Continued Market Volatility…Additional Stock Recommendations…

I was mildly humored yesterday when I read that Goldman Sachs was looking to establish an online banking business. It was definitely an entertaining read. To me, this shows that GS has lost its prestige and is full fledged stuck in the middle of this financial mess. They are expected to report a loss of $5/share…roughly around $2 billion loss. Ouch! Just wait till their level 3 securities eventually have to be offloaded or marked to market, rather than marked to model.

In terms of the market, I think it will probably be stuck in a tight trading range until the Capitol Hill show (the “small” 3 auto episodes) comes to an end, and then there will be a decided move higher or lower. The market has successfully fought off any bouts of weakness this week, and even today has staved off a big pullback as it remained above 840 for the S&P. In the meantime, the market still looks vulnerable even after solid gains in the last nine sessions. I still think that 8,400 for the Dow is an important swing number, but the key support point should be 8,000. A move below 8,000 would most likely mean a re-testing of the low. Tomorrow, if the market shrugs off more than 400,000 jobs lost last month, a close above 8,800 should trigger a big short squeeze and fresh round of buying that could lift the index toward 9,600.

There was no reprieve on the initial jobless claims front. Initial jobless claims totaled 509,000, which was slightly better than the 520,000 consensus estimate. I really feel that we haven’t seen the worst to come on the jobs front. With each passing day companies both large and small are laying off workers to stay afloat. For example, several more companies announced layoffs today… Credit Suisse, Switzerland’s second-largest bank, will cut 5,300 jobs, 11% of its workforce, and withhold bonuses for its top executives after nearly $2.5 billion of losses in the past two months. Private equity giant Carlyle Group said it will lay off 10% of its workforce, or 100 employees. This will be the first large U.S. private equity firm to do so. They are also the first layoffs in Carlyle’s 20-year history. State Street, a large cap regional bank, announced up to 1,800 job cuts. Also, several employees were laid off at NBC News this week as part of $500 million in planned cuts at General Electric Co.’s NBC Universal. The corporate goal for GE is to execute a 3% budget cut. Now, GE is supposed to be the bellwether for the Dow. It’s the only original Dow component still remaining, and the company touches so many industries and markets. Consequently, this is why I think we could very easily get a spike to a new level of claims in the first half of 2009.

With that said, I like GE as a stock to own for the long term..meaning the next few years. The stock has been absolutely pummeled the last two months. It has traded as low as circa $13 and is now at around $17. It’s dividend yield is at 7%, and I am as confident as possible that GE will not be going bankrupt anytime soon. The market has hammered GE for the GE Capital component due to the amount of short term commercial paper on the books. GE has vowed to maintain its AAA credit rating and has announced that it will reduce its commercial paper balance by 50% by end of 2009 and has set a target of decreasing its leverage from 7:1 to 6:1. Keep in mind that the Wall Street investment banks were levered up to 30:1 on average. GE Capital is much better off than the rest of Wall Street. There is still some repositioning going on in the GE portfolio but the company is definitely here to stay. I am including this on my list of blue chip leaders with 4%+ dividend yields that we want to buy on market pullbacks. I bought some shares yesterday and will look to add to it if the market pukes at tomorrow’s official job loss claims figures.

Also, as I mentioned in an earlier post, take a look at SRS which doesn’t hold any real estate but rather derivative contracts that return two times the inverse of the commercial real estate index. I like to have some shares of this because, as I have mentioned earlier posts, I feel we are experiencing the end of the REIT model. Of course, some will survive but we will be experiencing a wave of bankruptcies and public to private deals in this sector. For example, GGP declared bankruptcy, AmREIT went private, DDR has announced some distressed selling and a halt in new opportunities, and Kimco is acquiring little to no assets currently. Plus, SRS has made for some good day trading profits. If you choose to day trade SRS, keep your positions small because it can move violently intraday.

To further support SRS, the Commerce Department reported a larger than expected decrease of 1.2% in construction spending for October. Many analysts had been expecting a drop of 0.9%. We already knew that the real estate sector (mainly residential) has taken a major hit. However, these figures, along with other recent economic stats, point to a more worrisome decline in commercial construction, which until recently had been relatively stable.

That’s about it for today. Here are some articles for your reading pleasure and don’t forget to check out the Recommended Section as I have added some new items:

• This article discusses whether real estate investing is your best chance at wealth and the difference between your own and a rental property that you might own. I agree with this 100% and believe the current environment will force people to understanding that their home should not be viewed as an investment, as would be the case with a cash flowing rental property.
• Here is a good read on why a “Depression” could be looming around the corner. I highly recommend you take the time to read this as it is very informative.
• I have attached a cartoon for you. Here it is. All of this spending of taxpayer money and aimless printing of US dollars will eventually be fantastic for those of us holding some form of gold and silver. Right now, we are experiencing a liquidity crisis where everyone is forced selling and looking to raise cash. Eventually, inflation (maybe hyperinflation) will set in which will be precious metal positive.

Also, I would like to leave you with two quotes:

• “A recession is when your neighbor is out of work. A depression is when you are out of work.” So, in these times, focus on your strengths, have an appreciation for your abilities, and realize that if you are to unfortunately experience being laid off, be confident that there is a firm out there with a need for your talents.
• “The recipe for perpetual ignorance is: Be satisfied with your opinions and content with your knowledge.” – Elbert Hubbard

- Moolah

Happy Thanksgiving!!!

Hey everyone,
Just wanted to wish all of you a safe and happy Thanksgiving! I am about to hit the road to meet up with family and friends and excited to do so.

Some important economic figures came out today:

• First, personal income increased 0.3% in October, slightly ahead of the 0.1% consensus estimate gain. Income growth has been surprisingly resilient in the face of mounting job losses throughout the economy.
• Second, if anyone was looking for some early holiday cheer in today’s initial jobless claims data then think again. The numbers continue to be dour each week as losses in the manufacturing and construction industries intensify from the already lean levels. Additionally, a further level of doom and gloom may be recorded in the first quarter of 2009 as companies grappling with the reality of a poor holiday selling season shed workers. For the week-ended November 22, initial jobless claims tallied 529,000, slightly better than the 535,000 consensus estimate, but is definitely not a cause for celebration by any means. In the November report, I wouldn’t be surprised to see the unemployment rate spike to 7.5% from the current 6.5%.
• Third, orders for durable goods decreased by 6.2% last month to a seasonally adjusted $193.02 billion, which was the third straight month of declines. Durables, which are goods designed to last at least three years, fell 0.2% in September, revised way down from a previously estimated 0.9% increase. A key barometer of overall business equipment spending, orders for non-defense capital goods excluding aircraft, plunged by 4.0%, after decreasing 3.3% in September.

All of this tells me that the economy has yet to begin the recovery process. The financial system needs to the revamped, the auto manufacturers need a bailout tied to key performance indicators, and the middle class Joe and Jane need access to credit. The government announced yesterday that they are bypassing the banks to directly free up the credit crunch so those with solid credit and at least 20% equity in their homes can refinance. I like the fact that the government is rewarding the fiscally responsible individuals rather than those on a $30,000 salary who took out negative amortizing loans on $500,000 homes. However, just providing refinancing opportunities isn’t enough. These individuals with solid credit scores need to be able to access loans for new home purchases. Hopefully, this is what the government initiative will evolve into.

Today, at the start of the market, I nibbled on a few shares of Exxon, Alcoa, Wal-Mart, GE, and Intel regarding the blue chips. I also added shares to gold positions, specifically GDX. My thought process here is, from a technical standpoint, the market is poised to spike up over the next few months (or days if we get violent 300+ point rallies) before looking to retest the previous lows or possibly establishing new lows as we are starting to see some bullish tendencies and the financials holding up. Also, with the euphoria around President-Elect Obama establishing his economic A-team, this should create some calm in the markets. Additionally, gold is starting to break out which is about time. So, I will continue buying blue chip shares in market weakness.

Well, I am signing off and going to hit the road Jack. All of you have a wonderful Thanksgiving, and I will speak to you soon. As always, if you have any questions, don’t hesitate to contact me at moolahtimeletter@gmail.com.

Gobble Gobble,
Moolah

What Lies Ahead…What’s Your Investment Philosophy…Great Depression 2?

Today looks like we may get a 1 or 2 day bounce in the markets just to retest the lows in the coming days. However, the financials are struggling. There won’t be a sustained rally with the financials lagging behind. If you bought anything speculative yesterday, I recommend taking advantage of the gains you might have just to buy some more blue chip shares in the coming days. I wouldn’t buy anything today as this could be a busy weekend with “big 3″ autos (bailout) and Citigroup (talking about selling parts of or the entire company).

Keep in mind that from a technical standpoint, the Dow Jones Industrial Average could rally 1,000 points higher, only tickle its 20-day moving average (8,750), and still be in a decided downtrend. The market is oversold, but I’ll add the same caveat…that doesn’t mean it can’t move lower. So, as I said earlier, take your gains when you get them and look to buy small lots of shares in the large, stable blue chips as I have covered in earlier posts.

Right now is the time when you need to understand what kind of trading philosophy you want to follow. If you are looking for value, the blue chips are the way to go. Even though you might incur paper losses in the short term, I have no doubt in my mind that you will be sitting on nice gains over the next few years. If you are a trader or simply focused on the short term, the best thing is to do nothing and build up your cash reserves. For me, personally, I will do a hybrid of the two. Of my stock trading portfolio, I will allocate about 40% to the blue chips, 20% to short term/speculative trading, 20% to option trading, and about 20% I will keep in cash. Of course, these percentages may fluctuate but, mentally, this is what I seek to follow. From a risk tolerance standpoint, I am a calculated risk taker. That’s why when I go to Vegas, I mainly play blackjack because, over the long haul, you can beat the house if you follow the basic rules of probability since each card dealt impacts the next card being dealt.

Regarding precious metals, options expiry on the Comex is over. We must now await first day notice which is next Friday, the 28th. There is a very good chance that gold and silver could skyrocket any time. They are both having a good day today. If and when it does, it will be of great interest to see if JP Morgan and the others are going to short this rally or just stand aside and let ‘er rip. These banks have ferociously defended the $740/$750 level for the last 30 days until options expiry was out of the way. Let’s sit, wait, and see if our gold and silver holdings are finally going to pop.

What’s frustrating about the auto companies is that both Wagoner (GM) and Mulally (Ford) refused to take $1 salaries. However, Nardelli (Chrysler) agreed that he would take the $1 salary. To me, this doesn’t sound like Wagoner and Mulally want to be bailed out. Considering how they have driven their respective companies into the ground, they don’t seem desperate to get anything done to fix the situation. Rather, they are only going through the motions of getting bailed out so they can ultimately blame it on someone else.

Also, per my post yesterday on the private jets for GM, guess what? They are now going to return two leased jets amidst criticism from the press. Fantastic!

Regarding the government, click here to see what happens when you let someone else keep a budget for you.

Not sure if you read Jim Sinclair’s Mineset, but it is an interesting read. Sometimes, a bit extreme, but he does bring up some valid points. He feels we are heading towards a Great Depression 2. His thirty reasons for why this will happen by 2011 are as follows:

1. America’s credit rating may soon be downgraded below AAA
2. Fed refusal to disclose $2 trillion loans, now the new “shadow banking system”
3. Congress has no oversight of $700 billion, and Paulson’s Wall Street Trojan Horse
4. King Henry Paulson flip-flops on plan to buy toxic bank assets, confusing markets
5. Goldman, Morgan lost tens of billions, but planning over $13 billion in bonuses this year
6. AIG bails big banks out of $150 billion in credit swaps, protects shareholders before taxpayers
7. American Express joins Goldman, Morgan as bank holding firms, looking for Fed money
8. Treasury sneaks corporate tax credits into bailout giveaway, shifts costs to states
9. State revenues down, taxes and debt up; hiring, spending, borrowing add even more debt
10. State, municipal, corporate pensions lost hundreds of billions on derivative swaps
11. Hedge funds: 610 in 1990, almost 10,000 now. Returns down 15%, liquidations up
12. Consumer debt way up, now at $2.5 trillion; next area for credit meltdowns
13. Fed also plans to provide billions to $3.6 trillion money-market fund industry
14. Freddie Mac and Fannie Mae are bleeding cash, want to tap taxpayer dollars
15. Washington manipulating data: War not $600 billion but estimates actually $3 trillion
16. Hidden costs of $700 billion bailout are likely $5 trillion; plus $1 trillion Street write-offs
17. Commodities down, resource exporters and currencies dropping, triggering a global meltdown
18. Big three automakers near bankruptcy; unions, workers, retirees will suffer
19. Corporate bond market, both junk and top-rated, slumps more than 25%
20. Retailers bankrupt: Circuit City, Sharper Image, Mervyns; mall sales in free fall
21. Unemployment heading toward 8% plus; more 1930’s photos of soup lines
22. Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists
23. China’s sees GDP growth drop, crates $586 billion stimulus; deflation is now global, hitting even Dubai
24. Despite global recession, U.S. trade deficit continues, now at $650 billion
25. The 800-pound gorillas: Social Security, Medicare with $60 trillion in unfunded liabilities
26. Now 46 million uninsured as medical, drug costs explode
27. New-New Deal: U.S. planning billions for infrastructure, adding to unsustainable debt
28. Outgoing leaders handicapping new administration with huge liabilities
29. The “antitaxes” message is a new bubble, a new version of the American dream offering a free lunch, no sacrifices, exposing us to more false promises
30. At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan’s Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America’s problems will take years and will burn trillions. He sees “nothing but large increases in the deficit … I think it would be worse than the depression. … Before I go to sleep at night, I wonder if tomorrow is the day Moody’s and S&P will announce a downgrade of U.S. government bonds.” It’ll get worse because “the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government.” Reuters concludes: “Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes. ‘I just want to get people thinking about this, and to realize this is a road to disaster,’ said Whitehead. ‘I’ve always been a positive person and optimistic, but I don’t see a solution here.’” We see the Great Depression 2. Why? Wall Street’s self-interested greed. They are their own worst enemy … and America’s too.

Have a good weekend, and I will speak with you next week. As always, don’t hesitate to contact me via e-mail at moolahtimeletter@gmail.com if you have any questions or suggestions on how I can continue to improve your experience in visiting my blog.

-Moolah

End Of Wall Street…Increase in Jobless Claims…

This morning we witnessed a continued sell off but the bulls are fighting as the Dow did, for a short time, make it into the green. The market is definitely in process of trying to establish a floor. If we wait till the economy is churning again in full speed, GDP is up, and the dollar is strong on a fundamental basis, we will have missed the boat on the next bull market. As I have said before, with every dip, I am buying small lots of shares of the best of the best companies. I have no doubt that, 2 to 3 years from now, these stocks will be higher than they are now. We want to focus our efforts on companies with low levels of debt, high cash balances, a history of providing dividends, strong balance sheets, and solid earnings despite the downturn in the general economy. The list that I have provided in previous posts fits this bill.

All of the market pundits claim that what we are seeing in the markets is completely unprecedented. I say, “No way Jose!” This is simply the inverse of what we saw during the tech boom. Back then, it was all about the companies with little to no earnings, future cash flow projections, and loads of debt that were skyrocketing. Now, we are seeing companies with strong earnings, strong fundamentals, and low levels of debt relative to cash on hand that are trading at historically very low multiples and many of these companies are below $10/share.

Also, regarding the supposed “big 3″ auto companies, did you realize that their CEOs flew down to Capitol Hill on private jets. Are you kidding me, and they are asking for a bailout! How about we start with them selling their private jets and flying like the rest of us? These guys are still delusional and feel they have done no wrong. Of course they must be right….what in the heck could be wrong with driving the pride of American manufacturing completely into the ground? For all intensive purposes, both GM and Ford are $0 stocks as they don’t produce enough cash to service their debt for even 1 year.

I am sure I must be sounding like a broken record in telling you that jobless claims continue to hit new highs and will probably continue to through middle of 2009. For the week ended November 15, jobless claims totaled 542,000, which is higher by 27,000 from the prior week. The consensus estimate had called for 505,000.

As for investing in other than blue chips, once the Fed stops printing money and fundamentals resume globally, I expect silver to way outperform gold due to the level of unnecessary beating that silver has taken in recent weeks. It wasn’t too long ago that it was trading at $18 and now it is below $9. Today, I am buying some more SLV and SSRI…albeit in small lots. Now, is not the time to go all in. There is still too much volatility and further downside potential in the global markets.

Here are some very interesting articles for you:

• I highly recommend this article. A good friend of mine forwarded it to me yesterday. It discusses the end of Wall Street and how it came about. The author is Michael Lewis who wrote Liar’s Poker. If you haven’t read Liar’s Poker, which chronicles the excess on Wall Street, I recommend you do so as it has turned out to be quite a prophecy.
• Here is a cartoon which describes the average American lifestyle being sustained on debt. Hopefully, we all learn from the current financial and economic crisis to live below our means and actually save.

- Moolah

At a Bottom?

Friends,

Today was another massive selloff. What was shocking was how quickly the Dow dropped to below 8,000 and the S&P 500 to near 800. Normally, this downturn should take a few years but this has all happened this year. Plus, it looks like the market has lost faith in the “big 3″ (or should I say “fundamentally flawed 3″) auto companies receiving a loan/bailout from the US government. Investors today flocked to low yielding bonds and are leaving stocks by the boatload. If this is the correct move to make, then we must be heading to another “Great Depression.” I actually don’t think that will occur.

So, what will happen from here? Could we have another selloff? Sure. But, I feel that we will have another bear market rally soon enough. That’s why I bought some shares of UYG because the financial sector will be the quickest to participate in any rally. You should also look at other index ETFs. Don’t go overboard but look to buy a few shares and then sell them into a rally. Also, this would be a good time to buy some additional shares of the world dominating blue chips that I had wrote about in an earlier post (WMT, MCD, XOM, JNJ, JPZ, etc.). The current environment is becoming ideal for establishing long term plays for very short term intraday trading.

For the near term, we will continue to see volatility in the markets because there is still some more blood to be shed. For example, commercial real estate is no where near a bottom. The REITs are still in process of liquidating asset holdings. We will continue to see these firms declare bankruptcy because there is absolutely no way that the government will bail them out. I will go as far to say that we may be witnessing the demise of the REIT model because of the high leverage and large capital distribution components that have made this model work up until now. Without the high leverage, they are unable to provide the large distributions. If they are unable to provide large dividends, then they do not receive the favorable tax treatment that they get by being structured as a REIT.

I find the Congress hearings of the auto manufacturing CEOs to be absolute comedy. It’s actually a form of entertainment. Give me a break! Are you telling me they feel the US economy will crumble if they go into bankruptcy? Honestly, I think they will do us a favor because that will be the only situation where they can relieve themselves of their creditors, legacy costs, and union headaches. They are worried that no one will want to buy vehicles from a company in bankruptcy. The last I remember, they weren’t selling and Toyota was eating Detroit’s lunch.

As I have no new articles for you today, I want to leave you with a quote that I came across early this morning: “Never forget the six-foot-tall man who drowned crossing the stream that was five feet deep, on average. It is not sufficient to get through on average. You have to get through every day.” It is so true and that is what I am looking to accomplish for all of you. I only seek to be top notch, provide clarity in all of the garble that we read and hear in the media, and show how we can profit in today’s environment. If you have any suggestions on how I could do better, please e-mail me at moolahtimeletter@gmail.com.

-Moolah