It seems the market has momentum and a mind of its own.
For that reason, we ran a segment entitled “nowhere to run, nowhere to hide” on WGY.
The stocks that we mentioned were Pepsi, (PEP 2.9%) Verizon (VZ 6.3%) and Conoco (COP 3.9%). A mix of these three stocks (telecom, beverage and energy) seemed to be a good start to an income producing stock portfolio.
We also mentioned the Permanent Portfolio (PRPFX) which is a no-load mutual fund with an investment objective of conservative allocation. A solid track record over the last decade though past performance is no guarantee of future results.
Finally, two bond funds MetWest (MWTRX) Total Return and Pimco Total Return (PTTDX) rounded out the investment ideas in this theme.
Consult your investment advisor before investing hard earned dollars.
Fagan Associates Archive for March, 2010
It seems the market has momentum and a mind of its own.
Yesterday all my troubles seemed so far away. This is not about that Beatles song although yesterday it seemed my troubles were more omnipresent than they are today. What exactly was yesterday’s bond and stock market debacle?
Poor participation in the US treasury auction backed up rates for bonds thus decreasing their values. The ten year US treasury is currently trading with a yield of 3.86% - almost .25% higher than 10 days ago.
Stocks took their first drubbing in a week — many of our favorite companies lost more than 1% on the day - Nike, Diageo and Bristol Myers all fell more than 1%.
Was this a one day event or the first in a series of acts as the market sells off? We believe that investors are spending MUCH too much time analyzing where the market is headed tomorrow and less on longer term investing. It is never fun to buy the market at a short term top BUT its even less fun to sit idly by watching as the market advances. Where are all the doomsday prophets from March 2009?
Here’s our prognosis- interest rates will head higher - not dramatically but eventually and subtly. Incorporate some high yield and shorter term maturities into bond portfolios.
Stocks are going to have a solid year (much of the growth may be in prices already) with roughly 1/3rd to 1/4 total return being comprised by dividend.
Yesterday was a minor blip on the investing radar screen BUT as always stay diversified both within sectors and asset classes.
So instead of “Yesterday” being your Beatles theme maybe “Long and Winding Road” might better suit the typical investor’s needs.
Just a little over one year ago, on March 9th, the Standard & Poor’s 500, the largest 500 publicly traded companies domiciled in the United States closed at a bear market low of 676.53, some 56.78% below its record high close of 1,565.15 set on October 9th, 2007.
According to Bespoke Investment Group, “bull markets that pass the one year mark have almost always lasted two years or more.” In fact, there have been thirteen bull markets since 1930 that have lasted more than one year and all, but one lasted at least two years. The one that did not was in 1948 and ended after 393 days with a total gain of twenty-four percent. The average gain for these thirteen bull markets was 153% over an average of 4.4 years.
Once again, this bull market is just over one year old and to date has returned 72.38% to investors.
It would not surprise us if this bull market extended over the similar average time frame of 4.4 years, but with a less than average total return. In a nutshell, at this time we expect high single digit total returns with limited downside risk.
U.S. Household Debt Falls in 2009
The Federal Reserve began to track aggregate household debt in 1946, sixty-four years ago, and for every year since it has increased. That is except for 2009. In part, as evidence that Americans have begun to repair their own balance sheets, Household Debt shrunk by 1.75% while business borrowing fell by 1.8%. It is also apparent to most that debt shrunk due to the lack of available credit from our lending institutions as well as the concern that most Americans feel regarding the state of the labor market. On the flip side, net worth of U.S. Households increased by 1.29% to $54,200 billion as the stock market rallied more than twenty-three percent.
Private Sector Job Growth Stagnant Since 1998
According to the U.S. Labor Department, in the aggregate there has not been a private sector job created since 1998. However, there have been 2.4 million government jobs created, most of which at the state and local level. Furthermore, since the recession started in December 2007, there have been 8.5 million private sector jobs lost and no public sector jobs.
Our take: the private sector provides the creativity and innovation so critical to a thriving economy, without which, over time, job growth will stagnate and eventually our standard of living. This is why the number one, two and three priorities of the Obama Administration and Congress should be the economy.
Fed Stands Pat on Interest Rates, Maintains Language
The Open Market Committee of the Federal Reserve, the body that determines Monetary Policy and therefore the direction of interest rates met Tuesday and decided to leave interest rates alone at between zero and ¼% on the Federal Funds Rate. Contained within its press release was the statement that “with substantial resource slack continuing to restrain cost pressures and long-term inflation expectations stable, inflation is likely to be subdued for some time.” Further down, the Fed notes further that given the “subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
An accommodate Fed is good news for stock as well as bond investors. It is most likely continued bad news for investors in Certificates of Deposit.
Good morning and Happy St. Patrick’s Day! May the markets see green by the end of trading today!
After its regularly scheduled meeting, the Open Market Committee of the Federal Reserve, the body that determines the direction of interest rates, released its Policy Statement, in which contained the statement “The Committee…continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
The investment public was looking for a continuation of “for an extended period” and that is precisely what it got. The bottom line, continued support for stocks and low interest rates until there is sustained growth in the job market.
Sometimes we search far and wide then - POW - lo and behold the answer is right at your fingertips.
Looking for a good pizza - you drive 20 miles for some trendy pizzeria with gourmet pizza and you discover that the place right down the street is twice as good. Investing can be like that - you search worlldwide looking for tech up ‘n comers and alternative energy plays while right there in your own lives lurk great investing ideas.
As I ambitiously lounged on the couch watching the NCAA hoops selection show, I had this thought pounding in my heads “don’t ignore the obvious”!! My half finished Diet Pepsi can was in front of me and I thought buy some Pepsi stock (PEP). Today Pepsi authorized a $15 billion buyback. I kicked my sweat soaked running shoes from Nike and thought hmm - (NKE). Today Nike made a new 52 week high above $70 a share. My laptop with an Intel processor (INTC) brought me instant tournament analysis. My band aid from Johnson and Johnson (JNJ) covered a minor scrape. And finally with St Patricks Day looming and surely Guinness from Diageo to be (DEO) drunk - I had my mini-portfolio.
Look around - sometimes great investment ideas are born in mundane spots because you can be sure that many investors and stock buyers worldwide were using the same products that I was last night creating solid demand.
Consult your own investment advisor for how these MIGHT fit into what you are trying to accomplish or call Fagan Associates at 1-800-273-6026 and schedule an appointment.
The market is stuck in neutral today but not the restaurant stocks. Gains are dramatic across the board - McDonalds + $1.73, Darden + $1.21 and YUM Brands +.74 are just some of the names popping. The financial “talking heads” are saying lower food costs are driving these stocks higher.
Our take is that there is a continued changing demographic in the US. Just like on-line shopping and cell phones have become commonplace so have women working (and not in the home) - a $30 meal at Olive Garden (Darden owned) has become almost a necessity more than a luxury.
We have written several times about “little luxuries” gaining traction and this seems to be more evidence of that - consumers are willing to eat out BUT not take on debt buying a car or furniture.
During an interview on CNBC, White House Economic Advisor Larry Summers, regarding the upcoming NonFarm Payroll Report this Friday, noted that “the blizzards that affected much of the country during the last month are likely to distort the statistics, and in past bliazzards those statistics ahve been distorted by 100,000 to 200,000 jobs, so it’s going to be very important… to look past whatever the next figures are to gauge the underlying trends.”
Sounds to us like Mr. Summers is setting us up for a bad jobs report. We’re going to mostly sit on the sidelines until then and then, where appropriate, add to positions on the potential dip. We believe that adding on dips remains a prudent strategy at this time. We also think that should the jobs number be weak, industrial, material and ag stocks should respond favorably as it may portend a weakening of the dollar. We’ll see. As of now, the bond market remains relatively strong and dividend paying stocks are holding up the day.
Any specific stocks named in this presentation may not be representative of current or future investments in the portfolio to which they belong. You should not assume that investments in the securities identified were or will be profitable. We will furnish, upon your request, a list of all securities purchased, sold, or held in the portfolio during the twelve months preceding the date of this presentation.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio.
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