I started this issue of the newsletter a month ago, and I think it high time I push it out the door. I have moved to this new location because it will permit comments, which I am not sophisticated enough to know how to do at the old place. I can keep tabs better on responses, and if people vote their approval by clicking on ads, it will help to defray some expenses. I recommend to readers that they become followers, because of the difficulties Yahoo has given me in sending out the email notices some people complained that they had been taken off the distribution list. Not intended by me.
Bernanke's announcement that he intends to take the Fed into a second round of quantitative easing means it's his market. As Marty Zweig used to warn on Wall Street Week years ago, don't bet against the Fed.
There will be obvious fallout, the price of oil has gone up. Good for oil speculators, and at first blush not necessarily good for the economy as a whole. Though maybe it will be a blessing in disguise. We need to fire up the alternative energy technologies. Only a higher price for oil will have any effect on this business.
And will QEII (Quantitative Easing II) shore up prices in general? House prices are still falling (5.6% year over year), and rents are weak. My intuition says no, prices may still fall. Demand is the main issue, and demand has been stolen in prior years with low interest rates, so you first have a supply problem of a huge inventory of homes. (And also shadow inventory - people who would like to sell but have withdrawn their homes from the market). Lower interest rates now will not necessarily mean more demand. I mean, you have to ask yourself, what is Bernanke thinking? Does he plan to steal demand from 2012-15?
Secondly, there appears to be no new products to drive the economy in a remarkable way like the trio from the 1990s: cell phones, personal computers, and the internet. All three are staples now, and do not represent a new product categories. Tablets, a la iPad are not really a new class of product like the PC was in the early 1980s, and it appears they could possibly cannibalize notebook and laptop sales.
So, while I do expect that stock prices may very well top old highs, the PE ratio of the S&P 500 according to Robert Shiller's spreadsheet is 21.17, high enough for a lousy recovery like the one we are experiencing. But Bernanke may cause a bubble to the high 20s, which is not necessarily a good thing. There could be a possible second downturn, which would not be a happy thing.
I mean that unemployment, which is still high even by the grossly understated by the government figure of 9.5%, could drive higher yet. Municipalities may be forced to cut staff.
Bernanke cannot solve all the problems of the economy by himself. He needs help. New products would certainly help, but a huge stimulus program for alternative energy would probably help the most.
Tax Cuts
I guess for the rich folks it's a sigh of relief, Obama will go along with Republicans who make a religion out of tax cuts. But it seems to me tax policy is a bit of a trick. The rich would rather pay low taxes now on earned income and capital gains, even if later this might well be their undoing. What I mean is: that if low taxes now mean deficit and problems for government bonds, and as a consequence the stock market collapses, then the money they saved disappears in investments that decline by 50%. The the tax cuts seems stupid and short-sighted. But I'm not here to proselytize. We'll see together, but it looks like it might not be the best thing.
As a practical matter, the two year time limit on tax cuts will not give executives a long enough time frame to make necessary investments in plant and equipment, bringing me to:
Alan Greenspan and Long Term Investment
Alan Greenspan was on Squawk Box on CNBC recently, and he says that the econometric work he has done shows the bond purchases by the Fed are beginning to crowd out the private sector. And that enormous amounts of cash on corporate balance sheets reflects a lack of confidence on the part of CEOs going forward. His contention is that investment in plant and equipment means jobs down the road, and his work shows this is not happening. Look at his comments, highly instructive.
Greenspan has been hawkish about raising tax revenue, so he's not for the tax cuts. He claims now the main reason he was for the Bush tax cuts is that the surpluses of the Clinton years threatened to reduce the national debt to zero, and the Fed does all its work with debt, so if there were no debt the Fed cannot do its work. Now he is afraid that the deficits will do all manner of harm.
I think Greenspan has done us quite a bit of harm by lowering rates as low as he did in 2001 and 2002, but he is a serious, reflective man. He has backed away from Ayn Rand; he has admitted he was wrong about regulation. He is still a man in progress, and worth listening to.
Great Work-Arounds
In learning a language we are always looking for work-arounds. If I say I've got the time to go into town, there is no exact translation. So, in Spanish, for example, we say Yo tengo el tiempo. (I have the time). Here's one of the great work-arounds of all time:
Fusion works in the sun because its great gravity creates the density necessary to fuse hydrogen atoms into helium, releasing huge amounts of energy in the process . Fusion works in hydrogen bombs because the atomic explosion greats artificially the great density of the sun caused by its great gravity. In trying to tap fusion to provide electricity for utilities, scientists are trying to substitute for the great gravity of the sun, heat greater than the sun's and a huge magnetic field to keep it all together. They say the big problem is materials, and the magnetic field also causes problems.
Dow Theory Buy Signal
There is always some dispute about Dow Theory signals, but it appears that when the DJIA closed above 11,444.08, which happened this week, it signaled higher stock prices ahead. I'm thinking that the next year will be good for the Dow, but probably not without some scares along the way.
On the Downside
According to Mark Hulbert, insiders are dumping shares at a 7 to 1 ratio (share sold to bought), which is the highest such ratio since 2007. To be fair Hulbert says he come across work that suggests execs are always selling, and that a normal ratio is 6 to 1.
There is still a Chinese housing bubble lurking out there.
I have it on good report there is going to be crisis when it comes to lifting the national debt ceiling.
According to Investors Intelligence, 56.8% are bullish and 20.5% are bearish (December 14, 2010). This is an inverse indicator. So, it's not bullish.
My Christmas Gift
I have been recommending Citibank, Citigroup (C) for quite some time now. Things have improved, and so for those who are not risk averse, I am going to recommend either the Jan 2012 $5 call options for the Jan 2013 $5 call options. I bought some. You can also buy the stock, but the returns will be much, much smaller. I'm pretty sure there will be a good return next year, but I would expect the stock to level off after it makes its recovery.
The government sold its last shares for a total profit of $12 billion.
Vikram Pandit, who I have liked all along, is getting raves.
Probably they over-reserved for losses, they will recognize profits as the situation improves.
Jim Cramer says the press is going to leave them alone more, he's bullish on it.
It has one of the best brands in the world. I got an account there because it was so handy in Buenos Aires. I could only use my American Express cheques at their office, and it was a pain to get there. Citi had several handy branches.
It's not necessary to always come up with new ideas. Benjamin Graham liked GEICO in the 1920s, became a director of the company, passed this investment idea on in the 1950s to his student at Columbia, Warren Buffett, who bought a huge stake in GEICO when they ran into trouble in the 1970s, and then in the 1990s ultimately bought the whole thing. Ninety years all in the same company.
December 17, 2010
= = = = = = = = = = =
Spending Down
What do you call it when the City of Chicago sells off the parking meters and the Skyway? Or when the teacher's pension funds sell off 10% of their assets? I call it Spending Down.
http://barnardviewpoint.blogspot.com/
= = = = = = = = = = =
Sponsors
You keep nursing your 3%. I'm still elephant hunting. I'm only interested in game changers and truly unusual opportunities. Dad told me many times that what made the difference in his stock market investments were the elephants, the stocks that went up multiple times. Much harder to pick those now than 15 years ago when all you had to do was mention the internet. But there are opportunities around as striking as those of 20 years ago. And you better believe it, I'm saving my best ideas for my partners.
Last newsletter my favorite pick was up 200% since the March lows, now its up 300%. There is still a long way to go. I have seldom come across a stock which is better positioned than this one. I can almost smell the money. This company is well-position, and Bernanke wants a stock market increase so people will feel like buying houses, what else could you want?
I myself am still down on this stock. I probably have an average price probably twice the current price. You can buy it for less than me! I've held this stock for six years. You're sharing with me some of the winnings for all this waiting I've been doing for you. I know everyone feels stock recommendations should always be free like parking, but then parking isn't free a lot of the time, isn't it?
Here is the Stock Recommendation Partnership Agreement
http://www.barnardobserver.com/Stock%20Recommendation%20Partnership.pdf
(No agreement no matter how well drawn is sufficient. If I don't know you personally, don't bother. If I do know you, now is a good time to check this out.)
http://www.barnardobserver.com/Stock%20Recommendation%20Partnership.pdf
(No agreement no matter how well drawn is sufficient. If I don't know you personally, don't bother. If I do know you, now is a good time to check this out.)
Email: tbbarnard@yahoo.com
- - - - - - - - - - - - - -
M.E. Reiss Ltd. Select investment management. Email: mereiss@yahoo.com
- - - - - - - - - - - - - -
My novel is getting nice reader reviews.
Check out the reviews at Amazon:
The Intelligence Break, a novel about the curious relationship between brains and sex
Email: tbbarnard@yahoo.com
Check it out here: http://www.theintelligencebreak.com/
And buy it here for the nice price: http://www.booktable.net/book/9781450056380
And for those within striking distance of Oak Park, check out a bookstore rated #1 in the Chicago Reader poll. I highly recommend it. They're very resourceful book buyers with a very interesting inventory, nice prices, and the store has an agreeable ambience.
The Book Table
1045 Lake Street
Oak Park, IL 60301
708-386-9800
