Fagan Associates Newsroom, Registered Investment Advisor

Restaurant Names Higher

Chris — Mon, 08 Mar 2010 20:01:55 +0000

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.

Commentary for March 3, 2010

Dennis Fagan — Wed, 03 Mar 2010 12:04:44 +0000

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.

The yin and the yang

Chris — Fri, 26 Feb 2010 14:10:29 +0000

We aren’t sure which is which. For that matter, this stock market (bulls only) doesn’t know which side to root for. That’s a bit of the rub- do we root for a stronger economy or a stagnant economy or a weaker economy if we want stocks to be higher?
The answer is somewhere between a flat economy to a stong economy and here’s why.
Many companies are in good position with cash on the balance sheet, minimal inventories, and streamlined workforce. Commodity prices have been under control and financing has been cheap though at times difficult to access. A weaker economy would reduce demand and soon make revenue and earnings growth problematic. A super strong economy might spark inflation and surely would induce a series of rate hikes (signalled by the Fed last weak). That olde Goldilocks axiom is perfect- demand to produce sales and some job growth but not so much as to set off the embers of inflation that seem to be smoldering beneath the economy’s surface.
As we have written, we believe the economy will vacillate between strengthening and setting off inflation fears and weakening and resparking deflation talk. 2010 will (in our minds) be a more boring than 2010 - how could it not be? In the end, it will also be a less profitable one as well.
Dividends (somewhat ignored in the late 2009 market spike) will become more important and may indeed represent 1/4 to 1/2 of stock returns in 2010.Evaulate your own situation but take a look at the ETF symbol SDY. It is a diversified manner to get solid dividend players in one fell swoop.

New Credit Card Rules

Dennis Fagan — Sun, 21 Feb 2010 06:03:57 +0000

the consumer. These rules take effect Monday, February 22^nd, 2010. These changes are outlined below and are mostly taken from a website of the Federal Reserve. If you would like to visit this site yourself, please go to http://www.federalreserve.gov/consumerinfo/wyntk/creditcardrules.htm.

The first such change is that when credit card companies plan to increase the interest rate that they charge on outstanding balances, they must notify you at least forty-five days ahead. Furthermore, they must also provide this advanced notice regarding the changing of other terms such as the annual fee charged to have the card, cash advance fees and late fees. However, this forty-five day rule is waived if you have purchased a card with a variable interest rate tied to an underlying index, a pre-determined introductory rate has expired or you are in a workout agreement and you haven’t kept up your end of the deal.

“If your credit card company is going to make changes to the terms of your card, it must give you the option to cancel the card before certain fee increases take effect.” However, it is important to note that if the cardholder chooses to “opt-in” to this agreement, your credit card company may close your account, increase your monthly payment and provide an amortization period, all of which are subject to certain limitations. As an aside, the concerns callers are expressing when they phone our Channel 6 Answers Team is one in which they have opted-in, but the credit card companies have raised their minimum monthly payment so much that now the payment is unaffordable.

You will notice another change when you read over your statement. These statements from the credit card companies must now include information on how long it will take to pay off your balance if you make only minimum monthly payments. However, the statement will also include information on how much you will need to pay each month to pay your balance off in three years. The website noted above provides an example of a consumer with a credit card balance of $3,000 and an interest rate of 14.4%. The minimum monthly payment is $90.00 in which the card balance will be paid off in eleven years. However, the table highlights that should the cardholder pay a mere $13.00 more or $103.00 per month, the payoff period drops from eleven years to only three. Furthermore, the statement details that the customer will save $1,033 in interest that would have been levied.

In addition to these rule changes, credit card companies are no longer allowed to increase interest rates on new cards during the first twelve months unless the rate is one which is variable and tied to an index, is an introductory rate or you are more than sixty days late in paying your bill. Even so, if your credit card company raises your rate during the first year or at any time thereafter, it can do so only on new charges.

THE BOTTOM LINE – Let’s make this short and sweet. Americans have spent more than they have taken in over the past twenty-five years creating credit card nightmares for millions. Are we any happier? We suggest that we are not. While discussing this issue with our Dad and Mom, he noted that with six kids a night out was a treat and not a routine event. We remembered evenings of playing Monopoly and Bingo and not sitting in front of a 50” television. We thought we were rich. He reminded us the other day we were not. Perhaps we can all learn from this. Life is about relationships, experiences and spending time with the ones you love. That is what we will remember when all is said and done. It is not about who acquires the most toys. Spend within your means.

Fed Hikes Discount Rate

Dennis Fagan — Fri, 19 Feb 2010 11:45:45 +0000

The Federal Reserve hiked the Discount Rate, defined as the interst rate charged to commercial banks on loans they receive from their regional Federal Reserve Bank’s lending window, making it more costly for financial institutions requiring these emergency funds. During normal times the banks borrow from each other at a rate called the Federal Funds rate which is at approximately 0.13%. By raising the Discount Rate, we believe the Fed is moving in a symbolic fashion and indicating that the economy is moving toward more “normal” times.

We believe any substantial (2%-4%) is buyable. That said, more ”normal” times implies higher interest Rates (Discount, Fed Funds and General Market) during the future. Be careful of long-term bonds, those maturing more than ten years down the road.

Best laid plans of mice and men

Chris — Wed, 17 Feb 2010 20:41:20 +0000

One week ago, CNBC was trotting out one negative money manager after another with a negative viewpoint. The market was waffling around 9800 and seemed destined for lower levels. Today we are trading over the 10,300 level
This is the EXACT reason that we believe market timing defeats the purpose of a long term investor. Big moves either to the sideline and cash or to a 100%+ equity position with margin serve more frequently to hurt an investor rather than help him or her.
The market is destined to frustrate the maximum number of investors -for this reason remain cool under fire and never become too convinced you are right.

Anxious Investors

Dennis Fagan — Sun, 14 Feb 2010 14:40:52 +0000

As of this writing, the Dow Jones Industrial Average has pulled back 6.40% from its post bear market high set January 19^th while at its intra-day low a week ago Friday it had pulled back 8.40% from that same level. Similarly, the Standard & Poor’s 500 has pulled back 7.15% from its post bear market high set January 19^th and at its worst 9.20% intra-day a week ago Friday. We outline the extent of this pullback because of the inordinate, yet understandable level of anxiety it has caused investors.

Investors are worried and were downright panicked a week ago, not due to the fact that stocks were nearing a ten percent correction, but due to the fact that they have gone nowhere for the past ten years and during which suffered two unprecedented bear markets of more than fifty percent with the most recent being the one that concluded last March ninth. We liken the anxiety investors are experiencing to that of a parent who allows his son/daughter to borrow their car who then subsequently gets into an accident. Forever after, you are constantly worried that another, more severe accident is to follow. Investors are in the same boat. We have already suffered the bear markets noted above and we do not want to go back down there again. We wonder if this is the first leg of another bear market. We don’t want to see our portfolios crushed again. This time, we vow, we will take preventive measures. Now before we describe a couple of those preventive measures, let’s put the current pullback in context.

According to Ned Davis Research there have been 93 corrections of ten percent or more since 1928, one an average of every 322 calendar days. Furthermore, since the March 9, 2009 bear market low there have been approximately 332 calendar days, all without a correction of ten percent. Therefore, according to the law of averages, we are due for a correction.

Ned Davis Research goes on to further note that during the five year bull market that concluded during October 2007, the S&P 500 went 1,673 calendar days without a correction of 10% or more, the second longest such time period. This lack of volatility then and the heightened level of volatility now is also the reason investors are anxious. They are not used to or comfortable with it.

If you are losing sleep over the pullback, take a little money off the table. Skim some of those profits you have made in the stock market and put them into a money market or a short-term bond fund. Trade your high octane stocks for those that pay high dividends or swap out of emerging market funds for balanced funds. Be prudent. Sell high and wait to buy back low and if that time doesn’t come, don’t look back and chastise yourself. You have done the right thing, even if it didn’t, in hindsight, prove profitable.

THE BOTTOM LINE – Everything in moderation. This is most likely a correction in an ongoing cyclical bull market. It is normal and should be expected. We believe that there will be enough good news coming out over the next several months to counter the bad news, which unfortunately, will most likely keep us in a trading range of ten percent on either side of where we closed 2009.

Let it Snow

Chris — Wed, 10 Feb 2010 14:24:17 +0000

Maybe the white snow can cover some of the stains of the imminently bipartisan politicans that inhabit Washington. Send some to Albany too.

Markets are like horse races and favorite recipes. Everybody has an opinion and can justify their position. Many times it seems one person is right (Monday) and then just as quickly that person seems wrong (Tuesday). You can flip those around to suit your persons. This market seems caught in a schizophrenic display of showing how important Greece and Portugal are to the world’s economy. For some clarification - 10 million people live in Greece making it 1/30th or so the size of the US. Its two main industries are shipping and tourism. Portugal also has a population of roughly 10 million people but a per capita GDP that it is the lowest in the EU.
We make these points to show that in the grand scheme of economies both countries are rather small HOWEVER we believe this goes to show investors that this is a market (both stock and bond) that is jittery and ripe for some type of pullback.
Read our 2010 outlook for a better way how to invest this year- we don’t believe investors should be frequent traders NOR should they adopt an all-in or all-out philosophy.

Dow Slides Toward 10,000

Dennis Fagan — Fri, 05 Feb 2010 12:11:57 +0000

We concluded our Market Commentary yesterday with the statement that “we always advise moving incrementally so if you are feeling uncomfortable with the recent downside moves, take a bit off the table but refrain from ’all in’ moves.” That is not just a “feeling” but a result of taking a look at the BOND market as well as the stock market. What we are seeing is spreads between bonds with differing credit ratings has not widened which would have indicated a bigger problem as they did during late 2008 and early 2009. There is also much evidence of an economy that is recovering rather than moving toward a recession. Once again, different from the time period referenced above. Earnings reports as well as the outlook provided by U.S. corporations has also been positive.

We have noted that there will be enough good news to offset the bad news OVER TIME. That said, on any one day or over any short period, the market can be very unpredictable. At this point in time, investors are deciding whether or not the recovery is sustainable. We believe that over the next several months this will turn to how strong the recovery is. With this in mind, we are sticking with our belief that investors lack faith in the recovery and, due to the pain from the last bear market, are quick to pull the “sell” trigger.

That said, we will keep an eye on market levels and referring back to our intial statement, move incrementally.

10,000

Chris — Thu, 04 Feb 2010 20:32:34 +0000

The market seems drawn to the 10,000 level on the Dow. The last time that we crossed over the 10k level on the Dow was November 6th of last year as we were headed in the other direction.
Most market moves higher are marked by short, stiff corrections. It has been some 330 calendar days since our last 10% correction so despite the fact that this is scary and discomforting at the present time it appears nothing more than a pullback.
Economic news (with the exception of employment) has been solid. Good retail sales numbers and solid earnings have not provided solace to investors of late. Investors have been focused on exotic places like Greece and Portugal (and not planning their vacations) and the debt bundles that they have amassed over time.
We always advise moving incrementally so if you are feeling uncomfortable with the recent downside moves, take a bit off the table but refrain from “all in” moves.