8/3/02 Looking Down The Field
It's worthwhile to keep a journal which describes your reasons for buying, holding, and selling a stock. These notes can be revisited and will, hopefully, reduce the chance for future misjudgments.
While assessing the present, it's important to look down the "field" and to be on guard for pitfalls coming your way. You are the quarterback. You're in charge of calling the plays, as it were. If something appears ominous, audible and change your plan immediately. Listen to your instincts and do not second guess. In the journal write down the reasons for your decisions.
It's helpful to keep an eye on the Wilshire Associates Equity Index because it represents the combined market value of all N.Y. Stock Exchange, American Stock Exchange, and Nasdaq stocks. A year ago at this time the index value was $11 1/4 trillion and now it's $8.2 trillion, a drop of 27%. By comparison, the assets in money market funds amount to $2.2 trillion. Given the latest GDP numbers as well as the current jobless rate, it is certainly possible for more assets to be transferred from the Wilshire Index into money market accounts. When looking down the "field", that's one alternative scenario.
Friday, August 02, 2002
8/2/02 The Sun Is Rising Today But There Are Few Bright Spots
The headlines state that the economic recovery is sluggish and losing steam. Possibly the "recovery" was illusory. There was a rebuilding of inventories. Did that rebuilding translate into positive cash flow? We can examine the zero percent financing for the auto companies. With their latest labor contract the industry can no longer save money by closing factories. Why? If a factory is closed, the workers receive 90% of their wages and benefits.
After 9/11 billions were spent towards the war on terrorism. Hopefully this is a one time event. As I have stated previously, the gov't cannot spend us out of a recession. We need industry and small businesses to add workers, and an improving confidence level is required to accomplish this feat. In the latest July job numbers there was essentially no job creation, and, in fact, the number of hours worked in each week for each individual went down.
I am not an economist, and maybe that gives me an advantage in assessing the landscape. I want the country's economic picture to improve; however, the downward trend in confidence creates a growing skepticism on my part. Interest rates are at extremely low levels but Japan has discovered that 0 interest rates do not ensure economic recovery.
Lastly, corporate numbers will continue to be viewed with question marks. Yesterday's CFO Magazine reported that about one in six CFOs were pressured to misrepresent financial results. That doesn't leave the investing public with warm and fuzzy feelings.
The headlines state that the economic recovery is sluggish and losing steam. Possibly the "recovery" was illusory. There was a rebuilding of inventories. Did that rebuilding translate into positive cash flow? We can examine the zero percent financing for the auto companies. With their latest labor contract the industry can no longer save money by closing factories. Why? If a factory is closed, the workers receive 90% of their wages and benefits.
After 9/11 billions were spent towards the war on terrorism. Hopefully this is a one time event. As I have stated previously, the gov't cannot spend us out of a recession. We need industry and small businesses to add workers, and an improving confidence level is required to accomplish this feat. In the latest July job numbers there was essentially no job creation, and, in fact, the number of hours worked in each week for each individual went down.
I am not an economist, and maybe that gives me an advantage in assessing the landscape. I want the country's economic picture to improve; however, the downward trend in confidence creates a growing skepticism on my part. Interest rates are at extremely low levels but Japan has discovered that 0 interest rates do not ensure economic recovery.
Lastly, corporate numbers will continue to be viewed with question marks. Yesterday's CFO Magazine reported that about one in six CFOs were pressured to misrepresent financial results. That doesn't leave the investing public with warm and fuzzy feelings.
Thursday, August 01, 2002
8/1/02
The Senate August Recess
This recess begins tomorrow- none too soon in my view. Yesterday by a vote of 49 to 50 the Senate failed to pass Medicare coverage and benefits for drugs taken to combat heart disease, strokes, arthritis, and other illnesses.
The House had previously passed a plan to provide Medicare drug benefits via private insurance companies.
I feel comfortable in stating that each political party will blame the other for failure to pass this bill. That is besides the point. Both parties had promised to provide seasoned citizens with prescription drug benefits. At some point I hope the American public will hold their elected officials accountable just as CEOs are being asked on August 14 to be accountable for the financial and income statements reported for their respective companies. Maybe I am mixing apples and oranges; however, the spirit of accountability holds the same- what's good for the goose is good for the gander.
The Senate August Recess
This recess begins tomorrow- none too soon in my view. Yesterday by a vote of 49 to 50 the Senate failed to pass Medicare coverage and benefits for drugs taken to combat heart disease, strokes, arthritis, and other illnesses.
The House had previously passed a plan to provide Medicare drug benefits via private insurance companies.
I feel comfortable in stating that each political party will blame the other for failure to pass this bill. That is besides the point. Both parties had promised to provide seasoned citizens with prescription drug benefits. At some point I hope the American public will hold their elected officials accountable just as CEOs are being asked on August 14 to be accountable for the financial and income statements reported for their respective companies. Maybe I am mixing apples and oranges; however, the spirit of accountability holds the same- what's good for the goose is good for the gander.
Wednesday, July 31, 2002
7/31/02 Posting #3
Money Market Assets
These assets, despite yielding only about 1%, now total in excess of $2.2 trillion. That is trillion and not billion. This huge number indicates the disenchantment of investors with the stock market and its current uncertain climate. Washington can give all its pep talks, but obviously the vast majority isn't buying it. With this kind of money on the sidelines a sustained rally becomes even more suspect.
Money Market Assets
These assets, despite yielding only about 1%, now total in excess of $2.2 trillion. That is trillion and not billion. This huge number indicates the disenchantment of investors with the stock market and its current uncertain climate. Washington can give all its pep talks, but obviously the vast majority isn't buying it. With this kind of money on the sidelines a sustained rally becomes even more suspect.
7/31/02 Posting #2
GDP
The first quarter results were revised downwards from 6.1% to 5%. More importantly, the second quarter came in at only plus 1.1% down from estimates of 2.1% or about 50% less than expected. With consumer confidence dropping I believe that the second half GDP numbers will be much less than others expect. In fact, I wouldn't be surprised to see no growth in the third quarter. Unless the "rules" should change, stock prices still follow corporate profits, and I don't hear the cash register making too much noise.
GDP
The first quarter results were revised downwards from 6.1% to 5%. More importantly, the second quarter came in at only plus 1.1% down from estimates of 2.1% or about 50% less than expected. With consumer confidence dropping I believe that the second half GDP numbers will be much less than others expect. In fact, I wouldn't be surprised to see no growth in the third quarter. Unless the "rules" should change, stock prices still follow corporate profits, and I don't hear the cash register making too much noise.
7/31/02 Our Counterproductive Taxation Policy
Chief Justice Marshall said it best: "The power to tax is the power to destroy." Our present income tax policy creates discord as well as inequities for the vast majority of our 130 million taxpayers.
Political pundits lay blame on the stock market 2 year decline for the looming budget deficit. How about creating a level playing field for our millions of stockholders. Why should the taxpayers not have the same "privileges" as corporate America who, when receiving, for example, dividends on preferred stock, are only taxed on 15% of the dividends. Possibly they end up paying 5% on each dividend dollar received. Additionally, why should dividends be taxed twice? Congress and the Administration complain about corporate wrongdoing; however, how about helping the taxpayer and change the laws on dividends.
To add insult to injury the Administration has suggested "individual personal accounts" under social security. We can double our "fun"- pay taxes on dividends at inequitable rates and then pay money management fees while we depend on the vagaries of the stock market for our retirement money.
Where is Chief Justice Marshall when the American people need him?
Chief Justice Marshall said it best: "The power to tax is the power to destroy." Our present income tax policy creates discord as well as inequities for the vast majority of our 130 million taxpayers.
Political pundits lay blame on the stock market 2 year decline for the looming budget deficit. How about creating a level playing field for our millions of stockholders. Why should the taxpayers not have the same "privileges" as corporate America who, when receiving, for example, dividends on preferred stock, are only taxed on 15% of the dividends. Possibly they end up paying 5% on each dividend dollar received. Additionally, why should dividends be taxed twice? Congress and the Administration complain about corporate wrongdoing; however, how about helping the taxpayer and change the laws on dividends.
To add insult to injury the Administration has suggested "individual personal accounts" under social security. We can double our "fun"- pay taxes on dividends at inequitable rates and then pay money management fees while we depend on the vagaries of the stock market for our retirement money.
Where is Chief Justice Marshall when the American people need him?
Tuesday, July 30, 2002
[7/30/2002 9:26:45 AM | michael buchsbaum]
7/30/02 Posting #3
Consumer Confidence
Consumer confidence plunged in July to a five-month low, the Conference Board said Tuesday. Its monthly index of confidence dropped to 97.1 in July from 106.3 in June. The present situation index fell to 99.2 from 104.9 while the expectations index sank to 95.7 from 107.2 in June. "The continued declines in the value of stock market portfolios, coupled with ongoing reports of corporate scandals, have taken a toll on consumer confidence," said Lynn Franco, head of the board's consumer research. "A continued slide could very well jeopardize the economic recovery."
7/30/02 Posting #3
Consumer Confidence
Consumer confidence plunged in July to a five-month low, the Conference Board said Tuesday. Its monthly index of confidence dropped to 97.1 in July from 106.3 in June. The present situation index fell to 99.2 from 104.9 while the expectations index sank to 95.7 from 107.2 in June. "The continued declines in the value of stock market portfolios, coupled with ongoing reports of corporate scandals, have taken a toll on consumer confidence," said Lynn Franco, head of the board's consumer research. "A continued slide could very well jeopardize the economic recovery."
7/30/02 Posting #3
Consumer Confidence
Consumer confidence plunged in July to a five-month low, the Conference Board said Tuesday. Its monthly index of confidence dropped to 97.1 in July from 106.3 in June. The present situation index fell to 99.2 from 104.9 while the expectations index sank to 95.7 from 107.2 in June. "The continued declines in the value of stock market portfolios, coupled with ongoing reports of corporate scandals, have taken a toll on consumer confidence," said Lynn Franco, head of the board's consumer research. "A continued slide could very well jeopardize the economic recovery."
Consumer Confidence
Consumer confidence plunged in July to a five-month low, the Conference Board said Tuesday. Its monthly index of confidence dropped to 97.1 in July from 106.3 in June. The present situation index fell to 99.2 from 104.9 while the expectations index sank to 95.7 from 107.2 in June. "The continued declines in the value of stock market portfolios, coupled with ongoing reports of corporate scandals, have taken a toll on consumer confidence," said Lynn Franco, head of the board's consumer research. "A continued slide could very well jeopardize the economic recovery."
7/30/02 Posting #2
"Infectious fraud not infectious greed"
Those are the words of Ernest Hollings, Democratic Senator from South Carolina and most senior member of the Senate budget committee. He is describing the fraud of the Bush Administration in not properly describing the true deficit this country is running. He cites the gov't budget deficit estimate of $165 billion when he says the true estimate is $412 billion. Actually, in a posting from several days ago, I discussed this issue and estimated the deficit at about $450 billion. I never suggested fraud, and never for a second believe it is. This is commonplace Washington disclosure.
What's needed is not the opinion of Senator Hollings nor my opinion. The facts are simple. The gov't is spending much more than it receives in tax revenues. The gov't estimates that this deficit will go on for several more years. It's been proven you cannot spend your way out of hard times. We can all do the math. Can your elected officials do the math? More importantly- do they want to do the math? In November you can answer this question for them.
"Infectious fraud not infectious greed"
Those are the words of Ernest Hollings, Democratic Senator from South Carolina and most senior member of the Senate budget committee. He is describing the fraud of the Bush Administration in not properly describing the true deficit this country is running. He cites the gov't budget deficit estimate of $165 billion when he says the true estimate is $412 billion. Actually, in a posting from several days ago, I discussed this issue and estimated the deficit at about $450 billion. I never suggested fraud, and never for a second believe it is. This is commonplace Washington disclosure.
What's needed is not the opinion of Senator Hollings nor my opinion. The facts are simple. The gov't is spending much more than it receives in tax revenues. The gov't estimates that this deficit will go on for several more years. It's been proven you cannot spend your way out of hard times. We can all do the math. Can your elected officials do the math? More importantly- do they want to do the math? In November you can answer this question for them.
7/30/02
Yesterday's Rally and the Yield Curve
The rally was the first one this year I found impressive. First, 90% of the trading volume was up volume. People were buying in earnest. Second, the breath had 5 stocks up for every one down. Now we'll wait to see whether the market can repeat that performance. Once is not enough to make an enduring difference.
Yesterday the yield curve in the gov't bond market was the steepest in 10 years. There was over a 300 basis point difference between the yield on 2 year and 30 year bonds- 2.23% vs 5.38%. This spread is meaningful and raises some issues. It may mean the Fed is not going to raise rates or it might indicate they are going to lower rates. It can tell us there are better economic times ahead and it can mean a flight to quality. Historically, it has indicated that the economy will be improving. That seems to be the general consensus.
There have been times when the spread has gone to 400 basis points and once to 500 basis points; however, that differential proved to be unsustainable.
I believe the wide difference in the gov't bond spread is one reason the market rallied yesterday. People believe better times are around the corner. Maybe they're correct. I hope so. I don't invest via hope. I don't believe the current yield difference between the 2 and 30 year is sustainable. Why? I believe the consumer will save more and spend less- a new trend to begin this century. Less consumer spending will place a heavy drag on the economy and countries exporting into the U.S. will see less demand and the cash flow for those countries will lessen and therefore their appetite to purchase our gov't bonds will not be so great, and thus yields will increase. These factors will weigh on the stock market and corporate profits-maybe not in that order.
Yesterday's Rally and the Yield Curve
The rally was the first one this year I found impressive. First, 90% of the trading volume was up volume. People were buying in earnest. Second, the breath had 5 stocks up for every one down. Now we'll wait to see whether the market can repeat that performance. Once is not enough to make an enduring difference.
Yesterday the yield curve in the gov't bond market was the steepest in 10 years. There was over a 300 basis point difference between the yield on 2 year and 30 year bonds- 2.23% vs 5.38%. This spread is meaningful and raises some issues. It may mean the Fed is not going to raise rates or it might indicate they are going to lower rates. It can tell us there are better economic times ahead and it can mean a flight to quality. Historically, it has indicated that the economy will be improving. That seems to be the general consensus.
There have been times when the spread has gone to 400 basis points and once to 500 basis points; however, that differential proved to be unsustainable.
I believe the wide difference in the gov't bond spread is one reason the market rallied yesterday. People believe better times are around the corner. Maybe they're correct. I hope so. I don't invest via hope. I don't believe the current yield difference between the 2 and 30 year is sustainable. Why? I believe the consumer will save more and spend less- a new trend to begin this century. Less consumer spending will place a heavy drag on the economy and countries exporting into the U.S. will see less demand and the cash flow for those countries will lessen and therefore their appetite to purchase our gov't bonds will not be so great, and thus yields will increase. These factors will weigh on the stock market and corporate profits-maybe not in that order.
Monday, July 29, 2002
7/29/02
Professor Sharpe
In today's Financial Times there is an interview with Bill Sharpe, a Nobel laurete. I would like to provide one of his quotes:
"The interesting thing is to find out what kinds of decisions people make under conditions of uncertainty if they know what they are doing." That is a $64,000 question, and maybe even a billion dollar question.
Professor Sharpe
In today's Financial Times there is an interview with Bill Sharpe, a Nobel laurete. I would like to provide one of his quotes:
"The interesting thing is to find out what kinds of decisions people make under conditions of uncertainty if they know what they are doing." That is a $64,000 question, and maybe even a billion dollar question.
7/29/02 Posting#2
Social Security and Pension Funds
We need to root harder for the stock market to go up. President Bush's Commission on Social Security reform assumes a long term 6 1/2% return on an annual basis for stocks. Maybe that will prove correct; however, at this point in the world economic cycle, it might be wise to re-think that number and adjust it downward somewhat. Isn't that what corporate America has been doing on their quarterly earnings projections? They lower the guidance and then come in with numbers at or slightly above the guidance.
It would be wise to also address the unfunded pension liabilities. Clearly the corporate pensions are underwater by at least $130 billion. If 45 million Americans are covered under the pension plans, we can do the math for each individual.
With the population aging we don't need additional problems in social security and pension funds. The stock market cannot be viewed as the ultimate bailout savior.
Social Security and Pension Funds
We need to root harder for the stock market to go up. President Bush's Commission on Social Security reform assumes a long term 6 1/2% return on an annual basis for stocks. Maybe that will prove correct; however, at this point in the world economic cycle, it might be wise to re-think that number and adjust it downward somewhat. Isn't that what corporate America has been doing on their quarterly earnings projections? They lower the guidance and then come in with numbers at or slightly above the guidance.
It would be wise to also address the unfunded pension liabilities. Clearly the corporate pensions are underwater by at least $130 billion. If 45 million Americans are covered under the pension plans, we can do the math for each individual.
With the population aging we don't need additional problems in social security and pension funds. The stock market cannot be viewed as the ultimate bailout savior.
7/29/02
Strictly Business
Investing is a business. Making money is fun; however, the market does not accomodate winners on a daily basis or even a monthly basis or sometimes on a yearly basis. Japan has been in a bear market for 13 years. Not much fun there. You have a choice- to make the trend your friend or the media but not both.
The media would have you believe the latest Michigan consumer confidence numbers weren't that bad. The trend shows a decline for that index of 4 1/2% both in June and July. The news could always be worse. More people could have been killed in the 9/11 tragedy. Tell that to the families of the victims. You too can be victim. Ignore the trend and make the media your friend. The two year bear market trend doesn't know from voters or race or religion. If, however, you buck the trend, there will be a stretcher and an ambulance waiting for you.
Our accounting scandals continue. On Sunday Qwest Communications admitted that they had incorrectly accounted for over $1 billion in revenue over the past 3 years. When they say incorrectly, does that mean the second cash register didn't correspond with the first or were both registers a figment of their imagination? I need clarification here. But the news is better, Ttheir $1 billion error is less than Worldcom's $3.8 billion. See how easy it is to make the world seem a better place for you and for me.
Now I'm waiting for the news out of Europe. Bertelsmann abruptly kicked out its CEO. That followed Messier leaving Vivendi. The latter and Bertelsmann are both in the media business. Maybe the industry is starting a new trend. Let's make the trend our friend.
Strictly Business
Investing is a business. Making money is fun; however, the market does not accomodate winners on a daily basis or even a monthly basis or sometimes on a yearly basis. Japan has been in a bear market for 13 years. Not much fun there. You have a choice- to make the trend your friend or the media but not both.
The media would have you believe the latest Michigan consumer confidence numbers weren't that bad. The trend shows a decline for that index of 4 1/2% both in June and July. The news could always be worse. More people could have been killed in the 9/11 tragedy. Tell that to the families of the victims. You too can be victim. Ignore the trend and make the media your friend. The two year bear market trend doesn't know from voters or race or religion. If, however, you buck the trend, there will be a stretcher and an ambulance waiting for you.
Our accounting scandals continue. On Sunday Qwest Communications admitted that they had incorrectly accounted for over $1 billion in revenue over the past 3 years. When they say incorrectly, does that mean the second cash register didn't correspond with the first or were both registers a figment of their imagination? I need clarification here. But the news is better, Ttheir $1 billion error is less than Worldcom's $3.8 billion. See how easy it is to make the world seem a better place for you and for me.
Now I'm waiting for the news out of Europe. Bertelsmann abruptly kicked out its CEO. That followed Messier leaving Vivendi. The latter and Bertelsmann are both in the media business. Maybe the industry is starting a new trend. Let's make the trend our friend.
Sunday, July 28, 2002
7/28/02
Controlling Expectations
In every market there are opportunities to make money; however, those opportunities maybe less rewarding than at other times and in different markets. At this time we have historically low mortgage rates. That enables families to breathe a bit easier and cope with unemployment problems, low-paying service jobs, and rising healthcare costs(it certainly doesn't pay to get sick). While many are fortunate to refinance their mortgages and receive lower monthly interest payments, many struggle with high interest credit card debt.
It is unrealistic to expect the stock market to solve our problems. We got very lucky for a period of time. With the stock market experiences over the past two years, yearly returns of 5% would look good. Historically, the returns have been closer to 9%. However, with companies finding it difficult to raise prices, and with that increase their cash flow, it might be wise to control our present and future expectations about stock market returns and live accordingly. Saving more and spending less maybe right for these times, and hopefully lessening pressures will make it easier to sleep better at night. If our savings rate improves, the Japanese might want to adopt the United States as their sister country. Maybe then we could merge the yen and the dollar and make it one currency. Even Austin Powers would think that cool. Yeah baby!
Controlling Expectations
In every market there are opportunities to make money; however, those opportunities maybe less rewarding than at other times and in different markets. At this time we have historically low mortgage rates. That enables families to breathe a bit easier and cope with unemployment problems, low-paying service jobs, and rising healthcare costs(it certainly doesn't pay to get sick). While many are fortunate to refinance their mortgages and receive lower monthly interest payments, many struggle with high interest credit card debt.
It is unrealistic to expect the stock market to solve our problems. We got very lucky for a period of time. With the stock market experiences over the past two years, yearly returns of 5% would look good. Historically, the returns have been closer to 9%. However, with companies finding it difficult to raise prices, and with that increase their cash flow, it might be wise to control our present and future expectations about stock market returns and live accordingly. Saving more and spending less maybe right for these times, and hopefully lessening pressures will make it easier to sleep better at night. If our savings rate improves, the Japanese might want to adopt the United States as their sister country. Maybe then we could merge the yen and the dollar and make it one currency. Even Austin Powers would think that cool. Yeah baby!
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