as many analysts expected, so that is considered positive in this market.   Commodities have moved very slowly (both up & down) with gold back under $1000 and oil hovering around $47 a barrel.

I think it is too early to call a market bottom as this market would do an about face faster than a tornado moves through a trailer park if there was any bad news!  However, this is still going to be a business-led (not a consumer or government-led) turnaround.  General Electric has lost the AAA rating on its debt for the first time, and there is speculation that it may spin off GE Capital (though CEO Immelt says no).  The cutting of the AAA credit rating leaves only five U.S. industrial companies with AAA ratings:  ADP, Exxon Mobil, Johnson & Johnson, Microsoft, and Pfizer (this one is on a credit watch since the end of January).

Fed Chairman, Ben Bernanke thinks it is possible to get out of this recession by the end of the year, assuming the politicians are ready to act.  He did admit the unemployment will not be "fixed" by then.  He also questions whether Americans have the stomach for the continued support (read bailout!) of the financial markets and some firms such as Citigroup and AIG.

So . . . . what does this mean for the average consumer???  Well, if you have 10+ years to go to retirement, you are probably still investing in your 401k retirement plan and should continue to do so (even if you employer has stopped matching), as this is the type of market environment where you can make some money!  If you buy stocks and bonds now, you are buying them on sale, and who doesn't like a good sale!  It is a hard thing to do, as as soon as the markets look like they are rebounding, we have some bad news and things drop even further than they currently are.  I feel pretty confident that though we are sure to have some drops, the general trend is positive.  However, you know your risk tolerance, your time horizon and what your gut tells you to do.  Me . . . . . I looking to get back in to certain stocks that appear real attractive right now - do your homework, maybe you can find some as well!

Obama making changes

Whether you voted for him or not, there is one thing for certain, President Obama is not letting any grass grow under his feet!  He has made a lot of new moved in the first two weeks of his presidency, some were expected others were hinted at, but he is getting surprising support for most things through congress.  There is still the Democrat vs. Republican thing we will have to all get through in order to make real change happen.  Currently, he is facing some disappointments for the first time with some appointments to various positions of people who have had some tax issues (like forgetting to pay!).   So far no one was caught in a dorm room with a bong, so that is good!

Job cuts continue with over 520,000 for the month on January.  With all the complaining about losing jobs in manufacturing, there is still job loss in the service sector, though it appears to be slowing in this sector, which is a good sign.  Still, the consumer fumes as we hear about another financial institution who took bailout money and paid out huge bonuses or other wasteful uses of badly needed funding.  Meredith Whitney an Oppenheimer & Co. analyst made a statement today that I say on Bloomberg.com where she mentions that people take Wall Street jobs for the pay, and if we cut or eliminate bonuses we are sending the wrong message and " . . . they're going to go somewhere else."  WHERE - do these people have a clue!?!?!?  This is called basic supply and demand, I don't know if Meredith fell asleep during this lecture in her economics class - probably as it appears only executives in the financial industry can't seem to understand this concept!  There is NO WHERE else for them to go!  SUPPY & DEMAND - let them get mad and take their toys somewhere else - who has the money to pay - NO ONE!

It is the financial executives, the top echelon brokers, etc. that helped get us in this mess with the large dollars.  President Obama is proposing a $500,000 limit on CEO compensation for these firms.  Shouldn't that be enough money - the argument could be, "well, they could make more in other industries, so we will lose them . . ." --- exactly WHO would we care about losing????  Who kept their company, stockholders and customers out of harms way during this mess???  Again, no one!  Please don't waste my time!

As for the markets themselves, not much happening in the way of direction.  We have a couple of days up and a couple of days down!  I still like consumer cyclicals, big pharma, certain technologies and any commodity plays.  I think it will take all year for this market to stabilize and get some direction that resembles UP!

Barack Obama is the President

Today, Barack Obama is sworn in a the 44th President of the Unites States.  Today, the White House created a blog that you can access - very cool!  

If we are looking at the effect of the new president on the markets - today is not the best day (4-6% fall off in the U.S. stock market, depending on the index one looks at).  It is unfair to look at this for anything other than the market has been falling for a while, and we are now back at lows not seen since November 20th (Dow under 8000).  This is going to take time - nothing will happen fast and there is a lot to do - it will take time to do it all, and have the impact show in the economy.

If you look at some company stock doing well early on, like McDonald's and Wal-Mart - what is their customer base?  This is value shopping at its finest. When you are worrying about your job or just lost a job, your focus, financially, is on food, shelter, clothing (remember Maslow's Hierarchy of Needs!).  At this point, it doesn't matter what a house costs, a car, or anything else that I don't HAVE to buy.  The first order of business is to do what can be done to stem the tide of job loss.  Once we make a dent on this you must see what jobs can be created - clearly looking in other places (other industries) will need to happen.

As for autos, I live in Michigan, and what is happening at the Detroit Auto Show this week is there is attendance, though not a lot of new things that are current (lots of concept vehicles that are a few years away from production, so no immediate help).  Crowd are decent, but not up (unemployed can't really afford $12 for admission), and there are some companies not present at all.  There has been some discussion between Cerebus and Fiat (Italy) about a joint venture (no cash included) that would give Fiat a 35% stake in Cerebus' Chrysler stake.  The idea is to bring Fiat's small car line to the United States again, and allow Cerebus to have access to that technology - while sharing info on the Jeep and minivan lines with Fiat.  I like this combo better than a sale to GM (which would clearly eliminate the Chrysler name plate from the planet).

We are just going to have to watch this story unfold.  We will survive, but it will not be fast.  I expect we need to survive until the end of 2009 to see any significant change and economic turnaround.

Happy New Year!

Here is the first post of the new year - did I miss anything???  2009 was sure a crazy year with any related to money and financing.  Scandals, bankruptcies, closures, layoffs, and many other things.  We also found out that the age old "diversification" does not work real well when everything goes in the dump!  We still have the Big 3, though for how long remains to be seen.  The markets seem to be waiting for January 20th and the swearing in of the new President to determine where things are headed.  

Banks are asking for more money, companies are still closing and laying off, retailers had a bad holiday season, now new job creation, those worried about their jobs are not spending!  Yuck!

After some early "up" days in all markets including international, there seems to be a slight downturn which began yesterday and continues as I write this.  Most markets in U.S., Asia and Europe are down (Nikkei was an exception).

The safe investment/savings play of Treasuries - good idea, but with these rates, the mattress is looking better all the time.

I am just looking myself right now, not a lot out there that appeals to me at the moment.  I think for the year I am going to look at biotechnology, pharma, technology (non-consumer), and energy.  We will see if I am right!

Year End!

This will be the last post of 2008 - a turbulent year for sure.  One wonders aloud what would be remembered from this year, especially in the world financial markets.  It would appear the number one story would have to be the real estate bubble and the financial market crisis.  We could argue over how, when, who, and why but the reality is we are neck deep in it and it will take a global effort to get us all out of it.

Consumer confidence it at some of the lowest levels ever.  Retailers are finding out real quick "that no Christmas is coming", as the final holiday sales are coming in - way down!  We should see a number of retailing bankruptcies in early 2009.  Malls are suffering along with individual retailers as shoppers are being more careful with the money they do have and are willing to spend.  Restaurants are also getting hit as more people can't afford (or chose not to) going out to eat, preferring to stay at home for meals.  This can help the grocery stores, but not the restaurants.

Commodity prices continue to be in the news as oil continues to hover just under $40 a barrel as global demand (or those who can afford it) declines.  Gold is around $870 an ounce while Silver maintains itself just under $11.

If you were not quite sure whether this was just the United States, looking at foreign financial news would set you straight.  This crisis is worldwide!  Unemployment is up in France.  The Nikkei 225 (Japan's version of a stock market index) was down 42% for the year.  Germany is suffering as well as others in Europe who would sell parts to China who would use it to produce products sold to the United States.  The United States is not buying - so China is not buying from Germany!  In Russia, they devalued the rubble!  This is a vicious cycle where everyone is waiting for the new administration to arrive on January 20th, in Washington, D.C.  Don't hold your breath!   There is a lot of work to do and I fear it is only going to get worse before it gets better!

Let's hope for a more prosperous 2009!

A week later and no auto bailout . . . yet!

Well we are still waiting for the White House to agree to forward money to the big three (since the Senate said no way!). President Bush returns from a surprise visit to Iraq to make an announcement which sounds like it could be more than the $14-15 billion from recent discussions.

The FED meets today and is expected to lower interest rates to 0.5% - can't really go much lower! The most recent industrial production numbers are down, as are the latest numbers on manufacturing output which show the recession not only is definitely here, but not showing any signs of getting better.

What type of stocks can one look at, for the long-term, that would be a safe bet right now??? Well, safe . . . is relative, but assuming a long-term time horizon, there is value is companies with a good balance sheet and a secure dividend in the 4.5 - 6.0% range (be careful of some in the 7-9% range in common stock as I am not sure those dividends will not get cut a bit). Also, look for companies with a good balance sheet and good cash flow (Johnson & Johnson, Nestle, Zurich Life, Proctor & Gamble, and Accor). These are long-term plays but I feel will have less volatility in the near term.

Markets waiting on Big3 bailout news

President-elect Obama has been busy putting his team together. This includes not only his cabinet but other various advisors as well. One interesting choice was former Fed Chairman Paul Volcker to head a new advisory panel whose purpose it is to offer advice, information, and strategy for the finacial markets and how to jump start and maintain a healthy U.S. economy.

The world continues to watch and wait on the U.S. govenrment finalizing a package in the form of a bridge loan to the Big 3 automakers. What started with the Big 3 asking for $25 billion, then told to go back and come up with a plan (do you remember seeing AIGs plan? surely the other financial institutions who received part of the $700 billion had to show a plan . . .?). They did and came back and asked for $34 billion! It appears the House and Senate are prepared to offer the Big 3 $15 billion, payable on December 15th, to give them the ability to hang in there until Barack Obama takes over and then his team can decide where to go from there.

Ideas for investments???? Well, this is really looking for a jewel in the trash - what are the best companies in defensive or cyclical industries that have been beat down unfairly and when do you take a chance? I am not convinced we are at the bottom but I do believe we are very close. The markets still move up for a few days and then have a big down (people take short-term profits after a nice move upwards) as the markets settle in. It doesn't take much news, positive or negative, to get movement - though the movement seems to be overblown in either direction. I still like infrastructure plays, but others such as cyclical/defensive stocks are a good way to go as well. There is still a lot of quality companies out there than you can buy on sale! Companies I like are Dean Foods, Kellogg's and General Mills in the food producer category. As always, you need to do your research and determine whether these or any investment alternatives are right for you!

My most recent trade was buying Citicorp in the upper $3 range; it is currently at mid-$8 range. Sure wish I would have bought a truckload of it!!!

What Happens Now?

As someone who does small business consulting, financial planning and teaches finance courses I have been a little busy lately (it has been about 3 weeks since I have posted to this blog!).  So . . .  where do we stand on everything.

1. President-elect Obama has been busy working on choosing members of his cabinet in hopes of hitting the ground running on January 20th.  As an early sign of "keeping my promise to the American people", I do see his choices running the gamut of  liberal/conservative and both parties, many with experience in the Clinton administration.  Now, what shape the economy will be in by then is still up in the air; hopefully there will be something left for this team to manage!

2. Financial crisis continues.  The big three, GM, Ford and Chrysler, are still hoping for a $25 billion bailout (this on top of the $25 billion they want to upgrade the facilities to produce fuel efficient cars).  Yesterday was not a good day for the CEOs of the big three, flying in on private jets, refusing to work for a $1 salary (except for Nardelli, apparently he is "still good" with the $300 million package he got from Home Depot!), nor do they have a concrete plan they can share about turning things around (saying they have made a lot of cuts already), as they hold out the proverbial "tincup" asking for a handout.  Talk about not getting it!  Look, I have no issue with the private jet for important CEOs who need to be able to get to important meetings/conferences where traveling coach would just not work.  I do think this would have been one of those times to buy 3 first class tickets and fly commercial like the rest of the public as you try to show "you understand and care about the common man".  Who is their PR people - please, give me a break!!!  It is all about perception - and the perception of the big three CEOs are they are rich, arrogant, and don't get it!  There are a number in Congress who feel these companies should just reorganize in bankruptcy.   I am not in favor of the bailout without specifics and restriction (especially built around performance measures for pay for the executives), but I find it a little ironic that members of Congress (who don't have to pay social security taxes, have a pretty good "lifetime benefits package", etc.) are talking about cutting costs until it hurts and protecting the people's money.

3. The markets: the international markets are not that different from the U.S. markets, as governments are stepping in along with various money center banks and large world fund banks in an attempt to instill confidence in the system, but things still seen to rise and fall on the fortunes of the U.S. markets.  Yesterday (November 19th) the S&P500 hit 819.  This is significant for me, as in previous market highs which move to lows and then back to highs, etc., the difference between the market high and market low as measured by the S&P  is 50% (this means a drop of 50% from the high before the bottom is found).  In this last market cycle, 819 is that 50% down number.  For me, if this number can hang in her for a while (say a week or so), I think we could have a temporary bottom call to look at.  However, if it continues to fall, it is going to go way down (under 800 on the S&P and about 6500 on the Dow), in my opinion.

4. Ideas for investing (other than the mattress, that is) is very little is out there that I would venture into right now.  If you play options, tomorrow is options expiration so you can look at puts of certain stocks as well as some index plays (as I don't think anything is going to happen on the upside for a while), out a ways (maybe January at the earliest).  What to look at in individual stocks (this is only if you have a LONG TERM view) is very little as well.  I do believe there are still good quality companies that have been beat down too far, but they will come back only when some level of confidence is restored.  There are a bunch (latest count is over 100) "blue chip" stocks that are under $10.  While you can bottom feed it is important to understand the risk and what the story is behind the company.  I always say, if you can't talk about a company you are interested in, for two minutes, you don't know enough to own it!

Here are some stocks that are intriguing to me:

Citicorp (though I think this one is going to break up and pieces sold to other banks)

JP Morgan

Wells Fargo

Johnson & Johnson

Intel

Cisco

Wal-Mart (I think, if this market stays like this for a while, this could be the next Google, as far as price goes)

Merck

ExxonMobil

Blackboard

Apple

You need to have a strong stomach for this market and a long-term time horizon, or just find safe CDs, government money markets, and government paper.

Turbulence . . . Exuberance . . . . . Performance???

The last month or so in the financial markets has been one of the most turbulent in recent memory.  If anyone wanting to see what a roller coaster looked like, check out any average chart which looks like a silhouette of a really neat roller coaster; lots of ups and downs.  

However, if this chart represents your investments, this can make your head hurt and your heart sink!  In investment planning we always talk about diversification (don't put all your eggs in one basket).  This didn't really help much this time!  Just about everything has been hammered lower during this period, and like yesterday, we have had some rallies, nothing that has sustained long term.  Personally, I think we are at the bottom and although we will struggle to move much in either direction until next year (2009), I feel we generally move down 50%  on the S&P between the end of one bull/bear to another (that would be around 819 on the current S&P), and we are right about there (or have been close).  No category has been totally spared: large-cap, large-value, mid-cap, small-cap, micro-cap, international, sectors (can you believe with the gas prices that Energy is down over 30%!), foreign markets, bonds (ST and LT), and even some money funds took a hit (though now the government is going to guarantee those funds).

If you have the stomach for it, this is a great time to buy!  Wall Street is having a sale!!!  Many stocks are 30-50% off.  So, if you liked a company 90 days ago, you should love it now assuming the fundamentals are still reasonably strong.   The safe havens have been government paper, corporate paper, CDs, and money funds ---- none of which are paying a great return (however compared to stocks, they are pretty nice!).  There are some interesting investment choices out there when you consider the low price of the stock and the dividends it pays (you need to check to see that the dividend is secure!).  Companies like Pfizer (PFE) is trading near $17 and is yielding over 7%; General Electric (GE) is trading under $20 and is yielding over 6%; AT&T is trading around $27 and yielding a little less than 6%, and Merck (MRK) is trading around $29 and is yielding over 5%.  Now, this is saying anything specific as you still have to do your due diligence and determine for your self whether these companies will continue to exist in the 21st century.  However, if you determine there are some good quality companies out there, if you can get 5-7% dividends, you can afford to wait for a year or two before the stock comes back.  Where else are you going to make that type of return???

Where we are now - October 8, 2008

Well . . . . . is it safe to come out from under the covers? Maybe not yet. It depends on what type of investor are you, if you are a contrarian (i.e. bottom feeder) this could be the time for you to shine. While most people are wringing their hands and watching increased worry lines appear on their faces, those who are savvy and willing to stomach some risk, now is a time to be getting cash ready to go back in. The bottom is near! Actually, at the current daily meltdown, the Dow will be at zero in only 19 more trading days! Is that something great to think about! Seriously, I would looking at things important to our standard of living. Industries like infrastructure, natural resources, energy and food. Areas to stay away from are the autos, like you needed me to tell you this! GM hit a low today that it had not seen since 1952 when it traded at $6.42. Ford hit a low not seen since 1985 at $2.77.

With all this turmoil in the markets, you wonder who is buying. Well, Bank of America has just sold a bunch of its stock in the markets to raise $10 billion in a effort to help with the Merrill Lynch takeover.

The FED cut the federal funds as well as the discount rate by a half a point to 1.50%. Central banks in Canada, Seden, UK, Switzerland and the European Union have also lowers rates, even though some were worried about inflationary pressures.

Finally, what would a day be like if we didn't talk about oil prices. Today, oil hit $86.05 a barrel. Some members of OPEC (Nigeria, Iraq, Iran & Libya) have been making statements to the press that OPEC may have to adjust the supply in order to help the current markets. Their statement effectively said they feel $90 a barrel is fair value and any sustained level below that will cause them to cut supply. Saudi Arabia has not said anything on the matter. Saudi Arabia is the biggest U.S. ally in the region.

Bailout passed by Senate

The $700, now $805 billion bailout passed the U.S. Senate last night. Now we have to wait and see what will happen with the House. Over the last few days there has been many articles written about what $700 or $805 billion would buy if it was spent on the people of the U.S. rather than the financial institutions that caused the mess. I agree something has to be done, as the credit freeze is affecting those with good credit, who would and are qualifiying for a loan (the types of loans the financial institutions should have made over the last few years), and the is no money to loan.

What this economy needs right now is no different than what a business needs, CASH FLOW. Consumers have nothing to spend and can't even borrow if they wanted to spend.

The markets are in their usually roller coaster ride they can do when uncertainty reigns supreme!

Some interesting items in the financial press, from yesterday (Wednesday, October 1st), is that General Electric is offering to offer shares of stock to sell in an effort to raise $12 billion to give it a chance for acquisitions - clearly it thinks there could be some valuable companies "on sale" when this all shakes out. GE stock is off more than 34%, more than the market (off about 21%). Interesting report has Warren Buffett interesting in buying into GE!

The markets still in turmoil . . .

Do we have a deal or don't we?!?!?! It appeared the financial bailout deal ($700 billion) was hammered out in extended sessions over the weekend, and it was now going before Congress for a vote. Unfortunately we are in a big election year (November 4th), and I believe we are seeing the political wranglings at this time. Whenever it looks like something is going to happen (markets rise a bit), we then have someone wanted to stall or change some detail of the plan.

Look, none of this is any good - we shouldn't be in this mess in the first place, but we are! We you spill a glass of milk in the kitchen, you don't spend time moaning about the glass slipped, your hand was wet, how to protect the kitchen floor from future spills, getting guarantees that the milk if it falls, we go sideways rather than landing on the floor! ------ NO, you clean up the milk first!

We are in a world of financial hurt both in the U.S. and the foreign markets (as they seem to watch us for what we are doing and then react the same). We need to do something! There will be more regulation coming out of this just like the 1930s, after the Great Depression and in the 1980s for the Saving & Loan crisis. We seem to put ourselves in this position every now and again (greed gets the best of us; or at least some of us who work in this industry) and some get hurt, but we always survive.

The markets need some stability, markets to not like uncertainty and financial institutions need to do something with the money (sitting on it makes no revenue), but those customers are either unsure of the future or if wanted to borrow are finding things really tight and they don't have access. We could end up in a depression if this doesn't get resolved soon. If no one is buying, then nothing is made, no one is working, etc. --- it is a vicious cycle.

-------------------
Annuities

Personally, I don't like them, but I know there are planners and others in the financial world who like them. I would never put a client in them if they asked me (s0me do it and then ask what I think???). Overall the concept is a good idea, but I am a firm believer people have no clue what they are buying.

They are signing a contract. A contract in which they have few rights and the insurance company has most of them. One of the reasons a person considers an annuity is that is sounds good, easy, and on the surface makes sense. They are looking for something "safe" and "guaranteed", with little to do after setting it up. Annuities are insurance contracts. There are two types "fixed" with a steady rate of return established at the front end, which accumulates or pays out periodically (depending on how it is set up). A "variable" annuity will have a rate of return that fluctuates, possible of making more than the "fixed" but also possibility of making less. Consumers looking for that "guarantee" will opt for the fixed annuity - bad choice! If I had to force someone into an annuity it would always be variable. Why? Simple, again these are insurance products. With a fixed annuity the annuity contract moneys are co-mingled with the Insurance company funds - in a sense they are in the same boat together. Okay, if the boat doesn't sink ----- every hear of AIG!!!!

Now, a variable annuity does not co-mingle the funds from the annuity with the insurance company, so in my opinion, can be a little safer.

Another reason that I do not care for them is the high fees (as much as 8.5% of your invested amount. Yes, the brokers will tell you "it is a declining fee", which means that if you invest and keep your money in for 5-7 years or so you may not have to pay anything on the way out, as each year the 8.5% you lose gets lower. My issue is if I invest $10,000, I want $10,000 working for me, not $9,150 like it would be with an annuity (after the sales charge).

Anyway, enough ranting for today . . . . . . someone just sit down and decide something!!!