Save or Spend

Do Americans save enough? I bet that the savings rate is up dramatically in the last ten weeks. We know that Japan has a very high savings rate. In the last twenty years, economic growth in America has totally outdistanced Japan. The highest household savings rates for 2007 were Germany and Ireland (10.9%). The lowest household savings rates for 2007 were Finland (-3.8%), Norway (-1.2%) and the Czech Republic (-0.7%). The rate for the United States was 0.4%, while the U.K was 2.9%.
We can expect the savings rate for this country to increase dramatically in the next twelve months. Therefore, it is clear that once the recession is over, we can forecast a period of slow growth in the years ahead. It is up to our new government to modify monetary and fiscal policy to promote growth.

Random thoughts....Is Terrorism back?...you bet...amazing pictures from Mumbai...this will be another of President-elect Obama's priorities on Day 1......The seasonal trend helped the market go up for the fifth day in a row...lets watch next Monday and Tuesday closely...if we can avoid a huge decline in prices...look for a test of 9,600 in December..off to see Australia tonight...

Black Friday

Did you know that the official site for 'Black Friday' shopping is www.bfads.net.
Black Friday (the day after Thanksgiving) is the busiest shopping day of the year. The predictions for this year are pretty dire. Saks Fifth Avenue in NYC held sales all week offering up to 80% off. The store was jammed. The majority of stores have excess inventory and are offering historic discounts. Wal-Mart is offering a flat screen television for less than $400. Retailers are trying to reverse the double digit sales declines of the last few months. The stock market will be tracking sales daily until Christmas. I hope for a much better shopping season than expected.

Random thoughts....Look for President-elect Obama to announce his Security team next week beginning with Secretary of State Clinton...after the horrific events in India, Obama will show the world that foreign policy will be just as important as economic policy...The market closes at 1PM today....the rally will probably go for at least one more day......watch the financials for hints....

Yield or Capital Gain or Loss

Based on the market close today, JP Morgan (JPM)common stock is yielding 6.7%, Altria (MO) is at 8%, Bank of America is at 11.20% and Citi (C) is basically zero dividend. Which stock or any would you buy? Believe it or not, there are many stocks where the dividend is safe, except in the case of a depression. One of those is Altria (MO), the tobacco company. In the financial arena, JPM, BAC, etc. will definitely be cutting or eliminating their dividends as the next six months unfold. Citi has a government backstop to losses and no dividend. Which would you rather own? How about Exxon (XOM) or Apple (AAPL)? This coming Thanksgiving weekend is a good time to evaluate all of your favorite stocks to determine what to do next. There is no doubt in my mind that 2009 will be a very weak year for earnings. Many dividends will be eliminated but many stocks will go up.

Random thoughts....I bet you cannot count how many household name stocks are under $10/share....take a look in the Wall Street Journal and you will not believe the companies that are trading under $20/share....When will single family real estate stop going down? ....

Citi Never Sleeps

Two days after Lehman Brothers filed bankruptcy on September 17,2008 a bearish raid knocked the stock of Morgan Stanley down 24%. A combination of complicated financial instruments called Credit Default Swaps (CDS) and the subsequent shorting of the stock of Morgan Stanley contributed to this huge decline. Last week a bearish raid on the stock of Citigroup(C) was responsible for a decline to $3.50. The Federal government could not allow another financial company to fall. This past weekend negotiators for Citi and the Government came up with yet another rescue plan. Hopefully this plan will stabilize the financials. We have to remember that all of these capital needs are based on the deterioration of the economy and the subsequent accounting write-downs that must occur. If the government can stop these bearish raids on our financials, then we will beat the potential depression.

Random thoughts....It seems that everyone agrees that President Obama's financial appointments will solve our problems...what will happen to Ben Bernanke (chairman of the Federal Reserve)...his term expires in 2010.....he is hoping for a quick recovery...a good way to play the backstop of financials by the government is the XLF (a financial ETF).....

Gold or Silver

It would seem that President Obama's new Economic team, including Timothy Gietner (Secretary of the Treasury), Paul Volcker and Governor Richardson (Commerce Secretary) will have to decide whether or not our economic system needs to be overhauled. Maybe we need to go back to the Gold Standard. Maybe the system of throwing darts at resolving the current economic meltdown will be debated by men who see alternatives. This weekend would be a great time for everyone to go to their local college bookstore and purchase a current economic textbook and decide whether or not it makes sense. It is clear that since September 15, our market system is not following any economic model. Hopefully on Monday, we will learn what President Obama will offer us for the future.

Random thoughts.....It is time to see a Movie Double Feature this weekend...James Bond would be a great first choice to take your mind to Italy or The Boy in the Striped Pajamas will definitely make you forget how much money you have lose on paper...Remember that November and December are tough months for gaining weight..no bread....Of course, lets not forget Citi...what will happen over the weekend....?

Is Global Stag-Deflation a Possibility?

Stag-deflation is when a recession is associated with deflation. We are definitely in a recession (at least since September 2008). The stock market is clearly deflating as it has lost about 50% in the last twelve months. Real Estate has declined about 20%-30% in various markets. This doomsday scenario could happen if the absence of Fiscal and Monetary leadership continues in the Obama administration.
Please read a previous blog where I asked President-elect Obama to act now and restore confidence in the markets. We cannot wait until January 20th!!!

Random notes...the Real Estate Investment Trust stocks are trading as if their tenants will not pay any rent in 2009. I guess the big three auto companies will face bankruptcy next year...we have to stop assets from deflating soon or it will be too late for all of us...watch for more layoffs and massive unemployment increases next year..

It is time to learn about 'CMBS' securities

Commercial Mortgage Backed Securities (CMBS) is a type of Commercial real estate first mortgage debt. In a CMBS transaction, many single mortgage loans are pooled and transferred into a trust which issues bonds. This market has raised a huge amount of capital for the Commercial real estate market in the last five years. As you know, commercial real estate includes office buildings, retail centers, and apartment complexes. These bonds are largely owned by Financial institutions globally. Last week two of these loans defaulted. These CMBS loans were for a retail complex and a hotel complex. Both of these projects are in big trouble.
Wall Street has been following the CMBS market for the last few months wondering when the first shoe would fall. These two defaults have now created another market in 'absolute freefall'. The 'IYR' (an index of real estate investment trusts) was down 10% today.

Random thoughts...with all the talk of the next depression, the automobile bailout and unemployment, there must be individuals who are doing just fine. Last night I had dinner with a CPA whose business is booming....his clients JPMorgan and Bank of America recently purchased major financial firms who certainly need a good accountant (Countrywide Credit, Bear Stearns, WAMU)....you must know someone who is doing well today...maybe they will go shopping..

Lean and Mean

The three U.S. automakers are currently looking for a loan of over $25 Billion from the TARP. The CEO's of all three companies are prepared to go 'lean and mean' so that they will have enough money to pay Taxpayers back. My opinion is that the Unions are killing the United States Automobile Industry. The Medical and Retirement costs are just too expensive. The monetary losses of the employee buyouts will use up more capital. Therefore, in this case, 'lean and mean' doesn't translate into profits. The industry has to receive the capital because the American Taxpayer does not have a choice today. Obama still has sixty days to go and the psychology of the country is as negative as it has ever been. I guess we all do not have a choice. The Auto industry wins!!!

The American consumer is in hiding. The Revenue side of American business is suffering. Expenses have to be cut with the hope that buyers return. This is a classic example of 'supply and demand'. Today there is very little demand in the Automobile Industry.

Random thoughts....Jerry Yang is gone....Why did he refuse to sell YHOO to MSFT?
My guess is that MSFT will be back next year with a $18 bid at best. I heard today that certain CMBS loans are in default ( these are commercial real estate loans)....hotels and office buildings were financed by these loans...we have to watch this carefully...follow the 'IYR'..

Waiting for President Obama

As the stock market goes down everyday, it is apparent that the world is waiting for January 20, 2009. The G-20 meeting last weekend agreed to meet in April, 2009 with President Obama. Is it possible for anything positive to happen in the next sixty days? I guess when Obama names his Secretary of the Treasury and informs the market about his upcoming policies. The market looks like it will test 7800 in the next few days. We may be headed to 7200 on the Dow by Friday. I expect retail sales to get better starting on Black Friday, the day after Thanksgiving. Hopefully, people will begin spending with hope for the future. It is Obama's job in the next sixty days to provide this hope.

Random thoughts...Mark Cuban has been charged with insider trading...why would he do this with a balance sheet in the Billions?....Citibank is firing 50,000 employees worldwide...I expect the unemployment rate to be over 8% by January,2009....will GM get money this week? I think so.....but it is easy to predict that GM, Ford,or Chrysler will be history at this time next year...

Jack Bauer where are you??

This weekend the " Summit on Financial Markets" will be held in Washington D.C. Leaders of 20 nations (G-20) will attend. Emerging nations represented will include China, Brazil, Saudi Arabia, and Russia. Jack Bauer where are you? In 1944, a similar conference was held in Bretton Woods, New Hamshire. The purpose of this post WW II meeting was to ensure prosperity through economic co-operation. Does this sound familiar. President Roosevelt told the conference, " The economic health of every country is a proper matter of concern to all its neighbours, near and distant". Hopefully, this weekend will bring the beginning of Bretton Woods II.

The persistent question this week in many investors minds has been, "Who has the right answer to prevent the potential depression? The G-20 is searching for the elusive solution to our financial crisis. The stock market has declined precipitiously since that day last month when the Congress approved the $700 Billion TARP. It is clear that we have yet to find the answer to this debacle, but we are trying. Time is of the essence because the economy is 24/7. Jack Bauer was able to save the world in 24 hours. We hope this one is saved within 24 months.

Random thoughts....Hillary Clinton would be the #1 choice for Secretary of State...forget John Kerry or Bill Richardson....retail sales were near zero in October...forget November it will be worse...Banks are raising interest rates in order to get your deposits....they need all the money they can get...CASH IS KING!!!

Wall of Worry

I have always believed that for the stock market to go up, it has to climb a wall of worry. If you scan the Wall Street Journal daily you will find that the percentage of 'negative' headlines to 'positive' headlines is 99 to 1. If you turn on CNBC, negative stories about the economy are 100 to 1. If you go out to dinner with a friend or business associate, the #1 topic for conversation is about the economy and how bad business is. It seems that the political discussions have stopped and the reality of hard times is here. Remember when we would get stock tips at the beauty parlor or find out that everyone was doubling there money in buying real estate. Clearly we are climbing more than a wall of worry these days. It is very close to total panic. Over the history of financial markets, the time to buy is when 'it is very lonely to buy'. Today, you might be the only buyer around.
Random thoughts....What happened to President-elect Obama?...He should pick Paul Volcker, former Chairman of the Federal Reserve, as Treasury Secretary. This announcement should be made by next week....General Electric's dividend yield is approaching 8%.....Watch the currency market carefully as the British Pound will continue to weaken over the next year....

Supply & Demand of Stocks

We all understand that Supply & Demand is one of the most fundamental concepts of economics. When we are in a bull market, the amount of supply of stocks is limited while the demand is extremely strong. In the current bear market, it seems that there is an unlimited supply of stock for sale and no demand. We are seeing deleveraging in the economy which creates forced selling in the stock market. The market will continue to go down as along as we still have willing and unwilling sellers around. It seems to me that the willing sellers sold a couple of months ago.

We are now forced to watch the liquidation of unwilling sellers. These investors or institutions must raise cash to avoid bankruptcy. Institutions include pension plans, hedge funds, mutual funds and corporations. The deleveraging or unwilling sellers seem to appear everyday.

If you are in a cash position, now is the time to be buying stocks. I would advise buying stocks on a monthly investment plan. For example, lets say you want to commit $100,000 in the market.
Buy 1/12 or about $8,333 every month starting today. This will limit your exposure to one day events. If you are leveraged, it is time to cut your risk and make sure that you have enough cash to last you for two years.
Random thoughts.....look at the British pound vs. the dollar today....1.49....the Euro is about to break 1.25....oil is testing $55...Goldman Sachs is trying to hold $69.5...Best Buy is not selling any electronics....If you have cash, isn't this a time to nibble?

Banks and the $700 Billion TARP

The question of the day is how long will the $700 Billion dollars in the TARP (Troubled Asset Relief Program) last? The Federal Reserve approved American Express as a Bank this morning. The government is investing at least $250 Billion to recapitalize U.S. financial institutions. Is it time for major industrial corporations to convert to Banks?
As I walk down NYC streets, I notice an abundance of vacant taxi cabs driving by. I also notice a lack of customers in boutiques and department stores. Can we conceive of Macy’s, Yellow Cab or General Motors as a Bank? In time we may be able to individually convert into Bank holding companies.
It is clear that TARP # 2 will be in place next year when President Obama takes office. We probably will need another $900 Billion to fund TARP #2. The worst Credit Crunch since the Great Depression is here.
Random thoughts… Las Vegas is in the news today. General Growth Properties (the second largest mall operator in this country) may declare bankruptcy next year as it is having trouble refinancing its debt. GGP owns and operates retail shops at the Venetian and Palazzo hotels in Las Vegas. The Las Vegas Sands Corporation which owns the Venetian and Palazzo has lost 94% of its market value this year. They raised $525 million today to avoid bankruptcy…….remember the market can’t go up unless every willing and unwilling seller has sold. We are getting close….