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!!!