First Things First…..The Election – Before I begin, in the traditional sense (I’m a bit old fashioned), I want to wish everyone a very Merry Christmas and Happy New Year. Now, before anyone objects, that includes everyone, regardless of their religious affiliations or lack thereof. It is merely an expression of good will to all men (and women… especially in light of the recent elections!) and a hope for peace and prosperity going forward.
The Painful Patriots vs. Forty Niners game ….. – Last Sunday night’s game reminded me that what I do and what you do with investments has a correlation to the game of football. Anyone who has ever coached young aggressive football players (like I have) knows the response when a parent asks, “How come you never throw the ball?” The old saying always applies – “There are three things that can happen when you throw the ball…and two of them are bad.” (completion, incompletion or an interception). So, the smart coaches always run the ball. They tell the runner, “Your job is to make positive yards on every play however small they are; but never, ever fumble the ball!” Last night, a young Patriots runner named Steven Riddley who was having a Pro Bowl year with many, many impressive runs including many touchdowns in the first 13 games of the season, fumbled the ball twice. He will remember those fumbles for a long time while sitting on the bench or when he signs with his next team. The lesson is clear in football and in investing. Gain a little each time if you can or at least control the ball for the next play. But don’t fumble the ball.
JC Penney…a high flying stock not too long ago….. – In March of 2007, JC Penney stock sold above $80 per share after a long run up. Things were looking good for a company name few in this country did not recognize. They are currently hovering around $17 per share. Why you ask? The following statement was recently issued in their third quarter regulatory filing, “We now operate with significantly fewer individuals who have assumed additional duties and responsibilities and we could have additional workforce reductions in the future…the changes may negatively impact communication, morale, management cohesiveness and effective decision-making, which could have an adverse impact on our operating efficiency.” Now doesn’t that exude confidence? Turnaround projects, although they can be quite successful and rewarding for stock holders, are rarely a lot of fun for employees and customers. Be aware of paradigm shifts in a company’s core business. For example, is there anyone left in the investment community that believes in the future of solar power but also believes that solar panels can be built here in the US profitably? Companies that don’t make a profit don’t make it. Keep an eye out for growing profits and growing dividends. Those companies will likely grow your portfolio.
Who said this…..? – “Do not let us speak of darker days; let us speak of sterner days. These are not dark days; these are great days-the greatest days our country has ever lived; and we must thank God that we have been allowed, each according to our stations, to play a part in making these days memorable in the history of our race.” Answer at the end of this posting.
Christmas… “Random Twinklers”…and Divorce… – I remember coming home from school one day in my youth and witnessed my father standing next to our Dover 620 galvanized trash can performing the dreaded annual pre-yuletide husband chore starting with throwing out all of our outdoor Christmas lights. He was mumbling “random twinklers” as he discarded them. For those of you who don’t know, my father spent a good deal of time in Stalag 7A in Germany as a POW in WWII but survived. And because of that, we always cut him some slack in the idiosyncrasy department. I reminded my Dad that we didn’t have two nickels to rub together at the time and couldn’t afford new lights. He sharply retorted, “Do you have any idea what a divorce costs these days? Trust me Leonard, new lights are much cheaper!” My father had a favorite saying…. “Love is grand; but divorce is a hundred grand.” My father’s planned obsolescence theory about those outdoor lights, which worked perfectly well last Christmas but never seem to work when taken down from the attic the next year, was the direct result of those sinister “random twinkling lights.” He said, “Never, ever buy random twinkling lights. They never work and are just a plot by the manufacturers to sell you new lights every year.” I was sure he was nuts; but I thought again about Stalag 7A and sympathy got the best of me. I just got down from the ladder and installing my brand new outdoor lights on my house for the twenty fifth consecutive year. By the way, my father was married to my mother for over fifty years and my mother always got her lights on Christmas.
How Can We apply the Planned Obsolescence Theory to Investments? – Companies which consistently make “good stuff” that we all need, or more likely…want, and do it profitably are very good at growth and often reward their investors handsomely with share price gains or dividends or both. Apple, Caterpillar, Exxon, Kimberly Clark and Verizon are names with which most people are familiar. Fiscal Cliff or no Fiscal Cliff… does anyone think these names are not going to be around for the long run? These companies all supply something that wears out or is used up by a huge number of returning customers. Simple sometimes, isn’t it. Owning individual stocks may or may not be appropriate for you depending on your risk tolerance or time horizon; but if you and your advisor determine that they could be a fit for you, it is always wise to favor the well established, stronger names across diversified sectors. Let me know if you have an interest in a portfolio of individual stocks with a portion of your assets.
Does the name “Monte dei Paschi di Siena” mean anything to you?… - This is the world’s oldest surviving bank. It was founded in Italy in 1472 (that would be twenty years before Columbus sailed the ocean blue). S&P just downgraded it to “junk” or speculative BB+ status. If you needed more proof that this recession is different from the rest, that would be it. I continue to be cautious about Europe and the Euro and advise that you be also. Message to all those politician spin doctors…..Show me consistent upgrades and not downgrades and I’ll be in the camp that we have turned the corner. Otherwise, play defense with your investments and get paid while you wait.
Are you as tired of this “Fiscal Cliff” deal as I am? – I am absolutely convinced that this shenanigan’s real purpose is to… 1. Get the politicians in front of cameras as much as possible before they compromise go home for “recess” while raising the price for their book deal or their lobbying contract when they retire… 2. Provide the going-broke media with another useless story with “legs” to us, the lemmings who are getting all Kardasian-ed out… 3. To scare all of us investors just because they (politicians, media and Donald Trump) enjoy doing it and typically make money either way. Here’s my take… If no deal is done before December 31, the market will sell off some. Then the bottom feeders and the institutional guys will likely jump back in in January and start a rebound. If a deal is done (like making sausages… not pretty to watch), the market will likely go up with all the political back slappers taking their victory lap while we, the tax payers get to pay for “the deal.” The point is… Don’t let it ruin the holidays for you and your family. And don’t try to “play it” short term with your investments. If you are in retirement or very close to it, you should be playing defense already. If you are not near retirement, look long term and hold quality investments and a much smaller portion of some speculative investments if your risk tolerance allows such things.
When I become President someday….. Another of my Presidential directives or executive orders will be… (effective immediately)… no cars sold in the United Sates will be allowed to have any “Check Engine” warning light unless it also “Tells You What’s Wrong !” Think about it. Technology can now immediately tell us when something is wrong with the car and alert us to fix “IT.” But technology can’t tell you what “IT” is. Heck a famous President couldn’t even define what “is” is! Ya…I’m buying that. Honestly… the things we consumers (voters and tax payers) put up with never ceases to amaze me.
Recession in 2013? – I heard a few “experts” today saying that if a “deal” is struck to ward off the famous “Fiscal Cliff” before the end of the year, there won’t be a recession in 2013. I think that is foolish and I’m not buying it. First, I think a deal will be announced just before our “leaders” are scheduled to go home for “recess.” That’s par for the course. However, that is not going to fix the economy anytime soon. Any deal that takes more money in increased taxes from companies and the people will slow investment and slow the economy. If any cuts in government spending are ever made, you can be sure they will be “phased” in (or never implemented at all) but the taxes will be immediate. We have anemic growth now and our biggest customers of our exported products are already in recession. Unfortunately, I can’t see the “consumer” pulling us out of this mess. They simply don’t have the cash and are fearful that more job cuts are coming. I believe we are likely to be in recession by June of next year. I have never hoped to be wrong about something more than on that. But the stars seem to be lining up that way. Dividends continue to look good. Growth… not so much. Stay tuned.
What about Gold?…. –It’s a question I hear a lot. Remember, when you buy gold, you are essentially shorting the dollar against other currencies and gold. If the dollar continues its downward momentum, chances are your gold trade will do well. However, keep in mind that gold is a volatile commodity. Anyone who tells you it always goes up is not telling you the truth. It is, however typically a good hedge against inflation and a falling dollar. A small and reasonable allocation can be prudent for most investors. Too heavy a weighting can be very risky. I prefer using instruments like the ETF “GLD” as opposed to owning gold bullion. It is more liquid, I believe.
What’s going on at the Fed?.... – The FED recently announced what I think is a very clever strategy – tying the interest rates to the unemployment rate. It is a very shrewd way of saying to Congress and the President, “You do your job on lowering unemployment and we’ll raise rates “if and only if” the economy takes off.” (a classic “The ball is in your court” move!) So, it looks like very low rates for some time with more FED bond buying for the foreseeable future. The same people who called a bond bubble in 2004, 5, 6, and 11 are doing so now. The biggest risk to the value of bonds is rapidly rising interest rates. I don’t see that in the near term. The second biggest risk to bond valuation is usually rapid liquidation to cover margin calls or just plain panic. In the second case, the equity markets are more likely to lead the market fall and sustain much heavier losses than bonds. Having stated that, I see an environment that continues to favor coupon paying bonds and more conservative Blue Chip dividend paying stocks. An overheating economy which would spur rising interest rates is hard to imagine anytime soon. Watch for “sustainable” fundamental changes in economic activity before making major structural changes in your allocations.
Do you offer a “Stock Only” Managed account? – Yes! For those who prefer to invest in stocks, bonds and ETF’s on an individual basis as opposed to mutual funds, etc., I do have stock portfolio accounts that are co-managed with the Investment Policy Committee at Westminster Financial. These accounts are strictly fee based accounts and therefore, commission free. They utilize option strategies along with both technical and fundamental analysis. They are set up and maintained based on your risk tolerance, time horizon and income needs. Careful consideration is given to tax deferred accounts like IRA’s and taxable accounts. If you would like more info on these types of accounts, please contact me so we can discuss them.
Answer to the trivia question…. – Winston Churchill, October 29th, 1941
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*The opinions and forecasts expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions. This newsletter is not to be construed as an offer to sell or the solicitation of an offer to buy any securities and should not be construed as a recommendation of any specific security. Information provided is obtained from sources deemed to be reliable, but Westminster Financial Securities, Inc. (WFS) does not guarantee the accuracy or completeness of the information or make any warranties with regard to the results to be obtained from its use. WFS shall not be liable for any claims or losses of any nature, including, but not limited to, lost profits, punitive or consequential damages. Past performance does not guarantee future results.
Sr. VP Investments
Westminster Financial Securities
264 So. River Road
Bedford, NH 03110