Tuesday, January 1, 2013

Fiscal Cliff- What Does That Mean?

Yes, I know that the term "Fiscal Cliff" is both annoying and metaphorically incorrect.  Yes, tax increases and spending decreases will go into effect, but the only immediate effect will be on your take home pay in your pay check.  The tax increases will not be set in stone until the end of the year.  If an agreement is made to stave off the tax increases and spending cuts, then you will not have to worry in the short term.  The Fiscal Cliff is more like a snow ball that is rolling down the hill and getting bigger and faster as it gets closer to the bottom.  That is how the current fiscal situation will effect us.

The major problem lies in the long term, whether or not the agreement between the GOP and Dems. is reached.  Either way, this situation will create a tremendous opportunity to buy into the stock market.  This opportunity is only for individual stock investors that are also long term investors and not traders. 

If you've been following along, the future is not looking good.  Long term investors have to be nimble and probably stick with blue chip, large cap stocks.  Mutual funds are still ok for the set it and forget it investors, but you still have to check in to see if the top ten holdings of each fund you invest in are in line with the risk. 

I, myself, being an investor in individual stocks, have been building my cash base.  There are going to be a lot of buying opportunities in the next 6-12 months.  As I always recommend, buy in slowly and get out slowly.  That will always serve you well in the long run.  Good luck in 2013.

Saturday, November 10, 2012

Post Election Market Expectations

          Sorry for the haitus, but I was sitting around thinking about the big pull back I was hoping for in October, but that did not happen.  I was hoping for a 10% pull back, but we only saw about a 2.5% pull back.  Now that O'Bama has his mulligan intact, what should we expect?  Just for clarification purposes, the O'Bama comment was no indication that I support Mitt or the Republicans.  I am non-partisan.  Now, back to business.

          So, the market will not be good to the long or short term investor of the broad market.  All of your 401(k) accounts will take a pretty good shot, unless you are in a stable fund with a quarterly adjusted interest rate.  I do not think we will see the affect on stable funds that we saw in 2008, when they lost money for the first time in history. 

          For my portfolio of both deferred compensation and my brokerage account, I've been rotating money to safer territory and building my cash up in order to take advantage of the larger pull back that await us in 2013.  I firmly believe, as I did in 2008, that the earnings reports (even in the Christmas shopping season is a success) for 4th quarter 2012 will be poor, thus bringing the broader market down. 

          What adds to the problem, is that with O'Bama at the helm, interest rates will cotinue to stay low and deficeit spending will remain high.  Money will continue to be printed, to the tune of about $1T per year, which will weaken the dollar and increase inflation.  Investing gold and oil will help hedge against inflation.  Since wages are stagnant, it is not wise to sit and do nothing while the cost of every day staples and energy start rises at an ever increasing rate.

          There is some good news, though.  With interest rates remaining low for the next two to four years, obtaining financing will remain cheap.  The best thing to do with cheap credit is to consolidate expensive credit.  Pay down your debts, but at the same time, increase your savings and continue to invest.  For the 99% of us, that is the best way to take control of your finances.  You have to hit all the metrics that make up your finances. 

          Here is a list of stocks that should be relatively safe places to keep your money while we go through the correction.  They provide diversification as well as a hedge against inflation:

BTU
XOM
KO
JNJ
GOLD
DUK

  

Sunday, July 15, 2012

What to do in the Second Half of 2012?

So dummies, present company excluded of course, what do we do with the second half of 2012?  Well, in the irrational market that we currently deal with today, it seems like guesswork.  However, the guesswork is left to the day traders and as for intelligent investors as ourselves, you should look at the big issues in the world economy.  The three biggest issues are the debt situation in Europe, coal and natural gas. 

The debt issue in Europe will not correct itself for at least a decade.  The European Union may have to bite the bullet and disband.  You have a group of countries, that are broke, lending money to each other.  Something will have to give, since you cannot get blood from a stone.  Eventually, one of the countries will default, which will create a cascading effect that will trickle down to every other developed country, since we are all owning and are owed money from every other developed country. 

So, what do we do with the available information we have?  The hippies are campaigning for the end of coal and trying to stop hydro-fracking, despite the fact is has been proven that hydro-fracking has been developed with safe guards to protect our drinking water.  So, coal and natural gas prices are in the gutter.  Luckily, there are slew of developing countries that are craving cheap energy.  The main importer of coal is China and FYI, coal is still the largest export of the United States.  Natural gas has been undervalued for about a decade.  Natural gas will pop in about five to ten years as coal's lifespan is about twenty years, before it is replaced by solar power and natural gas.

Coal has had some developments in the past week.  Patriot declared bankruptcy and Peabody just recently finalized a purchase that makes them the largest utility in the United States, servicing over seven million people in six states.  Peabody is the long play as the stock has been killed over the past year.  I have the company valued in the $80-$90 range and it is currenlty trading at around $22 a share.  Again, the irrational market will most likely not price the stock correctly, but as with every stock today, they are not priced correctly.  This creates tremendous opportunities for saavy investor as every stock is priced incorrectly.  In the long term the stock will eventually be in the range of proper pricing.  The trick is being able to double up when the stock is beaten down and when to realize the stock is overvalued and to reduce or eliminate your position. 

Tickers for the future:

BTU
BAC
DUK
CHKE
WM
JNJ

Good luck!   

The Great Recession: Part II

Sorry for the prolonged hiatus.  I had some business dealings that needed to be addressed.  So, how has everyone enjoyed the market lately?  Well, Europe changes its story, pretty much on a daily basis.  You have to love the media, by reporting that Europe "Feels confident that it might have an answer to the debt issue."  And, the market goes up.  It is true about any good or bad news that is announced by the oh so smart media. 

The problem with today's market is that it is too easily influenced by the media.  The reason for that is today's market has everyone in it; educated, uneducated and ignorant.  Fifty years ago, you had much fewer investors in the market and mutual funds did not exist or were extremely new.  The only people invested in the market are the ones who had money and had a pretty good idea of the value of companies, because they were priced in the market much closer to the real value as opposed to the pseudo value they are assigned today.  It is more confusing today, however, there is greater opportunity to be taken advantage of, if you can anticipate the market.

Ah, anticipating the market is basically impossible, because it is so random and is affected by investors who have no idea what they are doing.  This causes all stock prices to be incorrectly priced at all times.  The saavy investor will see this and take advantage.  I must quantify this as the investor must be long on this investment.  If you try to trade in this market, just like a casino, the longer you are in and the more trades you make, you'll eventually lose. 

Saturday, May 5, 2012

Stock Tips

Ah, the ever entrancing stock tip.  So, what do you do when someone gives you a stock tip?  First, run as far away as you can or, in my experience, question why they feel this stock is going to "Pop".  I'm sure your reaction to what I have just written is, "Well, don't you give us stock tips periodically?".  To the amateur, that would be the assumption, but you have to understand what it means to be given a stock tip as opposed to investing advice.

A stock tip is given when someone tells you, "I heard on TV..." or "A friend of mine said...".  Those are indicators of stock tips.  Since I am not on TV and I am not your friend, my suggestions are supported with information to back up the suggestion. 

What are you to do with my suggestions?  You must do your homework to see if what I am spewing out is correct.  Most people are not willing to put in the research required to be an informed investor.  Is putting in the time and research guaranteed to bring in optimal results?  Prior to 1974, that would be the case, because 1974 is the year that IRA's were approved and mutual funds took off.  The market went from a pool of sophisticated investors to everyone and their mother jumping and throwing the market off kilter.  The issue with this is that stocks are inadvertently manipulated by investors who have no idea what they are doing.  Good companies get beat up and bad companies get held up by the uninformed investor. 

The bottom line of all of this is to be your own man and do your own homework.  Do not rely on stock tips and stock trends that have no back up for their reasoning.  The market overall is illogical and therefore should be ignored.  If you invest in individual stocks, there is no reason to pay attention to the DOW, S&P or any other index.  Companies stand on their own and if they are a good company, they will prevail in the long run.