Four Weeks Down, But Limited Damage
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The index posted its fourth week of market losses, an event not seen since March 2009. However, this week’s damage was a minor -0.72% (Monday was up 1.43%, with Tuesday was up 1.30%) and the cumulative four weeks of damage was 6.88% (7.31% off the 1/19 high), compared to the 16.01% in March, and today ended with a field goal, as the market moved up slightly (0.29%) in afternoon trading. U.S. volatility (and damage) was much less than global, as concern over sovereign debt was added to the concern over the pace of growth.
With over 75% of the Q4 EPS in the bottom-line is good, relative to where we are in the recovery cycle, but non-financial sales still lag, and until they pick up, hiring won’t pick up. Dividend increases continued throughout the week, with more positive news expected next week. February is the busiest month for increases (fiscal over, annual being printed and share holder meeting coming up), but there are still issues that are straining to pay their dividend (didn’t make it in ‘08 or ’09), and we expect some negative news to start late in the quarter.
Its time to look at the long term whole picture, not just the trader’s notes. Look to the basic fundamentals – earnings, balance sheets, production and capacity, as well as balance sheets and business models. When these items come back in style and become relevant to investors, short-term tick by tick trading based on each news items or stat will diminish (but still exist, risk vs. reward), and investors will return to the market.
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Original source for this article: Business Week
The Different Types of Business Plans
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Business plans are also called expansion, strategic, internal , operational, growth, annual, product and feasibility plans. There are also many other names, bottom line, these are all Business Strategic Planning. In all these different varieties of business plan, the plan matches your specific situation. For example, if you’re developing a plan for internal use only, not for sending out to banks or investors, you may not need to include all the background details that you already know. Description of the management team is very important for investors, while financial history is most important for banks.Some of these specific case differences lead to different types of plans:
- The most standard business plan is a start-up plan, which defines the steps for a new business. It covers standard topics including the company, product or service, market, forecasts, strategy, implementation milestones, management team, and financial analysis. The financial analysis includes projected sales, profit and loss, balance sheet, cash flow, and probably a few other tables. The plan starts with an executive summary and ends with appendices showing monthly projections for the first year.
- Internal plans are not intended for outside investors, banks, or other third parties. They might not include detailed description of company or management team. They may or may not include detailed financial projections that become forecasts and budgets. They may cover main points as bullet points in slides (such as PowerPoint slides) rather than detailed texts.
- An operations plan is normally an internal plan, and it might also be called an internal plan or an annual plan. It would normally be more detailed on specific implementation milestones, dates, deadlines, and responsibilities of teams and managers.
- A strategic plan is usually also an internal plan, but it focuses more on high-level options and setting main priorities than on the detailed dates and specific responsibilities. Like most internal plans, it wouldn’t include descriptions of the company or the management team. It might also leave out some of the detailed financial projections. It might be more bullet points and slides than text.
- A growth plan or expansion plan or new product plan will sometimes focus on a specific area of business, or a subset of the business. These plans could be internal plans or not, depending on whether or not they are being linked to loan applications or new investment. For example, an expansion plan requiring new investment would include full company descriptions and background on the management team, as much as a start-up plan for investors. Loan applications will require this much detail as well. However, an internal plan, used to set the steps for growth or expansion funded internally, might skip these descriptions. It might not include detailed financial projections for the whole company, but it should at least include detailed forecasts of sales and expenses for the new venture.
- A feasibility plan is a very simple start-up plan that includes a summary, mission statement, keys to success, basic market analysis, and preliminary analysis of costs, pricing, and probable expenses. This kind of plan is good for deciding whether or not to proceed with a plan, to tell if there is a business worth pursuing.
Original source for this article: Successful Investments
Don’t get fleeced with the rest of them
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Some stories just have to be repeated. Like the one from Sweden that tells of a collapsing floor during a Weight Watchers weigh-in. As twenty or so dieters filled the room to measure the fruits of their effort, the floor beneath them rumbled then failed.
Priceless irony.
It proves Americans, especially us East Coasters, aren’t the only ones with size-management issues.
As the markets sink under their own weight today, I cannot help but think much the same is taking place on Wall Street. The equities market can only hold so much fat before it gives up support and comes crashing down.
I rarely use technical analysis as a primary analytical tool, but I will use the help of charts and lines to back up my opinion and help find out exactly where trouble may lie in the road ahead. Just like we don’t drive by staring at a roadmap, we can’t invest solely on the charts. But when you’re lost, there’s nothing like a quick glance at a map.
When I wrote to TFN Strategic Trader members this morning, I told them to watch the action of the S&P 500 closely. The key index hit the pivotal 1,150 mark yesterday and almost immediately turned the other direction.
It is a sign that investors need to prepare for a correction. We are seeing the front end of the action today as the markets give up more than 1% of their value.
If you are a frequent reader of Notes, the action is no surprise.
Only an economic fool believes massive government spending, bailouts and increased regulations will lead to a sustained rally.
There is no way current valuations will hold unless we get two things, more jobs and more credit. Everywhere I look, companies are begging for loans and laying off more employees.
Get this. Over the last decade, for every dollar this country saw in GDP growth, we took out $6.02 in additional credit.
Now that that credit has dried up and, even worse, has left massive holes in corporate balance sheets, there is no way we are going to realize higher valuations until we either restore credit or shake out all the marginal players.
According to the front page of my local newspaper, the latter is happening quicker and quicker. Just today we lost another major employer and a local restaurant. Even worse, a local school district is figuring out how to close a $200 million budget gap now that it has raised taxes as far as it legally can.
It’s the same kind of story all over the country.
It’s evident that investors are pulling their money out of stocks and putting it back into the safety of the Treasury market today as the yield on the 30-year plunged by double-digit proportions. As much as investors hate America’s borrowing habits, Uncle Sam remains one of the strongest protectors of assets.
Until that changes, we aren’t going anywhere.
*** Don’t think the news out of JPMorgan Chase (NYSE:JPM) is any indication that we are on a path to recovery. This bank and its Wall Street brethren are raking in profits as the markets re-inflate after the credit bubble collapsed.
In fact, they’d love to see it pop once again as they hedge away their risk and profit no matter which way the market swings.
As long as they are covering all sides of the trades and have Washington chasing its regulatory tail, we are going to see these financial smartypants raking in huge profits and walking away with mouthwatering bonuses.
But their profits don’t say anything about small-town America’s ability to prosper. Instead, Wall Street’s profits show how volatile and dangerous it is to be trying to make a buck in this country.
If JPMorgan is making money, somebody else is losing it.
That’s why it’s great to be a contrarian investor. We don’t get fleeced with the herd.
Original source for this article: Contrarian Profits
What’s more important than making money?
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There is a time for making money and there is a time for giving money. Now is the time to reach into your heart and help your global neighbors.
As rumors of a death toll in Haiti that could stretch into the hundreds of thousands slowly become reality, we need to spend a moment or two wondering why we do what we do.
As investors, we risk our hard-earned money so we can obtain the freedom and enjoyment of spending that money how and when we want it.
We can buy a boat. We can buy a pile of gold. Or we could fulfill our human obligation of helping those in need.
Now, I’m not going to tell you to cut a massive check or ponder the notion of tithing. The mainstream media is doing a fine job of that.
I am writing you telling you to send whatever you can.
From what I am told, thousands of Haitians may succumb to this tragedy simply because of a lack of water. Imagine the impact you could have on a person’s life if you could help supply them with just a day’s worth of water.
The same amount of cash you’re planning on spending on dinner tomorrow night could help turn around the lives of dozens of people facing an unimaginable battle.
I am glad to report the corporate world is wasting no time doing what is right. So far, I have found reports Wal-Mart is donating $600,000 in cash, plus a $100,000 worth of meal packages. Lowes, UPS and Coca-Cola are each offering a million in cash and services to Haiti’s recovery effort.
Even down-and-out General Motors recognizes a charity case when it sees it. (It takes one to know one.) What’s left of the carmaker is donating $100,000.
Whether you donate or not, I urge you to not let this horrific situation erode into a disgusting partisan or religious battle. Thanks to Pat Robertson’s comments yesterday, it is already happening.
The fight that lies ahead for this battered nation’s people stretches beyond all of that. The radio and TV personalities making this a political matter, Rush Limbaugh included, are showing their utter selfishness.
When there are no lives hanging in the balance, we will have time for the bantering.
Today, however, there’s work to be done.
*** While I promise to never make a natural disaster a political tool, I would be derelict of my duties if I did not discuss the financial world and help you maximize the amount of cash you have available to donate.
There’s no debating one of the biggest drains on our cash each year are taxes. From sales tax to income tax to property tax, you can’t move in this country without paying for it.
With the Democrats boasting a super-majority, it is only going to get worse. Taxes are going to rise.
The most popular sport in Washington these days is picking on the nation’s big banks. In one breath we curse and penalize them for creating this financial fiasco, yet in the next we tell them to lend even more.
It must be painful to be a political punching bag.
The pain will only grow if Obama gets his way. He’s lobbying for a $90 billion tax on the nation’s fifty or so largest banks in an attempt to repay taxpayers for TARP losses.
If the measure goes through the way it is planned now, it will be the most idiotic and counterproductive tax yet.
Instead of taxing revenues or earnings, Washington wants to impose a 0.15% balance-sheet tax. In other words, it is a tax on growth.
Sure, it will raise billions of dollars for Geithner and his red-ink Treasury, but it will force banks to raise borrowing costs or curb lending. Either way, you and I are ultimately paying for it.
Jeb Hensarling, a Republican representative from Texas said it well. “How you are going to tax banks and expect them to lend more is frankly lunacy.”
Whether it is the smart way of raising more money or not does not appear to be a concern with Obama. With a Q1 deficit of $388.5 billion and an annual shortfall of $1.502 trillion staring him in the face, the president has got to do something to reduce the gap between revenues and expenditures.
If not, we all know what’s around the corner. A dollar crisis.
Now that the American citizenry is on the hook for $12.285 trillion dollars, our global lenders are sharpening their teeth just waiting for a chance to clamp down and take a bite out of our fiscal superiority.
“It has got to be done. It will be done some day. It may be done with enormous pain. Or it may be done more rationally,” Rudolph Penner, the former top dog at the Congressional Budget Office, said on the subject of minimizing the country’s deficit.
One thing is clear when it comes to this nation’s history of stopping credit-based calamities before they strike; we are horrible at it.
We missed our chance in the 1930s, we missed our chance in the ‘80s and we missed our chance once again in 2008.
Flat out, it is not politically strategic to raise taxes and/or cut spending. Unfortunately, if we are not willing to do it, Mother Economy will.
And she doesn’t use painkillers.
*** Finally, I mentioned the subject of international diversification yesterday. A British Columbia-based reader emailed me with a good question.
Why do so many investors ignore or overlook the natural resource investing potential in Canada?
The reader mentions that our northern neighbor’s natural resource base is larger than Australia’s and is also America’s chief source of foreign oil.
My answer lies in that last nugget of information. Without America’s unquenchable thirst for crude and other natural resources, Canada would be forced to sell its goodies overseas, in a much more competitive market.
There’s no doubt Canada is a good place to put a few investing dollars. The profit potential in a bull market is second to none. But pull America out of the equation, and Canada has some serious issues.
That’s why when it comes to seeking international diversification, Canada is a no go. Its correlation to the American economy is far too strong.
When China comes calling on Uncle Sam, Canada will have plenty of problems of its own.
Original source for this article: Contrarian Profits
Fiscal fitness: America is too fat
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What’s worse than having Wall Street kingpins like Bernanke and Geithner in charge of America’s economic future? China taking the reins, that’s what.
While Washington’s all-powerful ego may have our leaders believe they still control our fiscal fate, they lost that power long ago. Now, the Fed and the Treasury may dictate who gets what, but China decides how much and when.
That’s scary.
After yesterday’s unnerving trade-deficit report, Americans are waking up to Beijing’s power and its dangerous shenanigans. If it continues unabated, this nation’s role as a supreme power is over.
It is absolutely no coincidence China unveiled new banking reserve requirements on the very same day the Commerce Department reveals the largest trade gap in ten months. With a seriously undervalued currency working to its advantage, China needs to appear like it cares about America’s financial future.
In reality, we know the truth. China doesn’t care. It already owns us.
All across the globe, calls for yuan (China’s currency) appreciation are growing louder by the day. Of course, you won’t hear much from the Obama administration. After all, it’s hard to talk when an important appendage is getting squeezed in a vice.
But France’s Nicolas Sarkozy has the, um, guts to say what needs to be said. He doesn’t have a $400 billion trade imbalance to worry about. Flat out, he tells the world “The monetary disorder has became unacceptable.”
But as American voters have learned. Talk is cheap. It won’t get you anywhere, especially with China.
If America is not willing to politically attack Beijing’s manipulation, it will have to do it by good old-fashioned belt tightening. Stop asking China for so much of its goods and free cash and the country’s ears will quickly bend our way.
Obama has his chance to stand up for you and me next month. But will he do it? Has he ever?
The political and financial pundits will be all over the president in February as he reveals his latest budget proposal. If he does what is best for this country, this will be a watershed event for the world markets.
But if Obama falls to the pressure of ever-political Pelosi and the constituents that elected him, it will be a non-event that proves we are enslaved to Asia.
As for me, I’m hoping Obama does what he’s promised (for a change) and cuts the nation’s spending by at least 5% next year. That would show China that we’re not ready to lie down just yet. Even better, it would slow down our government’s massive growth.
You and I know Obama is not about to cut tens of billions of dollars without slipping an equal amount through some sort of accounting loophole, especially when the Peace Prize winner is about to ask for another $33 billion on top of an already record-shattering defense budget.
If all goes as planned, Obama will allocate close to $750 billion in Defense Department spending next year. Who will be lending us that money? You guessed it, China.
But don’t expect that to be a line item on Obama’s upcoming budget. If Bush managed to hide defense spending, you know this “ultra-transparent” administration will find an even better way.
We are in the midst of a critical year for this country’s fiscal fitness. By my calculation, we have not fallen of the cliff yet, but the ground beneath us is crumbling. If we don’t swallow our pride and jump to safety now, we will likely never get another chance.
China has open arms, awaiting our fall.
*** As investors, this is heavy stuff. If the value of the dollar falls, so does our wealth. If national security weakens, so does our wealth. And if our taxes rise, we lose even more wealth.
The future is scary. But inaction will make it even worse.
For many investors, gold is the fallback. But I don’t buy it. If America fails, Washington will either steal your gold or unload its own onto the market.
Diversification is the key. If you are holding a portfolio filled with domestic stocks, you are sitting on a time bomb. You don’t want to own American companies when the Chinese are increasing their share of the global market. You want Chinese companies.
And you want Indian firms. And you want Japanese companies. And you most certainly want exposure to Australia’s vast natural resources.
You don’t need any more exposure to the land of broken promises and empty rhetoric. Talk is cheap and Obama’s only making it cheaper.
Original source for this article: Contrarian Profits
The Biggest Financial Deception of the Decade
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Jeff Clark, Editor for Casey’s Gold & Resource Report, takes a look back at a decade of scandals and shares his thoughts on the greatest scam of the new century.
Jeff Clark (Casey’s Gold & Resource Report):
Enron? Bear Stearns? Bernie Madoff? They’re all big stories about big losses and have hurt a lot of employees and investors. But none come close to getting my vote for the decade’s most dastardly deception…
First came Enron, with $65.5 billion in assets, going belly-up and becoming the largest bankruptcy in U.S. history at that time. Chairman Kenneth Lay said that Enron’s decision to file bankruptcy would “stabilize the company,” but over the next five years the company was completely liquidated. The stock went from a high of $84.63 in December 2000 to a whopping 26¢ one year later.
And what had we been told by the media? Fortune magazine dubbed Enron “America’s Most Innovative Company” for six consecutive years. A well-intentioned friend wanted to give me a gift subscription to the magazine for Christmas; I choked on my cocktail and luckily he assumed my drink was too strong. In the end, you can thank Enron for bringing us the Sarbanes-Oxley Act of 2002, a ghastly financial reporting regulation for which compliance is grossly expensive, and – stop the presses! – hasn’t prevented similar repeats.
Next came WorldCom filing for bankruptcy in 2002, their assets of $103.9 billion dwarfing Enron’s. “We will use this time under reorganization to regain our financial health and focus, while operating with the highest integrity,” assured CEO John Sidgmore. Was his eggnog spiked? Today, WorldCom stock certificates have been spotted as doilies under pancake house coffee mugs signifying it’s decaf.
Tyco, Adelphia, Peregrine Systems… it’s a crowded field around this time. But their stories of fraud and greed and mismanagement get boring after awhile. Just watch the closing credits from the movie Fun with Dick and Jane and you’ll see what I mean.
Bear Stearns set us all up for the Big Meltdown of 2008. It was B.S. (no, I mean Bear Stearns) that pioneered the asset-backed securities markets, and we all know how that turned out. Later we learned that as losses mounted in 2006 and 2007, the company was actually adding to its exposure of mortgage-backed assets, gearing itself up to 35:1. With net equity of $11.1 billion supporting $395 billion in assets, B.S. carried more leverage than a streetwalker’s push-up bra.
And during it all, Bear Stearns was recognized as the “Most Admired” securities firm in a survey by Fortune magazine (there’s that Lower Manhattan tabloid darling again). Frequent sightings of company executives on country club fairways assured the public that all was well. And CEO Alan Schwartz told us there was “no liquidity crisis for the firm” and insisted he “had the numbers to back it up.” His company was sold four days later to JPMorgan Chase at $10 per share, a 92% loss from its $133.20 high. Perhaps his numbers were prepared by ex-Arthur Andersen employees.
Lehman Brothers, the 158-year-old investment bank, was next and still today holds the title as the largest bankruptcy in U.S. history. L.B. succumbed to 2007’s Word of the Year, “subprime,” and its $600 billion in assets all went poof! In just the first half of 2008, before the meltdown, Lehman’s stock slid 73%.And what did CEO Dick Fuld tell us in April of that year? “I will hurt the shorts, and that is my goal.” He must have been referring to the attire of his tennis club buddies, because the ones who actually got hurt were numerous other banks, money market funds, institutions, hedge funds, REITs, brokers, private and public trusts, foundations, government agencies, foreign governments, employees, and investors.
Moving on to the largest U.S. government bailout recipient by far, AIG’s troubles spawned my favorite placard of the decade: seen outside their Manhattan offices stood a sign that simply read, “Jump!” Maybe its creator heard what I did from AIG’s financial products head Joseph Cassano: “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions.”
He must have substituted his prescription eyewear with those giant New Year’s Eve glasses, because the government sunk $180 billion into the company and it still had to be split up and the assets sold to the highest bidder. I’m sure that his non-flippant comment had nothing to do with him making CNN’s “Ten Most Wanted Culprits” list in 2008.
GM, with $91 billion in assets, filed for bankruptcy in the summer of 2009 and is now largely owned by the U.S. and Canadian governments (i.e., taxpayers). The $19.4 billion in federal help wasn’t enough to keep the nation’s largest automaker out of bankruptcy. But don’t despair: the government is pouring another $30 billion into GM to fund “reorganization operations.”
GM shares? Bye-bye. For 83 years GM had been a member of the prestigious 30 Dow Industrial stocks. It managed to survive the Great Depression but not this decade’s Greater Depression. Yet chairman Ed Whitacre had insisted, “I remain more convinced than ever that our company is on the right path and that we will continue to be a leader in offering the worldwide buying public the highest quality, highest value cars and trucks.” I wonder what he thinks now that the stock is named “Motors Liquidation,” trades only on the pink sheets, and sells for about 50¢?
Topping off our list is the infamous Bernie Made-off (er, Madoff), who scammed $65 billion over 20 years from unsuspecting institutions and wealthy investors. But don’t be too upset, because the number is probably half that amount. Hey, the alleged size of the losses comes from his own ledger book, and should we really trust his balance sheet? Dubbed the largest Ponzi scheme ever, I beg to disagree, as you’re about to see…
By now you are probably wondering… what’s bigger than all these? He’s covered the major frauds and scams of the past decade – what could possibly be left?
To quote my favorite sleuth, Hercule Poirot, “When all the facts are laid before me, the solution becomes inevitable.”
Here are a few clues…
Federal Reserve Chairman Ben Bernanke said on July 16, 2008, that Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.” Then-Secretary Treasurer Henry Paulson declared on August 10, 2008, “We have no plans to insert money into either of those two institutions.”
►Both Fannie and Freddie were nationalized 28 days later, on September 8, 2008.
Ben Bernanke claimed on February 28, 2008, “Among the largest banks, the capital ratios remain good and I don’t expect any serious problems of that sort among the large, internationally active banks…” Henry Paulson added on July 20, 2008, that “It’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.”
►Since the recession started in December, 2008, 144 banks have failed.
Paulson informed us on April 20, 2007, that “All the signs I look at show the housing market is at or near the bottom.”
►The number of foreclosures skyrocketed shortly thereafter and will now any day surpass those during the Great Depression.
Ben Bernanke announced on June 20, 2007, that “[The sub prime fallout] will not affect the economy overall.”
►Less than one year later, the stock market crashed, losing 53% of its value, and is still down 25% despite one of the biggest bounces in history.
Those in charge of our country’s finances not only failed to see the crises developing and then bungled the handling of the recovery, they’ve deliberately misled us about what they’re doing to our currency. In spite of emphatic promises, flowery speeches, pat-on-the-back assurances, and continual reassurances, here’s what they’ve actually done to the dollar:
- Since September 1, 2008, the monetary base has ballooned from $908 billion to $2.0 trillion. The current monetary base is now equal to bailing out General Motors 23 times.
- Bailout funds in 2008 and 2009 total $8.1 trillion. That’s almost 78 WorldComs. It’s over 123 Enrons.
- U.S. debt has risen sharply, from $6.2 trillion in 2002 to $12.1 trillion today. That’s over $39,000 per citizen.
- David Walker, the comptroller general of the Government Accountability Office from 1998-2008, warned that the U.S. is on the hook for $60 trillion in unfunded liabilities. Independent analysts peg the figure at near twice that. Whatever the number, it is incomprehensibly large. The only way we will meet these liabilities is to print the money and inflate them away.
We’re bailing out corporations that should fail, making financial promises we can’t keep, and adding layers of debt we can’t possibly repay. And the real killer is, if we don’t have the cash, we just print it. It is, by any reasonable account, the “blunder that will plunder” the next several generations. It is changing America permanently, and the problems will persist long after you and I are laid to rest.
Bottom line: after all the bailout programs, housing initiatives, rescue efforts, stimulus schemes, bank takeovers, wars, unemployment benefit extensions, and numerous other promises, the biggest financial deception of the decade is what the U.S. government is doing to the dollar. Nothing else even comes close.
This reckless activity has spooked our foreign creditors, weakened our global standing, diluted our currency, is punishing savers and retirees, and ultimately sets us up for a level of inflation this country has never seen before.
Yet, what is the guardian of our economy and money telling us now?
“Will the Federal Reserve’s actions to combat the crisis lead to higher inflation down the road? The answer is no; the Federal Reserve is committed to keeping inflation low and will be able to do so. In the near term, elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here.” (Ben Bernanke, December 7, 2009).
This is pure rubbish. If inflation could be controlled by just thinking stable inflation thoughts, then Ben should be able to grow a full head of hair by just thinking scalp follicle thoughts. This is so ridiculous, it’s insulting.
Government actions make a mockery of their words; what they say and what they do are diametrically opposed. It’s clear that inflation is not a question of if, but when.
Any level-headed individual has to conclude that there will be a steady – and likely accelerating – decline in the dollar’s purchasing power. It’s inevitable.
The great masses don’t quite understand it yet, but they will. There will be no escape from the cold, hard slap in the face citizens will receive when a high level of inflation arrives. And when it does, it will make a mockery of any opposing viewpoint.
So the question before you is simple: Will you be a prepared survivor for what lies ahead, despite what our government leaders tell us, or will you be a complacent victim of the biggest financial deception of the decade?
For me, there’s only one solution. Don’t kid yourself into thinking a man-made asset will protect your purchasing power. This is the time to be overweight gold and silver. I advise letting them serve their purpose for you.
Learn the best ways to buy and hold gold and silver, and the stocks that will help you outpace the inflation that’s right around the corner. Give Casey’s Gold and Resource Report a risk-free try and learn how to escape with your assets intact. For $39 a year, it’s a no-brainer. Click here for more.
Original source for this article: Contrarian Profits
Control how much you pay and when you pay
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By Andrew Snyder, TodaysFinancialNews.com
Baltimore — (TFN): I have lived “off the grid.” That means I know what it feels like not to get an electric, phone, cable, Internet, water, gas or sewer bill every fourth week.
It’s natural. It’s liberating. And in a not-so-subtle way, it feels like you’re giving a single-finger salute directly to “The Man.”
But now that I’m back in the lower 48 and have presumed the life of “normalcy,” I am as wired as ever. Except, that is, for one thing. I refuse to buy into the monthly cable bill trap.
Why should I pay for something that wastes my time, numbs my brain and promotes a culture that none of us should be proud to live in? It is an especially dumb move when you realize you can get almost all of the programming for free.
If you have been a frequent Notes reader during the past two months, you know I am certain 2010 will be the year that changes the scene in the nation’s media industry. This time next year, who you pay and how much you pay for your boob-tube entertainment is going to change… drastically.
We are already seeing the first wave of industry movement. When Comcast announced its decision to get a majority stake in NBC, we heard the opening bell for round one of the fight.
Now that Rupert Murdoch and his troops at Fox are fighting to get paid for their now-free content, we are entering round two of what appears to be a no-holds-barred fight.
In case you didn’t hear, Time Warner is diligently fighting off an attack from Fox that would force it to pay the over-the-air broadcaster as much as one dollar for each of its cable customers.
That notion alone throws a wrench into the heart of the broadcasting industry. It means advertising revenues will no longer be the driving fiscal force. Subscriber levels will be. It also means folks like me, with an outdated TV and some rabbit ears may be forced to pay real soon.
But then again, this is a dynamic industry. What goes in one side the prism often comes out a different color.
In the other corner of this fight are online offerings like Netflix and even Murdoch’s Hulu. The former is doing its best to shake the industry’s foundations in hopes of climbing atop the ensuing pile of ruble.
In a nod to Murdoch’s a la carte programming idea, Netflix allows subscribers to stream fresh shows and movies to their desktop or Internet-enabled TV sets. If it can gain traction, your days of paying for a slew of unwanted, offbeat channels are over.
You will be able to pick want you want and pay what you want.
For contrarian investors, this is good news. When you ditch your cable bill, you can join me in the single-finger salute, avoid all those government-created taxes and fees and still find the entertainment you crave.
But best of all, the investment potential over the next year will be off the charts. Merger and acquisition action will hit new industry highs. And the stocks that few investors are willing to touch today will surge in value.
If you are a fan of buying when nobody else will, just as I am, now is the time to make your move.
*** Speaking of making a move, herds of investors are taking advantage of a horrible situation by investing in a handful of companies speculated to be winners as the nation’s airports beef up their security.
Because Christmas Day’s failed attempt involved a man getting an explosive device beyond multiple layers of airport security, domestic critics are calling for increased image-based screening.
The technology needed to peak beneath an air traveler’s clothes is already available and in use in some markets. Right now, the high-tech screenings are voluntary, just the way civil liberty advocates want it.
But that may be changing thanks to last week’s attack attempt.
Shares of L-3 Communication (NYSE:LLL) are up by about 4% since the attack as investors ponder the news that Uncle Sam intends to purchase another 150 of its backscatter imaging units at a cost of up to $160,000 each.
But for the big gains, you have to look beyond a massive $10 billion company. Shares of OSI Systems (NASDAQ:OSIS) are up by 17% on the week. And Icx Technologies (NASDAQ:ICXT) has surged by 60%.
Both companies develop and manufacture detection devices that could see hugely increased demand with just one stroke of Obama’s pen.
If you are a true contrarian investor, you’ve got to be thinking the situation is way overblown. After all, groups like the ACLU aren’t going to let screeners freely look under American blouses anytime soon.
There is a very good chance today’s share price momentum will turn around in the New Year. That means there is strong investment potential, especially for savvy options investors.
Earlier today, I told TFN Strategic Trader members to expect this week’s options play to be based on the situation playing out in the world’s currency markets. But given today’s action, we may just have to swoop in and take advantage of the cards we were dealt.
I am never one to fold when I’m holding four aces.
*** Currency trades have got to be drooling over the recent action. Even though many investors were betting against the dollar, a greenback that has rebounded this quickly and this strongly has created lots of investment potential.
One currency investors tend to be overlooking is the anemic British pound. As speculation of rising interest rates boost the dollar and eventually the euro, England’s central bank is likely to be the last low-rate holdout.
For currency traders, a sticky currency like this one opens arbitrage opportunities that should have any carry trade investors cracking a smile.
Finally, for you gold bugs, you know what I’m about to say. The precious metal is down once again. Today, an ounce of gold will cost you $5 less than yesterday, coming in with a price tag of $1,092 per ounce.
In the last month, gold has shed nearly 10% of its value. Get ready to move back into a buying mode.
Original source for this article: Contrarian Profits
Capitalism is alive and well
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Baltimore – (TFN): Hallelujah, the markets work! You have no idea how happy I was this morning when I opened the Wall Street Journal and found an article detailing Goldman Sachs shareholder anger at the recent bonus payouts.
Now, I don’t care who makes what. That’s between bosses and their worker bees. But I do get a little peeved when Uncle Sam tries to tell some worker he can’t get paid per his contract.
Before you go shouting about how Washington saved Wall Street and therefore we, as taxpayers, get a say over pay, let me ask you this. Does your mortgage company tell you what color to paint little Johnnie’s room? Does your car loan provider tell you how fast to drive? Does your health insurance provider tell control your diet?
Didn’t think so.
If some congressman came barging in this office right now, demanding I slash my pay, his goons would have to hold me back as I try to kick the lunatic’s shins. But if the owner of the company came with the same request, I’d have no choice but to open my wallet (and possibly refresh my resume).
But that’s the way business works. The guys that own the joint make the decisions, not the banks and certainly not government. If the workers don’t like it, they leave. It’s supply and demand and nothing else.
As taxpayers, if we want to be angry about anything, we should be angry that our government used our money to cover somebody else’s dangerous bets.
But now that Goldman shareholders are asking the company’s top brass to reduce the size of the corporate bonus pool and pass the money onto shareholders, the company had better act. If not, the free markets are going to take charge.
Shareholders are going to hit the sell button. Prices will drop. Capital will be reduced. And Goldman executives will be in pinch once again.
That’s the way the business world really works, no matter what Nancy Pelosi and Barney Frank want.
When Obama was knocking on the door, Goldman said go away. But now that Mr. Common Shareholder is on the line, next Friday’s paychecks will have a few less zeroes.
Doesn’t that make you feel good? Capitalism is still alive.
***I have my eye on China and its quickly growing, yet fragile, economy.
Earlier today, I wrote a piece for TodaysFinancialNews.com that helps illustrate the potential of the Chinese markets. Instead of nervously awaiting every bit of economic data to hit the Street, savvy international investors are racking up big gains.
Here’s a bit of what I wrote:
You could say it is the tale of two economies. The best of times in Asia, the worst of times here in the States.
While domestic investors wonder when some rogue piece of data will kick out the wobbly legs supporting the top-heavy equities market, savvy Chinese investors are raking in gains from an economy soaring ahead a 7% per year clip.
Where would you rather have your money?
A look at two of today’s winning stocks will help you decide.
Zumiez is a sports-related retailer based in Everett, Washington. With 343 stores in over 30 states, its operations are as exposed to the nation’s economy as it gets. A look at the company’s third-quarter results prove how low our expectations have gotten.
Over the past three months, the $375 million company racked up profits of $5.1 million, down from last year’s corresponding figure of $6.8 million. The earnings-per-share figure of $0.17 beat expectations of $0.15, which helps explain why shares are up by over 10% so far today.
But that’s the only reason investors have to celebrate.
The company’s fourth-quarter expectations leave little room for joy. After booking revenues of $113 million last quarter, the company expects sales of just $122 million to $126 million over the next three months, which include the critical holiday shopping period. Last year’s Q4 was worth sales of $125.
Analysts, which were expecting a figure closer to $131 million, have plenty of reasons to feel disappointed with the news.
Of course, Zumiez is not the only retailer worried about a slower-than-expected fourth quarter. Keep reading here.
*** Finally, I cannot help but smile when I see the Associated Press reporting that gas prices have fallen by more than 15% so far this month. Here’s a hot tip for their reporters: It ain’t over yet!
As you probably know, over at TFN Strategic Trader, we’ve been all over this story. In fact, just yesterday we took profits on one of our four gas-related plays. But we didn’t dump it all. Instead, we sold half of our position, locking in gains of 400%.
Now we’re playing with the house’s money.
Want to know the move that led to these massive gains? Easy… read all about it here.
Original source for this article: Contrarian Profits
What if They Stop Buying our Debt?
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Doug Hornig, senior prognosticator at The Casey Report, analyzes the alarming trend of U.S. federal debt and its future implications.
“I have always depended on the kindness of strangers,” said Blanche DuBois, in the final words of the play A Streetcar Named Desire. Well, don’t we all.
Many citizens probably still cling to the old saw that public debt doesn’t matter because “we owe it to ourselves.” Wrong. Debt always matters. And as for whom we owe it to, it is a lot of kind (or, at least, not yet unkind) strangers.
As recently as 1970, foreign holders of U.S. debt were essentially non-existent. But their slice of our obligation pie has steadily increased, especially over the past two decades, until now foreign governments and international investors hold about 35% of Treasuries, as the following chart reveals.
Chart of U.S. national debt holders, domestic and foreign
Of about $11 trillion in U.S. debt, foreigners have about $3.8 trillion, with China in the lead at nearly $1 trillion and Japan not far behind at around $750 billion.
Most likely, though, this trend has already leveled off. The Chinese, Japanese, Russians, and Indians have openly announced their decision to cut back on further purchases and existing holdings of U.S. government debt. Beyond that, the source of funds previously allocated to their purchases — trade surpluses — has declined sharply with the recession. As a consequence, going forward, foreign buying is more apt to shrink than increase.
While foreigners are continuing to show up for the record-sized Treasury auctions, it’s due to the dollar retaining its status (albeit shakily) as the world’s reserve currency. But they have become quite cautious, generally investing towards the front end of the yield curve, which is a vote of no confidence in the buck’s future. As the chart below illustrates, sales of long-term bonds to foreigners are way down.Treasury bond sales graph
So what does all this mean?
It means that a big chunk of our prosperity during the past twenty years was due to a trade deficit that put billions of dollars into the hands of foreigners, who then turned around and bought Treasuries with them, helping the U.S. government finance its massive deficit spending. That’s over — and the unwinding process has just begun.
Yet federal deficit spending, far from reflecting this reality, has grown by leaps and bounds. But who will finance it? Let’s extend our first chart out a few years.
Projected U.S. Debt
As you can see, we project that foreign participation has plateaued. U.S. private domestic investors can probably increase their holdings moderately, now that households are consuming less and saving more, and financial institutions have money to invest in Treasury paper. The agencies and trusts (like Social Security) are really not a part of the equation, but rather reflect programs on “auto-pilot” and quickly headed to the point where they will negatively impact, not help, the deficits.
Adding it all together, even under the most conservative of assumptions, there are simply not enough buyers to cover the accelerating federal deficits. That leaves the lender of last resort, the Federal Reserve, as the only remaining candidate to satisfy the government’s grotesque appetite for funding. There is no viable alternative.
The Fed will take up the slack in the only way open to it, by printing money out of thin air and exchanging it for promises from the Treasury. That means an escalation of monetary inflation and, somewhere down the road, serious price inflation as well. We don’t know exactly when that will happen, only that it must.
The editors of The Casey Report have been alerting subscribers to this very possible scenario for quite some time. If foreigners stop buying U.S. government debt, the whole house of cards will come crashing down. But you can do a lot to protect yourself financially – run with the trend instead of swimming against it. Find out more about the accurate predictions of trend hunter Doug Casey and his team, and how to profit from them . . . click here.
Original source for this article: Contrarian Profits
What could be worse than a housing bust?
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If You Thought the Housing Meltdown Was Bad…
Doug Hornig, Senior Editor, (Casey Research):…wait until you see what’s in the cards for commercial real estate.
That’s right, the next train wreck will be in commercial real estate. Couldn’t be worse than last year’s residential market crash? That remains to be seen. But it’s coming soon, probably as early as the second quarter of next year, and there’s nothing that can prevent it. The government will intervene, trying desperately to delay the day of reckoning, and may even succeed. For a while. But make no mistake about it, that train is going off the tracks no matter what.
Every part of the sector – from multifamily apartment buildings to retail shopping centers, suburban office buildings, industrial facilities, and hotels – has accumulated a huge amount of defaulted or nonperforming paper. It’s an impossible, swaying structure that cannot long stand.
Just ask Andy Miller.
Andy is one of the most knowledgeable people around when it comes to commercial real estate. Co-founder of the Miller Fishman Group of Denver, he has spent twenty years buying and developing apartment communities, shopping centers, office buildings, and warehouses throughout the country. He’s also worked extensively – especially lately – with asset managers and special servicers (those who handle commercial mortgage-backed securities, or CMBS) from insurance companies, conduits, and the biggest banks in the U.S., advising them on default scenarios, helping them develop realistic pricing structures, and making hold or sell recommendations.
It isn’t easy. Commercial real estate sales are off a staggering 82% in 2009, compared with 2008, and last year was worse than ’07. No one is selling at depressed prices, but it hardly matters as there are no buyers, either because they’re afraid of the market or can’t meet more stringent loan requirements. Two years ago, the value of all commercial real estate in the U.S. was about $6.5 trillion. Against that was laid $3-3.5 trillion in loans. The latter figure hasn’t changed much. But the former has sunk like a bar of lead in the lake, so that now between half and two-thirds of those loans will have to be written down, Andy estimates.
“If the banks had to take that hit all at once, there wouldn’t be any banks,” he says.
And it’s actually worse than that. As even average citizens became aware during the subprime meltdown, loans in recent years were bundled into exotic financial vehicles that could be sold and resold, a class generically known as conduits. These commercial mortgage-backed securities, while less well known than their cousins built upon home loans, are nonetheless ubiquitous.
Three guesses who were among the significant buyers of CMBS. If you said banks, banks, and more banks, you got it. Thus these folks are sitting not only on their own malperforming loans, but on a whole lot of everyone else’s toxic junk, too.
This is how bad conduits are: A 3% default rate last year jumped to 6% in 2009 and is expected to double again, to 12%, in 2010. An entity that takes a 12% hit to its portfolio – and this includes countless banks, pension and annuity funds, international institutional investors, and others – is in deep, deep trouble.
The real tsunami is coming, probably in the second quarter of 2010, Andy estimates. Because that’s when banks will have to start preparing for the wave of mortgages that were written near the market top and are maturing in 2011-12. Unlike home loans, commercial loans tend to be relatively short-term in nature (average 5-7 years), because – outside of apartment building loans backed by Fannie or Freddie – there are no government programs to subsidize longer-term ones. These guys mature in bunches.
According to a recent Deutsche Bank presentation, the delinquency rate on commercial loans as of the end of 2Q09 was greater than 4%. Of these, they expect that north of 70% will not qualify for refinancing. Imagine what will happen to the estimated $2 trillion in commercial mortgages that mature between now and 2013.
And even that is not the end of it. There’s a second huge wave on the way in 2015-16.
Problem is, instead of trying to meet this inevitable challenge head on, asset managers have decided to believe in such phantoms as the tooth fairy, honesty at the Fed, and an economic turnaround powerful enough to bail them all out. De Nile is not just a river in Egypt.
To be fair, it’s difficult to envision what an intelligent, aggressive response would look like, given the breadth and depth of the crisis, and the lack of resources available to deal with it. Miller recently met with a group of asset managers from a number of different, prominent banks. They reported that they’re completely overwhelmed and can’t even begin to cope with the sheer volume of problem loans on their calendar. It’s so bad that they’re now dealing with some borrowers who haven’t paid a cent in a year and a half.
What do you do if, as Andy thinks is the case, 85-90% of the entire commercial real estate market is under water relative to its financing? What happens to a property when its value drops way below the loan, a seller can’t get enough money to get out, a buyer can’t raise enough money to get in, and the bank can’t afford to foreclose? Simple. It just sits there, carried along on the bank’s books at some inflated “mark to fantasy” price that makes the institution’s balance sheet look passable. The industry even has a catchphrase for the situation: “A rolling loan gathers no moss.”
In the case of a retail store, a bankrupt tenant walks away. Andy looked at just the part of Phoenix where his firm does business and found 90 vacant big box stores, with an aggregate floor space of 8 million square feet. If Christmas season is as lackluster as cash-strapped consumers are likely to make it, there will be many others to follow.
The hotel business is terrible. Overbuilding based upon travelers who went into debt to finance lavish vacations is taking its toll on tourist destinations. At the same time, business travel has seriously contracted. Flights into Las Vegas, which caters to both, have been slashed so much that even if every seat on every remaining flight were filled and visitors stayed for an average number of days, the hotels still couldn’t break even. In industry parlance, banks are now engaged in “extend and pretend,” i.e., giving hotels three- to six-month loan extensions in the hope that things will somehow improve in the near future.
Office space is doing okay in central business districts, but not faring well elsewhere. Some estimates tab the national office vacancy rate at over 16.5%, compared with 12.6% in January 2008. It exceeds 20% in parts of Atlanta and San Diego, and in many places in between.
Multifamily apartment buildings – and the very creaky Fannie and Freddie are carrying a load of them – may be the next to topple. As values deteriorate and landlords are faced with loans coming due, there is no incentive to fix whatever goes wrong. If, for example, you have a $10 million loan maturing in two years, and the property value has declined to $6 million, why would you spend half a million to fix leaky roofs? The question answers itself. Yet, as capital spending needs are not attended to, the apartments deteriorate. Which leads to working-class tenants replaced by meth labs. Which leads to even lower property values. And so on. In the end, when the banks are forced to take possession, they will be left with either expensive repair jobs, or the cost of demolition and a total write-off.
As the overall commercial real estate crisis escalates, the banks will do the same thing they did last year: run to the government, palms outstretched.
How will Washington respond? Good question. On the one hand, further bailouts will further infuriate the public. But on the other, the political sentiment will be that allowing the banks to fail will have even more dire consequences.
The Fed has already tried to let some of the relentlessly building pressure out of the balloon through TALF (Term Asset-Backed Securities Loan Facility). But that hasn’t worked, because TALF only backs the most senior, creditworthy bonds in a CMBS pool. Those aren’t the problem. The problem is the junior notes no one wants.
In order to increase market liquidity and get conduits moving again, the government will likely be forced to create a guarantee program similar to the FHA, Miller thinks, whereby short-term money (on the order of 5-7 years) is made available. Will that just push our problems five to seven years down the road? Quite possibly. But what is being purchased is time, the only thing left to buy. The hope, of course, is that it’s enough time – for the real estate market to stabilize, prices to return to more “normal” levels, and the world to turn all hunky dory.
Rock, meet hard place. Let all the troubled banks fail, and the consequences will range from some excruciating but short-term pain, to a plunge into full-bore depression. Prop them up with yet more newly printed fiat money, and anything from high to hyperinflation will inevitably result, along with the possibility of extending the problem well into the next decade.
Both are frightening prospects. We don’t want either, but realistically, we’re going to get one or the other. Let’s be clear, it won’t be the end of the world. However, it will be the end of the world as we know it. That makes it imperative to prepare for the new one that’s coming.
The editors of The Casey Report, supported by real estate pro Andy Miller, have been warning of the coming commercial real estate debacle since September 2008. This one’s rather easy to time – because they know when the loans will come due. And as subscribers can testify, accurately predicting big trends is the forte of Doug Casey and his expert team. To learn how you can profit from making the trend your friend, click here.
Original source for this article: Contrarian Profits
