Fagan Associates Archive for January, 2010

A month that started so promisingly has ended with the Dow Jones down 3.49% and the S&P 500 down slightly more than that. The Nasdaq was the weakest of all of the major averages down some 5.5% for January. A weak January is not a good barometer if you are hoping for market gains. In years when the Dow is a winner, stock gains on the average exceed 10% - conversely when the Dow is down the average gains are some 1% or thereabouts. Not great news but remember the Dow lost money last January too. The Dow was lower by some 8% last January and finished the year solidly in the black.

Earnings have been good - Ford left the door opened for a continued rebound in car sales (and with Toyota’s missteps Ford could benefit), GE also was solid - the real question in investors’ minds is Washington. Will our politicians get their acts together and exhibit some spending restraint.  To us, that is what upsets this market most. Unbridled spending worries investors.

The coming week will be interesting. Check back here for updates.

More than anything else, investors hate uncertainty.  Unfortunately, at this particular time that is all there is.  Much of this is coming from forces, external to the stock market, that are exerting pressure on the confidence of investors.

As our economy prepares to exit from this deep recession, investors are skeptical about the labor market, wondering if and when jobs will begin to be created.  Wondering where the more than 150,000 jobs that need to be created every month just to keep pace with population growth will be found.  Wondering how long those on unemployment will be able to remain there and maintain their standards of living.  Jobs, we read or hear, are tough to come by.  Some say “after all, what business is going to want to hire with the uncertainty over the direction of corporate tax rates, the cost of health care or cap and trade.”  Wondering how long the Unemployment Rate will stay at or near ten percent.

Forget the job market.  Americans are wondering and worrying about the housing market.  When and at what value will housing prices bottom.  What will the bank do about my home equity or credit line?  If you don’t own a home you are concerned that “banks aren’t lending.”  You ask yourself, “will I ever be able to buy a home.”

The job market and the housing market are just the foundation of our worries.  Add to these worries the concern over rising gas prices, spiraling food cost and the jump in the cost of health care and you begin to panic.  Your mind begins to cloud over and then things really become foggy when you think about America, our country.  How will we pay for all of this?  You begin to worry about the national debt, paying for health care reform and its impact on our children.  Our children, oh no.  Our children are obese from all of that candy they buy at school and no exercise.

Riding home from work, listening to some talk show, you hear that China, that land that consumes almost every basic material in the world, is slowing down.  After all, the talking head you’re listening to notes that their government is trying to prevent a bubble.  Thank God we’ve got Ben Bernanke to head our Federal Reserve.  But, the talking head next states that he may not be reappointed at Fed Chief.  More bad thoughts.

No, things are not good.  They can’t be.  Too many storm clouds.  Too many uncertainties.  The sky is falling.  Stop!  Take a deep breath.  Let’s look on the bright side.  At least we can rely on our elected officials to do the right thing, to try to get us out of this mess.  Uh oh, on second thought, let’s not let our brain go down the path.  They squabble like little kids, poking at each other and hoping that the “other side” fails so that nobody will be able to claim victory.  The Democrats get a leg up and the Republicans sulk.  The Republicans score some points and the Democrats take their ball and go home.  Our lives, our country, has become a political football.

How about a novel idea?  Let’s rely on ourselves.  Let’s dust ourselves off, put our respective noses to the grindstone and fight like we have never fought before.  We can do it and we’ll all be better off for it.  Pay our own debts.  Accept a “hand up and not a hand out.”  Become nobody’s lacky.  Don’t let anybody buy your loyalty.  Accept what is rightfully yours and take a pass on the rest.  We need to rebuild Main Street and the Middle Class.  We need to have faith, not in anybody, but in ourselves.  This is how we get out of this mess.

Oh, but we digress for the last nearly six hundred words!  We’re sorry.  Thanks for reading this column.

THE BOTTOM LINE – Consider this.  Bull markets do not begin when the economy is humming on all cylinders, when there is political peace or when the Unemployment Rate is at five percent.  They begin during the darkest hours, amidst all of this uncertainty.  We believe that we are entering a corrective period in the stock market, but over the balance of this year stocks will move a bit higher, perhaps high single digits from their calendar year 2009 close.

McDonald’s, cold and calculated, went after Starbucks with coffee and lattes. McDonald’s also went after your local ice cream parlor with cones and McFlurries.

Just exactly who is Burger King going after with their newest strategy of serving beer- (its a trial at a few locations right now).?

Questions linger? -Is it available at the drive through? Exactly how will the whacky “king” act in commericals with a couple of Coors Lights in him? will the kiddie meal include a non-alcoholic spin off?
Don’t like this idea at all for BK - -seems more evidence that McDonald’s has taken a commanding lead in the Burger Wars and with a 3.5% dividend, the stock looks tasty too.

Many uncertainties developed this past week sending stocks sharply lower.  Some were justified and some are most likely not.  In fact, President Obama created some of his own on his own!  Think about it, with the election of Chris Brown to replace Ted Kennedy’s seat health care reform is now even more uncertain than ever, the filibuster proof majority has been eliminated and bank regulation/reform is now in question.  Add to this the bipartisan wrangling over the re-appointment of Federal Reserve Chairman BenBernanke, a sluggish earnings season, China tightening monetary policy and the migration from cyclical stimulus to secular reform and you have a recipe for a sell off.  Oh, we forgot the increasing unemployment claims.

At this time we believe that it is only profit taking.  However, investors seem likely to give this sell-off a short leash.

We love Nike and its ad campaign but many times in the world of investing its what you DON’T do that makes you successful and not what you do!! Here’s 3 very simple rules that make sense and for the “average” investor should be followed (maybe even for those who consider themselves above average).
1. Don’t play with your 401k/403b/employer retirement plan. So often, we see investors trading their 401k. Ducking in and out of the stock market. Too many investment folks preach market timing and for the average person this makes no sense especially in their 401k with company matching funds. Get an asset allocation that makes sense and stick with it- adjusted as your life unfolds and changes. Missing one market move can be disasterous- think back to the number of so called gurus who were calling for Dow 4,000 last March.

2. Don’t amass credit card debt - NEVER, NEVER,NEVER. We thought that we as a country were through this and that basically everyone knew that this was financial suicide but a recent surge in new customer meetings strewn with credit card debt changed our minds. Many of those people had adequate savings to pay off the debt. Bizarre, our advice- delay the Disney trip or the addition and live within your means rather than piling up credit card debt. The credit card “piper” always gets paid in one way or another.

3. Don’t take flyers on tips in the stock market. That’s what Vegas and Saratoga are for. Ignore bartenders, barbers and brothers-in-law who profer stock market “sure things”. We can’t tell you the number of $5 stocks that are basically worthless now that were going to quadruple.

Protect against the downside of credit card debt, hot stock tips and overtrading in your retirement plan and the UPSIDE usually takes care of itself!

Good morning!  Stocks look to head a bit lower on selling overnight in the Far East as wel as concerns that “we’ve run too far too fast.”  This is evidenced by the negative reaction to solid earnings reports from Intel Corporation this past Thursday evening and J.P. Morgan Friday morning.  We’ve witness the repairing of bottom lines at many companies and now investors appear to be wanting some top-line (revenue) growth.  We can’t blame them and think that a sideways to slightly downward move from here is probably likely.  That said, the correction should be relatively shallow and will most likely present a good buying opportunity.

We’re in the first inning of earnings season so things could change.  Watch your investments closely.  Time does not dictate portfolio changes, movement in the market or your specific holdings does.

To J.P. Morgan:  As shareholders of your fine company and recognizing that your earnings far exceded Wall Street estimates and given the fact that you slashed your quarterly dividend over the past year by nearly 90% and given the fact that your stock has gone nowhere for nearly twelve years, don’t you think it would be better business to reward your sharehoolders by increasing your dividend rather than providing bonuses for your already wealthy employees.  Hmm, just a thought.

Nothing can be more disconcerting than getting on an airplane and going through security.

 Funny to think that we are now wondering what might be in a fellow passenger’s underwear.

My thought is “do what it takes” to make me safe. Full body scan- no problem. Gotta take my shoes off - -do it. I can’t read for the last hour - I’ll stare out of the window. Sorry, but I don’t view this as the biggest issue facing the US right now but you wouldn’t know that by how much time has been spent on it since the thwarted Christmas bombing attempt on a flight from Amsterdam to Detroit.
The jobs number today highlighted that the number one issue facing us is the economy. We lost 85,000 jobs during the month of December. The jobs market is improving trendwise (and we think it will continue to do so) but this is a reminder that it must. Ask most families what their number one worry is and it will be the security of the families employment and not the security of air travel. Most families are more worried about whether their younger members will have a job and not whether they will fly safely to Tampa.

 Our number one concern must be the economy.
On a side note, the market reaction to the weak jobs number has (to this point - 10am) been muted with the Dow down roughly 35 points.

Today, I paid $3/gallon for gas. Its strange that I am seeing nothing about this fact- our reliance on foreign oil CONTINUES. One of the biggest election issues over the past couple of years was dependence on foreign oil. We are still dependant - a run to higher gas prices would choke off this nascent economic recovery. I am not sure what the answer is but I know that there are a number of them. Natural gas, expanded US drilling, wind, solar, ethanol- you pick it. For once, instead of talking about it - let’s do something about it.

After all, its the economy stupid- advice for both politcal parties to HEED.

No. That’s not a misprint. Its what our wives call our annual ritual of jumping into Lake George on New Year’s Day. You’ve seen it on local television- its known as the Polar Bear Plunge. Be aware that neither woman have ever actually done the deed but belittle our efforts at what we call “rejuvenation”. (Pictures will be posted shortly) For those with squemish stomachs turn away as we are shirtless.

2010 starts with the market at some loftly levels as compared to March 2009.

2010 starts with some familiar levels as compared to a decade agao.

The market has undergone a certain revival over the last quarter of 2009 and much of that was due to a dramatic rebound in the riskier elements of both the stock and bonds. The more conservative areas bounced back but lagged those dicier sectors. We believe that boring will be back in vogue in 2010. So dust off the scrabble game and throw some money at the tamer areas of the stock market ( we will address our bond philisophy later this week).

Look for dividends - (FNFG 4.0%, HON 3.1%, JNJ 3.0% and INTC 3.1%) and solid balance sheets that did little in 2008. Look for economically resistant stocks that can thrive in a good market and survive in a bad one. Names like McDonald’s, JP Morgan, Diageo and Pepsi come to mind. Don’t be caught up in the rhetoric that is the day to day trader.

Always remember that these are just ideas and need to fit into a broader investment game plan designed with your investment advisor.