Penny For Your Thoughts?

        So, it has been 16 months since my last post.  I've been busy.
       
        Enough about me; back to the market.  Several dummies out there have been stating the market is overvalued, undervalued, etc.  The only thing the dummies have in common is that they make their statements, with no back up or even a reason why they think what the think. 

         As for me, the market is as irrational as ever.  Mutual funds an folks buying when a stock is too high and selling when a stock is too low is driving the market into backwardness (not sure if that is a word).  With the emergence of 401(k)'s and IRA's over the past forty years, the average Joe has a voice in the market, which drives it into madness.  The average Joe also states that Wall Street is fixed and if you aren't in the game there, then you will lose in the end.  Not entirely true, as these same statements by both the average Joe and the expert dummies, still follow up there statements without an explanation why their statement is true.  If you were not a dummy making those statements and you know the market is fixed, then you would know how it is fixed and would be able to take advantage.  If you are truly going to make a statement, then at least present your case with facts that back up the statement, rather than throwing out a naked statement on the internet.  I turn a deaf ear to the statement, unless it has back up.

         That being said, the market as a whole is overvalued as the overall earnings do not back up valuations.  There are still good buys out there, however.  As we all know, dividends make up approximately 70% of the gains enjoyed by the market over the long term.  If you want to beat the market, just throw your money in ATT at a 5% dividend yield and increases the dividend every year.  All the professionals were telling their clients how well they did in 2013.  My company's investment managers were patting themselves on their back about a 21% gain in 2013.  I let them know the overall market had a 37% gain, so the 21% is a bit of a let down.  Dummies.

Anyway, stocks to keep tabs on are BAC, which might be increasing its paltry dividend of four cent per year.  SIRI is close to issuing its first quarterly dividend.  STEV is extremely volatile, but has big time upside.  I own positions in all three stocks just mentioned, so I am a little biased.  Those three companies should be given a look, at least.  Good luck in 2014!

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.

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

  

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. 

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.

Predictions for the Next 24 Months.

So, what do the next two years hold in store for us?  Well, we can never be certain, but I anticipate that the broader market will have a pull back of about 10%-15% starting in the late 3rd quarter or early 4th quarter this year.  The main reason is that companies will start reporting poor numbers for 2nd and 3rd quarter.  This will of course trigger a sell off, but the sell off will be magnified due to investment firms taking profits as I assume they know the broader market is overvalued currently. 

Energy will be relatively flat, with the exception of coal.  Coal has been beated to death, but will start to make a comeback due to foreign markets, especially developing countries.  The reason why coal has been beat up is that it is out of favor with US investors due to new regulations coal's effect on the environment.  The problem with US investors is that their foresight doesn't extend beyond what is going on in the US. 

Oil will remain around $95-$115 and gasoline should stay about the same or possibly tick down a dime or two per gallon.  Natural gas will continue to be very low due to the lack of consumption.  That will change in about 5-10 years, but nothing material will change in the next two years. 

The situation in Europe is only going to get worse, before it gets better.  At least one of the countries in the European Union will drop the euro and go back to their old currency.  I'm better that Spain or Italy will be the first to do so.  The conditions in Europe will aide in the pull back of the broader market.

Interest rates will increase in 2014.  That is an easy one, since the Fed announced that rates will remain low until 2014, unless something changes.  That means that bonds and bond funds will continue to be overvalued and anyone who has investments in bonds, should probably get out completely or reduce their exposure, since bonds have no where to go but down. 

Unemployment will continue to around 8% even if the US economy does grow at a faster rate than it currently does.  Eight percent is the new four percent for unemployment.  Small and start up companies, which create about 75% of new jobs will not be able to grow due to the lack of funding available to them.  People are working longer, so the job turnover will be extremely slow.  Companies have adjusted to the 2008 crisis when they down-sized.  They have learned to do more with less, so most of those jobs that were cut four years ago are not coming back. 

Home prices will increase marginally as we are a good five years away from any significant increase in home prices.  The main reason is that many people are choosing to rent rather than buy.  Also, new college grads are entering a terrible job market and also are trying to manage their student loans, so most will be renting or living with their parents since they won't be able to afford to buy.

So, we are looking not too many positive things that are probably going happen in the next two years.  Not to worry, since there are always solid investments in any market.  Here are the tickers to look into over the next two years.  These are long-term investments and I have positions in all of them except for Waste Management, but I plan on taking a position after the pull back later this year.

WM, DUK, BAC, CHKE, BTU and RSO.

Europe: Need I say More?

So, everyone is feeling pretty good that the market is still on the way up, however, in it has been a rollercoaster ride.  The problem is that Europe is still in schambles.  The latest is that Spain is screwed, even though it is the 4th largest economy in Europe.  The issue is that they are talking about a bailout, but in the age of bailouts, there is going to come to a point when there won't be anyone to bail anyone else out.  Spain's biggest issue is not the same as Greece in which the government workers had their retirement schedule and pension benefits restuctured.  Spain's problem is with their banks, and the fact that they are insoluable. 

The US survived the banking crisis, which in and of itself, was a joke compared to what would happen in Spain.  The reason for that is that the US is far more diversified in terms of available banks and that helps stem the problems caused when the there is a systematic banking crisis. 

So, the market has been increasing based on Apple and hysteria.  In a market like this, it is time to buy when there is a sector or industry that has been beat up for no logical reason.  We have to remember that the present day market is not the same market of the past.  There are more people who have no idea what they are doing, which basically throws a wrench in the market logic.  Since the market is illogical, you must take advantage of companies who have been oversold for no reason.  Peabody (BTU) is one of those.  Take a look and see if you can figure out why it is oversold.  As per usual, I own this stock and plan on increasing my position.  Good luck!

Stocks To Go Long On

Ok kids, it's time to see what the heck you can buy in a market that is overvalued.  But if the market is overvalued, how can there be good buys?  The great thing about an irrational market is that there are always good buys in an upmarket and bad buys in a down market.  The first thing I do is take a look at down sectors and try to find companies that are only down because the sector is down. 

Currently, there are a couple of sectors that have beat up pretty badly despite the run up the market has had in the first quarter of this year.  The most beat up sectors have been financial, materials and energy.  Yes, even though gas prices and electricity have been up, the sector overall is down due mainly to natural gas and coal.  So, lets take a look at these sectors and see what is the best stock to purchase from each.

First, we'll look at the Financial sector and the king of value right now is Bank of America (BAC).  Yes, I know this is the largest bank in the world, so there cannot be very much growth for this stock, right?  You are correct sir, but we are talking about value, i.e. "undervalued" companies.  BAC is trading right around $9 per share.  It is up from its low of just under $5 in the past 52 weeks, but it is still way, way undervalued.  Looking at its financials, it has the most cash and also the most debt of any company in the world.  It has about $600B in cash and about $650B in debt.  The cash total comes out to about $56 per share and BAC is currently trading at just under one-half of its book value.  So, if BAC was trading at the value of its underlying assets minus its debt, it would be trading near $20 per share.  I've always felt this company was a mid-twenties stock.  The debt is alarming, but it is mainly due to BAC taking over Countrywide.  BAC has a huge stockpile of real estate that, once housing starts to turn around will become a huge cash cow when it starts unloading its inventory.  However, BAC will be up for a decent drop next month when Moody's lowers BAC's credit rating to just above junk bond status.  All the dummies will see that announcement and start dumping BAC, which is when the savvy investor will pounce.  I currently own BAC and the most recent buy I made was at $6.61.  I've never sold this stock and am looking to increase my position after the drop. 

Next up is the Materials sector.  Peabody (BTU) is a coal company and has been beat up excessively due to the decrease in demand for coal and the new EPA standards for emissions.  I believe the reaction to the slight decrease in coal demand and the new emission regulations are not the big hurdle that investors believe it is and have overreacted by dumping this stock.  It has a 52 week high of $69 and is currently trading just under $28.  I believe this stock is valued in the $85-$95 dollar range currently, so it is trading at a steep discount.  I do own this stock and currently am looking to add to my position.  Coal is going to be around for a long time, since it is so cheap and China, India and other developing nations are going to be driving up the demand and price. 

Finally, we have the Energy sector.  Chesapeake (CHU) has been beaten up to the tune of about a 33% drop in the past year.  CHU has continued to grow its assets and pay down debt.  The ship has been righted with this company as they were running massively in the red as recently as 2009.  This stock is cheap right now and the company is on the road to success.  Plus, Chesapeake is mainly known as an oil company, but has acquired large inventories in natural gas, which will position the company well, when the demand for natural gas begins to climb as the price of oil gets too high and forces consumers to think alternative energy.  Unlike the previous two companies, I do not own any stock in Chesapeake.

Just a reminder, these are stocks to go long on.  When I say going long, I mean that you should plan on owning these stocks for at least ten years.  They are not geared as trades, but if you do try them as trades, proceed at your peril. 

Market Correction Is Inevitable!

Of course, any vague statement like that can be justified like anything from Nostradamos.  Regardless, the market correction is coming at about a rate of 10% to 15% in the next three months.  In case you have not been paying attention, that means the broader market has been overvalued for over a year.  The job reports are insufficient to confirm an economic recovery. 

Greece and the rest of Europe are a time bomb.  Everyone seems to think that other countries lending other countries money is going to help.  But if, the other countries are trying to lend other countries money, in which, either of these countries has any money, then you have a trend that defies explanation. 

But, what do I know?  1+1 equals 2.  Not in today's world.  I have to cut this short, because it is embarrasing to be apart of such horse hockey (thank you Harry Morgan), so be it. 

Here is your long term investment.  Coal is totally out of favor.  By BTU.  I own this stock by the way, but coal is totally out of favor.  Anything else, jump ship.  Good. Luck.  I own BTU, btw.

Greece's Bailout: Delaying The Inevitable

The recent bailout of Greece orchestrated by the European Union (specifically Germany) helped Greece avoid defaulting on its debt.  The roughly $170 billion (USD) bailout helped reduce Greece's debt ratio to 121%.  Pretty sad state for Greece when the US, who is terrible with its debt, has a debt ratio of roughly 90%.  Even with the "Bailout", Greece's credit status was dropped from CCC to C.  For those of you who do not know the credit rating system, a C rating is basically a junk bond.  The sad thing is Greece is going to default anyway, so the EU just flushed $170 billion down the toilet.  Greece has made some changes to its financial policies, but more needs to be done. 

Europe is broke and the US is not doing much better.  The economic world we live in is made up of deficit spending and bailing out everyone.  The fact that deficit spending is a term that we are comfortable with is alarming.  All the politicians talk about reducing the government's deficit spending, but no one ever talks about eliminating it.  Spending has to be reduced everywere, but the geniuses in power cannot seem to agree on what to cut.  The reason why, is because they do not want to offend the special interest groups and hinder their chances of getting reelected.  We all know that the main job of a politician is to get reelected. 

On a more positive note, the market is overvalued, so we should see a pull back when investors start ringing the cash register and taking profits.  If that doesn't occur, then we'll just have to wait until Greece defaults and then we'll see the big pull back that market needs to get back to a more reasonable level.  Good luck!

Europe: Ice Skating Uphill.

Europe, as we know, is in deep trouble.  Debt is the obvious reason, but the more perplexing problem is how it got out of control.  The main problem is excessive borrowing and now it is at a point where the largest economies in Europe cannot produce enough income to pay down their debts.  In short, everyone is broke. 

So, what is the solution?  Obviously, cuts need to be made as well as taxes need to be increased to help bring the debts under control.  The problem with the solution is that the public is saddled with bailing out their home governments, while the governments are at fault.  Deficit spending must become a thing of the past and surpluses must be run as often as possible.  Otherwise, debts will continue to rise and countries will begin to default on interest payments and cause a trickle down effect that will throw the world markets into a tailspin. 

The US looks at Europe as a tragedy, but we should be weary of the fact that we as a country will be in the same boat if our financial management continues down the path we are on.  Currently, spending cuts are the only real answer to righting the ship.  Increasing taxes is not a viable option, with the present state of the economy, as the American public needs as much disposable income as possible to help pay down their debts and pump some money into the economy. 

Another major issue that could benefit the country in the long term is rewriting the corporate tax code.  The corporate tax code offers too many loop holes for major corporations to skirt paying taxes.  The corporations either sit on this money or reinvest it into the company in the form of research and development or issue it as dividends to attract more buyers of its stock, therefore raising the stock price. 

Originally, the primary reason for these loop holes in the tax code for corporations, was to give them more of their profits to invest in job creation.  Unfortunately, that plan has backfired as the large corporations are not using the tax code advantages they have to create jobs.  Small, privately held businesses create 75% of new jobs currently.  Until the tax code is rewritten and spending is reduced in the short term, the American public will ultimately have to deal with heavy tax increases to help control the increasing national debt. 

The American public needs to take care of what they can control.  Pay down your debts, increase your savings and prepare for hard days ahead.  Things will almost surely get worse, before they get better.  Italy is a primary example of where we are heading as a nation financially. 

Occupy Wall Street- Problem or Not?

Occupy Wall Street is now two months old and what has it accomplished? On the positive side, it has spread throughout the world to some fifteen hundred cities and it gives a face to the unemployment issues our country is facing. On the negative side, there have been hundreds of violent crimes commited by people participating or criminals using the encampments to their advantage as an area that is hard to police. When we see demonstrations like this (picketing, sit-ins, etc.), we have to wonder if this is the most effective way to produce the desired change.

In order to engage the desired change into becoming a reality, you have to understand the opponent. The opponent of the 99% is Wall Street and the rest of the remaining 1%. The opponent, being super wealthly, value money. Rather than standing around with signs and chanting about how unfair the wealth gap is and how Wall Street is made up of a bunch of crooks, you should do something to affect their cash flow.

According to Forbes, the top 400 income earners in the United States derived a vast majority of their income from dividends paid from their stock holdings. Since we know this about the 1%, then we need to ask ourselves how to change their dividend windfall. Dividends are paid from retained earnings. If the revenue and profit fall for a company, the company will tend to reduce or cut out the dividend completely. This will in turn reduce the dividends paid out to stock holders. If the dividend is reduced, some holders of that stock tend to reduce their holding of that stock or sell their entire position. This inturn will increase the supply of shares for sale and thus driving down the stock's price.

Now, on to Wall Street. Wall Street earns money from the trading of shares on the market. Each time a stock is bought or sold, Wall Street makes money. Therefore, the more volatile the market (high volume of shares trading) the more money Wall Street makes. The largest stock traders are the institutional traders (mutual funds, hedge funds, etc.). In order to limit the amount of shares they can move around, you have to limit the amount of money flowing into these funds. Most of the money comes from 401(k) (IRA's, too) contributions. If you stop funding your 401(k), then the money pouring into these funds will dry up and the market will come to halt as the volume of shares being traded will significantly decline. The lack of shares being traded will hurt Wall Street in the pocket. Then and only then will Wall Street actually listen to what the public is saying. Simply insulting Wall Street and milling around outside of their offices will not change anything.

If not funding your 401(k) seems too extreme and not financially responsible, then take a look at your debt portfolio. Most of the debt we are carrying (aside from our home and car) has interest rates that far exceed what we are gaining from our 401(k)'s. Look at it this way, if you invest in the market via a 401(k), you could lose money or gain money. If you instead use the 401(k) contribution money to pay off your 12% credit card debt, every dollar you put toward that debt will give you a guaranteed 12% return. Remember, paying off debt is just as important as putting away for retirement.

You have to be smart with your money. We all work for a finite salary for a finite number of years, which means the amount of money we will earn in our lifetimes is finite. The more you pay towards interest from debt, limits what you can save. The faster you pay off debt the more money you'll have left over in the end. There is one exception. If your interest rate from debt is below the interest rate you can get from a fixed interest savings account, then you should fund the savings account and pay the minimum payment on the debt.

As it stands with Occupy Wall Street, nothing is going to change. The movement is filled with unemployed people who do not know what else to do and that is sad. On the other hand, these folks may have to take a job that is beneath then once their unemployment has run out, until things improve (if they improve at all). Lastly, I firmly believe things are going to get worse in the short-term, before they get better. Hang on tight!

Cash Is King- 2011 Version

Yes, it has been a long time. We are at the half-way point in 2011 and the is my first entry of the year. I've been scratching my head for the past 8 months wondering why the market is still running as high as it is? The main reason is the internet. If you have noticed the volatility of the market over the past couple of weeks, it has been fueled mainly by rumors back and forth about the situation in Greece. The bottom line about the good and bad news about Greece is that there is no substance about the news being given. One day, the headlines will be that the EU has a "good feeling about containing Greece's debt issues", and that's all that is said. The market promptly jumps 1%. The next day, the opposite is said with as little detail and the market promptly drops 1%.

Stop listening to the news. Greece is just the first of many European countries to get bitten by the debt bug. Most of the countries in the EU back each other when it comes to debt. The problem with that is when one country cannot be helped (Greece) the burden will become too much and the weight will send the other countries in the EU tumbling like dominos. The best bet to avoid that is with the EU breaking apart and each country going back to their former currency. Each country needs to clean their own house.

While the EU is a disaster, the US isn't in much better shape. My person opinion is that the overall equity market, bond market and precious metals (silver is the exception) is overvalued. This will be an issue when interest rates come up within 6-12 months. Bonds will begin to lose value with the rising interest rates, but with equities and precious metals still overvalued, the only place they can go is into cash.

However, if interest rates do not increase, the weaker dollar will drive down US equity earnings, which will trigger a sell off into cash, since the weaker dollar will drive up precious metals and low interest rates will leave bonds high. Cash is the only destination.

Cash is the place to be now. Take your profits and sell your losers. Do I recommend going 100% cash? No, but I'd start tip-toeing out of a large portion relative to your goals and investing horizon. Currently, everything is heading downward, so have your cash ready. If Greece defaults while the EU is still intact, Europe could be heading toward a depression, which in turn will spread worldwide. Good luck, we're going to need it.

Fool’s Gold

With the stock market starting to make a correction back to somewhat normal levels that support the underlying fundamentals, folks like Gold, especially since it has done so well over the last year. Ah, I love those investors who buy high and sell low; keeping up the age old tradition that what goes up must go higher and what goes down must go lower. Last I checked, buying into the upswing and selling into the down swing generally loses money every time.

On the flip side, folks are getting into gold, because interest rates are so low that the only place is for rates to go up. But, the FED is committed to keep interest rates low, which allows for inflation to get a little bit out of control. If the threat of heavy inflation looms, the interest rates will have to be hiked to control inflation. This hedge against inflation is all well and good in a normal market or better phrased the market of the past, when everyone was using credit like crazy and living beyond their means. This is no longer the case.

The reason being is that spending is now being curbed by both the individual and the corporations. Unemployment is high and will remain high until 10% is considered the new 5% as far as unemployment is considered. People are saving and not spending. What is occurring is a massive correction to make up for all the overspending that has gone on for the past 30 years. What this is going to or rather has created is a long period of deflation. The deflation is still in its early stages, but eventually the price of gold will bust under the deflationary pressures.

I still believe gold is a solid long term investment, but do you want to buy in now or at a lower price later? Wait for deflation to chip away at the price of gold, but also be weary that this not a fool proof investment. Recent news showed McDonalds raised $30 million to expand its Asian venture which was financed through debt backed by the yuan. If this is the beginning of a trend for companies to finance operations through debt backed by currency other than the US Dollar, then the US Dollar is in for a beating. Should you start shorting the US Dollar against the yuan? I’m not sure about that just yet, but unless we start getting our act together and reducing our debt, then we could find the US Dollar going the way of the Mexican Peso. Better get your wheel barrow out for a trip to the grocery store!

DOW 8800....

As the DOW sinks below 10K for the first time in a while, I’d like to remind everyone that I have been talking about how overvalued the market is since the beginning of the year. Now that we’ve had about a 5% pull back over past couple of weeks, investors are trying to figure out what the next move should be. Tell you what, if you are investing in mutual funds exclusively, you might want to head for a stable value fund. I would not recommend heading to a bond fund at this point, since interest rates are nearly zero and have nowhere to go but up. When that happens, it will cause bond prices to fall. If you do not want a stable value fund to keep your principal safe before the drop in the fourth quarter, then go to an international fund that has holdings in Latin America (Mexico and Brazil especially).

If you are not investing in mutual funds exclusively, then there still good individual stock buys. The energy sector is down and could continue to fall, so be weary of selecting trades there and keep an eye on it for long plays. Homebuilders are still down and have been down for a long time and will still be down for a long time. This is an industry that you can build a large position in over time.

Since this is a global economy, diversification is paramount. With the market ready to take a tumble, getting a good mix of international, domestic and emerging markets is the key to weather the storm. Reallocating money to a stable value/money market fund, even with low interest rates, might be the best bet in the short term as we see how the market will react. I recommend checking out the beaten up sectors to see if you can find good companies who have been beat up simply because of the business they are in. Once the drop happens in about 6-8 weeks, we’ll see who has the testicular fortitude to dive into the market during this time. Be prepared to take early paper losses and don’t be too quick to bail out. Good luck.

BP and Foreign Oil

In light of the last two months of coverage of the BP oil spill, I have decided to bring into the spotlight some misconceptions about BP and foreign oil. I have heard several comments on TV and read several comments in the paper about the BP disaster. Mainly, the comments revolve around how we should tap our own oil in order to break free from our dependence on foreign oil. It is true that we need to break free from our dependence on foreign oil, but many of us believe that tapping our oil is the answer. First, our oil is being tapped as we all saw with BP drilling in the Gulf of Mexico. Second, corporations are in business to maximize revenues. US oil is being harvested and sold to highest bidder. Much of our oil is being sold abroad. The corporations have a duty to the shareholders to increase the value of their shares, so selling American oil to Americans is not always in the best interest of shareholders.

The way to get off of foreign dependency on oil is to get off oil and find an alternative fuel. If that is not accomplished, then we will continue to depend on foreign countries (as well as foreign and domestic) companies to provide it. I'm not a fan of government control, but the only way to utilize American oil is to create a government owned company that drills and harvests the oil.

As far as BP goes, the amount of money it is going to cost to clean up the spill varies greatly depending on a number of factors. Regardless, the financial hit the company will take and the subsequent destruction of their share price makes BP an attractive take over target. The company does have a large cash hoard, but a huge amount of that is tied up to settle lawsuits filed by residents affected by the spill. If you have BP stock, hold it. If you do not, then refrain from buying until more reliable information about the cost to fix this mess. However, even if BP can come out of this still intact, the damage to the company's reputation may be too much to overcome.

Adjusting To The New Market Rhythm!

Since the market has appeared to stablize (somewhat), how can we capitalize on that? Well, if your only investment vehicle deals with mutual funds, bond funds, etc., the best thing you can do in the short term is to put your contributions into a stable value fund and wait for the housing market to take another turn for the worst, interest rates to increase and the market (as a whole) to react accordingly (meaning to drop). Once this happens, you can gradually redistribute the contributions from the stable value fund to other funds offered by your deferred compensation plan. Basically, it is a manual rebalancing of your proceeds. However, it is also a form of market timing, which is carries more risk. In order to mitigate the risk and keep you from reallocating too soon or too late, you should set some rules. An example of rule setting is saying I want to have about 30% large cap, 30% bonds, 30% stable value and 10% international (a.k.a global, foreign). If you set rules, you more closely fit the rebalancing type of strategy rather than market timer. Depending on the vendor servicing your deferred compenstation, you can set it up to periodically rebalance automatically. This will completely eliminate the need to do it manually and you will avoid trying to time the market. Just a reminder, when the interest rates are hiked up, the bond fund prices will go down and will offer up a buying opportunity.

If you have an brokerage account or an IRA that allows you to invest in individual stocks, then you can still buy stocks at a bargain price, even if you think the market is overvalued. Natural gas and oil stocks are pretty beat up currently and once the economy recovers, they should start to recoup the losses they have sustained over the past six months. Again, if you are looking to trade, rather than invest, this is not going to help you make a quick buck. These are plays for the long term. After more than a year since my last trade, I have picked up Petrohawk (HK), Transocean (RIG) and Duke Energy (DUK). Oil prices are low and should increase. Petrohawk is a small cap company that has solid financials and a lot of room to grow. Transocean has been beated to death lately because of the BP oil spill. Transocean is the vendor hired to perform the deep sea drilling. This company is fantastic and I believe their stock price is overly depressed. I am not certain when it will have an upswing, but as long as I think it is low, I will continue to buy in at realtively small amounts. Duke Energy has been around for about a hundred years. They are a utility stock that has its hands in natural gas and electricity. It supplies energy globally, which should help its stock price increase as the global economy recovers, not just the US economy. Duke also has an attractive dividend yield about close to six percent, which is mainly due to the low stock price. Lastly, Duke just announced a dividend increase, which always is good news for the future outlook by management.

Even though I think the overall market is overvalued, I have found enough good buys to keep me 85% invested in stocks with 15% of my portfolio in cash (that will increase as I keep adding cash). I typically like to keep anywhere from 25% during bull markets and 40% during bear markets. That is my personal preference as I think you can make money in any market, if you search hard enough.

Please keep in mind that the stocks I have recently purchased are not indicators that you should also purchase. Everyone has a different financial situation, investment horizon and goals. These stocks or any individual stock may not fall in line with your goals and risk tolerance. If you are up to trying something risky, make sure you do your research first and only invest as much money as you can easily afford to lose.

Wall Street Reform.....Not Really.

Before anyone gets all warm and fuzzy feelings about "Wall Street Reform", please read what the bill contains. To sum it up in a sentence, the bill attempts to increase the regulation of Wall Street. As with every bill that comes out, it fails to address the real cause(s) of the problem it is attempting to fix. Basically, it is a dog and pony show of BS. The main causes of the problems we are facing today is that Wall Street firms are allowed to contribute money to political campaigns, which obviously creates a conflict of interest. Also, Bill Clinton engineered the repealing of the Glass-Steagal Act of 1933, which allowed depository banks to own financial institutions. These two factors have allowed things to get out of hand. Now, the politicians are trying to take advantage of the volatile situation by putting the squeeze on Wall Street in order to cash in by extending Washington's reach, which is never the answer. The reason why this will not work is because the guys on Wall Street are far and away much smarter than the guys in
Washington.

Until the structure and not the regulation of Wall Street changes, things will not get any better. Since that will not happen any time soon, the best you can do is pay down your debts and build up your savings. Keep a healthy amount of money in reserve to take advantage of the dips in the market. Track your holdings and not the broader market, even though the swings in the broader market will affect your individual holdings in the short-term, they shouldn't affect them to the same degree in the long-term. If you own solid companies or mutual funds that have solid management, you should profit in the long-term (15+ years).

Finally, stop listening to the media. The media reports on events that have already occurred, which does not help investors. Currently, they are talking about the market "heading for a correction" after the DOW has come down 10%. I've been calling for the correction for last couple of months. The market is still about 10% overvalued at this point, but it might be a good idea to look at the energy sector (especially oil) as it has gotten beaten up a bit and it could be a good idea to start buying into the dip. If the DOW dips below 10K, we could see a big move through 9500. I'm still holding that the DOW should be around 8800 to be fairly priced, but as we know, the market is never fairly priced. Good luck and keep researching your holdings and tune out the press.

Has The Market Peaked?

If you are asking yourself if the market has peaked, then you are a very insightful individual. The run up on the market (as I have stated previously) has no logic. Not to imply the market is logical, but you have to take a step back and wonder what the basis is for the extended run up. Obviously, a vast majority of the investors out there sell when stocks tank and buy when stocks are on the rise. I know, you've heard that all before, but the fact of the matter is when the market peaks, it is typically about 20%-30% overvalued at that point. It is relatively safe to begin buying (mutual funds) after the market has pulled back 10%; only if you are using dollar cost averaging. If you plan to shift a bunch of cash at once after a 10% pull back, you may or may not lose money, but you will most likely hinder your future gains. If you are 25, you can pull that off, but if you are 45, it is best to get back in slowly. This way you may sacrifice potential gains in order to mitigate potential losses. You should always look at it this way.....if you put a chunk of money into a stock and it loses 50%, you need to double it from that point in order to break even, so hasty bets and not for the meek. If you have play money that you can afford to lose, by all means, go for it!

As I wrote last time, triple digits movements in the DOW are a rare. As per usual, when I state something like that, the opposite starts to happen. The scary thing about the market is that when we hear good news about a large company, folks start buying. It seems they buy without rational or long sightedness. They buy as if they are day traders looking to capitalize with a huge bet on a stock hoping to sell at the next 1/8 point increase. Granted, the market drivers are the investment firms and hedge funds, which makes me think at this point, they are trying to walk their holdings up and invite the individual suckers to jump in at too high a price and then the biggies will jump ship and leave the individuals with overvalued stock that has no where to go but down (sorry for the run-on sentence). Just remember, if you are able to obtain as little as $5M-$10M dollars, you can manipulate a stock and make a killing the same as the hedge funds do. Also, if you are looking at a stock and you like to see what the analysts think of it; stop doing that. There is a conflict of interest there that cannot be igonored. Finally, please lobby your congressman to impose the Steagall/Glass Act of 1933. This whole process started when the Clinton administration repealed that law. That one caused a snowball effect that we are now getting hit with today. Think about what happened to ING, Bear, Merril.