7/13/2002
Consumer confidence and the budget deficit
It was only two days ago that my blog focused on the consumer and my expecting consumer spending to decline in the near term.
Yesterday the University of Michigan consumer sentiment index fell to its lowest level since last November. The sentiment indicates a forward look at what the consumer's habits will be. The fact that U.S. consumer spending grew at an annual rate of about 3% in the second quarter is a backwards look at what has taken place.
The other day I made a reference to the weakness in the dollar and the fact that our budget deficit would be $100 billion+ this year, a number which the administration had forecast a few months ago. Yesterday the administration proclaimed that the budget deficit would be 50% higher than this projection, and would rise to $165 billion. The difference was blamed on the declining stock market. Precisely, the OMB said: "the stock market and the capital gains receipts it generates have become more important than ever to the federal budget outlook." I have but two comments. If, within a few months, a CEO had been off in corporate forecasts by 50%, the company's stock would be taken to the cleaners and the stockholders would be screaming for new management amid the class action lawsuits which would be filed. Second, if the stock market is so important to OMB forecasts on gov't receipts, then it might be prudent to create a new post called stock market prognosticator. With unemployment rising and the Silicon Valley jobless rate at 7.6% there should be a great many candidates available. While we're cutting down on corporate abuses, let's take the time to cut down on gov't ineptness.
Friday, July 12, 2002
7/12/2002
Zipinvestor
This word is a take off from Zipcar, which is a service only accessible to members. They offer corporate, individual, and household memberships. They make a car available when the member wants it without the cost of ownership- no gas, insurance, maintenance, or parking costs. You get a membership card and just return the car where you picked it up. Wouldn't it be great if the service were available to investors and called zipinvestor? You could pick up(buy) a stock when you wanted it and return it (sell) when you wished. As in Zipcar you'd need to reserve your desired choice a minimum of one hour in advance. There would not be a need for research, commissions, no paperwork. Everything is accomplished online as a member. You'd be free of everyday stock ownership responsibility. Naturally this would not be for the long term investor. The service would be intended to provide quality of service and accessibility and convenience. Until this day arrives the investor is responsible for the hassle of stock ownership. It should be treated as investing in a business and not just a stock. When your decision-making is based on knowledge and not the advice of others, you can have a just beginning. Until zipinvestor comes along, please invest wisely and with knowledge. Don't follow the road to instant riches. Investing is not a crap game.
Zipinvestor
This word is a take off from Zipcar, which is a service only accessible to members. They offer corporate, individual, and household memberships. They make a car available when the member wants it without the cost of ownership- no gas, insurance, maintenance, or parking costs. You get a membership card and just return the car where you picked it up. Wouldn't it be great if the service were available to investors and called zipinvestor? You could pick up(buy) a stock when you wanted it and return it (sell) when you wished. As in Zipcar you'd need to reserve your desired choice a minimum of one hour in advance. There would not be a need for research, commissions, no paperwork. Everything is accomplished online as a member. You'd be free of everyday stock ownership responsibility. Naturally this would not be for the long term investor. The service would be intended to provide quality of service and accessibility and convenience. Until this day arrives the investor is responsible for the hassle of stock ownership. It should be treated as investing in a business and not just a stock. When your decision-making is based on knowledge and not the advice of others, you can have a just beginning. Until zipinvestor comes along, please invest wisely and with knowledge. Don't follow the road to instant riches. Investing is not a crap game.
Thursday, July 11, 2002
7/11/2002
The Consumer
It is well documented that two thirds of the U.S. economy is dependent on consumer spending. Forty per cent or more of annual retail sales is registered during the Christmas season. As we move further into the year, I hope stores are not anticipating a rosy Christmas or even a good Fall. This bear market has cut sharply into consumer optimism, 401K plans, and net worths. The consumer has fallen back on mortgage re-financing, equity lines of credit, and soaring home prices, which is our first 21st century bubble waiting to happen. Our nation's population is aging, and there are a growing number of retirees. Should net worths continue to drop, the ability to retire lessens. It's tough to stay in the workplace at 55 or 60 or 65 when your employer is trying to push you out thru forced retirement. There aren't many jobs available for the 55-65 group. It's difficult to start a business at that age, and credit certainly is tough to acquire.
Statistically, a greater percentage of consumers is the 50 and over group. As such, with the stock market malaise and a difficult job environment, it is reasonable to expect consumer spending to hit a brick wall just like the stock market did a little over two years ago. I hope I'm wrong- selfishly- I'm aging too. I've been trying to cut down on carbohydrates. Bread lines would be disastrous to our diets.
The Consumer
It is well documented that two thirds of the U.S. economy is dependent on consumer spending. Forty per cent or more of annual retail sales is registered during the Christmas season. As we move further into the year, I hope stores are not anticipating a rosy Christmas or even a good Fall. This bear market has cut sharply into consumer optimism, 401K plans, and net worths. The consumer has fallen back on mortgage re-financing, equity lines of credit, and soaring home prices, which is our first 21st century bubble waiting to happen. Our nation's population is aging, and there are a growing number of retirees. Should net worths continue to drop, the ability to retire lessens. It's tough to stay in the workplace at 55 or 60 or 65 when your employer is trying to push you out thru forced retirement. There aren't many jobs available for the 55-65 group. It's difficult to start a business at that age, and credit certainly is tough to acquire.
Statistically, a greater percentage of consumers is the 50 and over group. As such, with the stock market malaise and a difficult job environment, it is reasonable to expect consumer spending to hit a brick wall just like the stock market did a little over two years ago. I hope I'm wrong- selfishly- I'm aging too. I've been trying to cut down on carbohydrates. Bread lines would be disastrous to our diets.
Wednesday, July 10, 2002
7/10/2002
The dollar and a swat team to balance the budget
The value of the dollar has once again declined to the trading levels on 9/11. Much like the stock market there is little hope the dollar will hold here.Why? Simple really. We have gone from significant budget surpluses to once again 100+ billion deficits. Budget deficits are the enemy of the dollar as well as to foreign investors. The latter are necessary for making up the shortfall between revenues and spending. A strong dollar is a symbol of a vibrant and solvent economy. A weak dollar provides the opposite picture. President Bush appears very adept at creating taskforces. We have a homeland security taskforce-quite necessary. Yesterday he proposed a corporate fraud taskforce which "will function as a financial crime Swat team." How about a government bloat taskforce which will oversee a balance between revenues and spending, and then possibly the dollar will regain some stability and we as a country will be less dependent on foreign investment to fund our shortfalls. In describing this new taskforce we might consider eliminating the need to include the word fraud and self-dealing. Let's focus on the positive.
The dollar and a swat team to balance the budget
The value of the dollar has once again declined to the trading levels on 9/11. Much like the stock market there is little hope the dollar will hold here.Why? Simple really. We have gone from significant budget surpluses to once again 100+ billion deficits. Budget deficits are the enemy of the dollar as well as to foreign investors. The latter are necessary for making up the shortfall between revenues and spending. A strong dollar is a symbol of a vibrant and solvent economy. A weak dollar provides the opposite picture. President Bush appears very adept at creating taskforces. We have a homeland security taskforce-quite necessary. Yesterday he proposed a corporate fraud taskforce which "will function as a financial crime Swat team." How about a government bloat taskforce which will oversee a balance between revenues and spending, and then possibly the dollar will regain some stability and we as a country will be less dependent on foreign investment to fund our shortfalls. In describing this new taskforce we might consider eliminating the need to include the word fraud and self-dealing. Let's focus on the positive.
Tuesday, July 09, 2002
7/9/2002
Warren Buffett
Over the past couple of weeks I have used Buffett as an example for successful investing. That makes sense since he has demonstrated over the past 40 years that he is in a class by himself. That doesn't mean one can blindly follow his doings. In May his company, Berkshire Hathaway, issued $400 million in convertible bonds. They carried a negative interest rate. In other words Buffett paid you 3% interest on the bonds; however, the bonds carried a warrant attached to the bonds. The warrant enables the holder to purchase Berkshire Hathaway stock at a premium over the then market price. The holder of the warrants has to pay Buffett 3 3/4% interest. In order to make any money Berkshire Hathaway needs to rise a good deal in price. Mr. Buffett has stated several times recently that he is negative on the stock market for the near and intermediate term and is concentrating his purchases on privately owned companies. I have stated in prior postings that it is necessary to buy right if one is to make money. If one has a negative yield, as in the aforementioned example, then that is not buying right. If you are going to pay a premium for premium investing talent, make certain the deal is rational for all concerned. We owe it to ourselves to show that a sucker is not born every day.
Warren Buffett
Over the past couple of weeks I have used Buffett as an example for successful investing. That makes sense since he has demonstrated over the past 40 years that he is in a class by himself. That doesn't mean one can blindly follow his doings. In May his company, Berkshire Hathaway, issued $400 million in convertible bonds. They carried a negative interest rate. In other words Buffett paid you 3% interest on the bonds; however, the bonds carried a warrant attached to the bonds. The warrant enables the holder to purchase Berkshire Hathaway stock at a premium over the then market price. The holder of the warrants has to pay Buffett 3 3/4% interest. In order to make any money Berkshire Hathaway needs to rise a good deal in price. Mr. Buffett has stated several times recently that he is negative on the stock market for the near and intermediate term and is concentrating his purchases on privately owned companies. I have stated in prior postings that it is necessary to buy right if one is to make money. If one has a negative yield, as in the aforementioned example, then that is not buying right. If you are going to pay a premium for premium investing talent, make certain the deal is rational for all concerned. We owe it to ourselves to show that a sucker is not born every day.
Monday, July 08, 2002
7/8/2002
Semi-annual sales
I feel certain that most of my readers have been at semi-annual store sales. Some, such as, Nordstrom's do a big advertising campaign to get the consumer into the store and look at the 50% merchandise values. As such, a $120 dress shirt is now a screaming buy at $60. Make no mistake. There are takers at $60 and they leave believing a bargain has been achieved. I'm happy for them. Different strokes for different folks. Well a semi-annual sale is going on Wall Street right about now. Prices have been marked down 50% and in some cases 95%. When you take a real good look, some of these bargains don't look like they'll hold up all that well. There are exceptions, and that's the job for us to find the ones which will last and wear well in a portfolio. Some manufacturers have a reputation for providing lasting fabrics, such as, Ralph Lauren. He has a good eye for quality. We need to have a good eye for quality and not buy schlock or crap. Start with the companies where management and directors have a large stock ownership interest. That management will have a much larger incentive to deliver the goods. Microsoft and Berkshire Hathaway are good examples of large management ownership. Let's begin at this semi-annual sale to make a list of the bargains we see. Let's investigate those bargains for lasting value, and let's do our homework. Wall Street doesn't have a return policy. It's buyer beware.
Semi-annual sales
I feel certain that most of my readers have been at semi-annual store sales. Some, such as, Nordstrom's do a big advertising campaign to get the consumer into the store and look at the 50% merchandise values. As such, a $120 dress shirt is now a screaming buy at $60. Make no mistake. There are takers at $60 and they leave believing a bargain has been achieved. I'm happy for them. Different strokes for different folks. Well a semi-annual sale is going on Wall Street right about now. Prices have been marked down 50% and in some cases 95%. When you take a real good look, some of these bargains don't look like they'll hold up all that well. There are exceptions, and that's the job for us to find the ones which will last and wear well in a portfolio. Some manufacturers have a reputation for providing lasting fabrics, such as, Ralph Lauren. He has a good eye for quality. We need to have a good eye for quality and not buy schlock or crap. Start with the companies where management and directors have a large stock ownership interest. That management will have a much larger incentive to deliver the goods. Microsoft and Berkshire Hathaway are good examples of large management ownership. Let's begin at this semi-annual sale to make a list of the bargains we see. Let's investigate those bargains for lasting value, and let's do our homework. Wall Street doesn't have a return policy. It's buyer beware.
Sunday, July 07, 2002
7/7/2002
What your broker doesn't tell you
Do you spend time thinking about picking the bottom on your favorite stock? Are there days you dream you bought Microsoft when it went public in 1986 or Berkshire Hathaway in the 1960's at $20? There are precious few who did and still hold on to those positions. Let's understand that picking the absolute bottom is at best an educated guess or most likely just plain lucky. Therefore, should you, for example, purchase Microsoft at 53, the chances are excellent that the stock will NOT immediately go up after your purchase. At best it will remain the same, and in this bear market, will most likely go down. As such, when you make a stock purchase be realistic. There isn't instant gratification. You may be facing an instant paper loss. That's why it is so important to do your homework and know what you purchased. You will need to live with that purchase for awhile before you can realize a return on your investment. Don't dream about the homeruns you see on TV or in the magazines or in newspapers. The chances of you being another Babe Ruth or Hank Aaron are slim. You have as good a chance as getting a drug approved thru the FDA- about one in 5000.
I'm not beeing negative. On the contrary, I want to help you see the light. Success in the stockmarket comes thru hard work and not by dreaming.
What your broker doesn't tell you
Do you spend time thinking about picking the bottom on your favorite stock? Are there days you dream you bought Microsoft when it went public in 1986 or Berkshire Hathaway in the 1960's at $20? There are precious few who did and still hold on to those positions. Let's understand that picking the absolute bottom is at best an educated guess or most likely just plain lucky. Therefore, should you, for example, purchase Microsoft at 53, the chances are excellent that the stock will NOT immediately go up after your purchase. At best it will remain the same, and in this bear market, will most likely go down. As such, when you make a stock purchase be realistic. There isn't instant gratification. You may be facing an instant paper loss. That's why it is so important to do your homework and know what you purchased. You will need to live with that purchase for awhile before you can realize a return on your investment. Don't dream about the homeruns you see on TV or in the magazines or in newspapers. The chances of you being another Babe Ruth or Hank Aaron are slim. You have as good a chance as getting a drug approved thru the FDA- about one in 5000.
I'm not beeing negative. On the contrary, I want to help you see the light. Success in the stockmarket comes thru hard work and not by dreaming.
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