Mar 312011
 

Government spending has been a problem for decades.  Yes, the federal budget was, arguably, balanced for a short time in the 90′s, but that was only a green flag that they could start spending more.  I would like to state that I am one of those people who does not view tax cuts as a spending program.  Asking how we’re going to pay for a tax cut is like my son asking how he will pay for me not increasing his allowance.  The answer is, “your not.”  If you have less money this year than before, you have to reduce expenses – that is the way a budget works.  Often times, what you hear presented as being a “tax cut,” isn’t a tax cut at all, but rather “not an increase.”  Both sides of all issues, in political debate, exercise “artistic license” in developing their definitions and choice of words.

Yes, there is a reason that “zero base line budgeting” is unpopular.  Under the current system, if the govermnet spends $10 billion on a program this year and the plan is to increase it by 10% next year to $11 billion, then next year one side proposes spending $10.5 billion (a 5% increase instead of 10%), the side in favor of the project cries that it is a 5% cut or a half billion dollar cut and the other side says (usually ineffectively) that it is a 5% increase.  Unfortunately, politicians are primarily lawyers, whose profession it is to challenge and push the limits of common definitions.

While Federal spending is indeed out of control, I believe the larger threat to the economy is the state and local budget.  We normally only hear of the high profile issues with other states, but mostly the woes of our own states, counties, and municipalities.  Now multiply thos woes times 50 states, your county’s problems times 3,100 (1) and your city’s issues times 30,000 (2).

Existing pensions, continued collective bargaining, state bankruptcy, and

(1) Approximate number of counties in the United States.
(2) Approximate number of cities and towns in the United States.

Mar 022011
 

We are living in interesting times.  It’s almost impossible to separate the domestic outlook from the world outlook, but, by the same token, there so much turmoil globally, that there is a lot of opportunity.

I keep hearing people, including seemingly reputable newscasters, disagree with economists, census officials, Bernanke, etc.. when they state that the recession ended  a year ago.    Let’s talk about the definition – we can’t have a reasonable discussion if we don’t share the same definition for words that are key to the argument.  “Recession” is the process of the economy getting smaller, or worse (like my hair line).  When the talking heads say that the recession ended some time ago, that does NOT mean that everything is “all-better” – it means that, overall, the economy has stopped getting worse. 

For instance unemployment, which is a key indicator, dropped from 10.2% in late 2009 (peak) to 9.4% in December 2010, to 9.0% in January 2011.  This indicates that unemployment has stabilized and has been getting marginally better.  It does not mean that it is back below 5% like it was 5 years ago, it only means that it isn’t getting any worse.  GDP has also stopped getting worse and has started to grow.  To quickly achieve a recovery in unemployment, a huge jump in GDP would be required and, although great in Fantasyland, would lead to an even greater recession or depression on the other side.  Steady private-sector growth is the only way to sustain a long-term recovery, and we are currently on that road. 

I also hear people qualify the improvement in unemployment numbers by stating that it doesn’t include the people who have given up trying to find work.  OK… Let’s personalize this a little bit.  If you lost your job tomorrow, or maybe you are currently unemployed, can you imagine coming to the point where you just throw up your hands and say, “Oh well… I can find a job… I guess I’ll just stop looking.”  and apparently spend your time doing crossword puzzles or something?  No, you can’t.  Unless you are (1) independently wealthy, (2) don’t want a job because you live “off the grid”, or (3) have started your own entrepreneurial business.  In any of these cases, they shouldn’t count against unemployment.  The rest of us have responsibilities to our families and need to generate the income to put food in their mouths and a roof over their heads.

In a nutshell, the recession is over and we are in the process of recovery.  What are the biggest dangers, currently, to the continued recovery?  Out of control government spending, growing state & local budget deficits, and the muni-bond market. 

In the posts that follow, I will expand upon these issues so that you don’t have to sit here and read War & Peace.

– John

Dec 162010
 

As promised, here is a link to a site that will allow you to do trades as if they were real, without putting actual money at risk.

Wall Street Survivor also has contests where they award cash prizes to users who have significant success doing the paper trades.  Click th elink below or in the side bar to get started.  It’s free and there is no obligation.


 

Thanks,

John

Dec 092010
 

We posted the video early for anyone monitoring the website to try to get in on what we believe is a great growth opportunity.

Using our trial subscription to  Investor’s Business Daily  (Investors.com) we identified Lululemon (LULU) in the IBD100 as a potential stock for short to mid-term growth with the possibility that it could keep running for some time. 

We looked at the historical performance, explained the importance of the price to earnings ratio (P/E) as well as the PEG ratio.

We also have a discussion in the audio podcast episode regarding market risk.  As an investor you need to determine your tolerance for risk -  it is better to make money than to lose money.

We will be on in the wee hours to try to get into it at about $55.  Happy Hunting!

Thanks,

John

Dec 012010
 

The last couple weeks have been really exciting. The Dow and S&P 500 were virtually flat while the Russell 2000 and Nasdaq had a nice uptick.

The indexes ended the month:
• Dow at 11,006.02
• S&P 500 at 1,180.55
• Nasdaq at 2,498.23
• Russell 2000 at 727.01

Today marks the end of the first three-month period that we’ve tracked the Wooger Index. Over the last three months, the index has returned 28.9%, compared to:

• Dow at 9.9%
• S&P 500 at 12.5%
• Nasdaq at 18.2%
• Russell 2000 at 20.8%

This is due in large part to the selection of Deckers (DECK) to add to our portfolio.

Over the last two episodes, we went through the Deckers analysis using readily available analysis tools and tools from Investors.com to arrive at our conclusion. It turned out to be a good decision and great timing.

Angel Martinez, Chairman & CEO of Deckers, was on Mad Money yesterday and Cramer reiterated his bullish outlook on Deckers.

Over the last week the share price of Primedia (PRM) has increased about 25%. I thought it would have some long legs, but I don’t know why the bounce has happed at this time.

I liked ARM Holdings (ARMH) at $17 and now it’s at $18.75. Need to look at that and see if I’m still of the same mind.

I was thinking of getting into Bank of Ireland (IRE) as a speculation play when it was at $1.40 a couple days ago. I didn’t – wanted to do more homework. Now it’s at $1.72 and there is constant news coming out of Ireland, so maybe tonight I can tell whether I want to roll the dice on this one. This penny stock was over $90 at one time. We’ll see what the numbers tell me. I miss a lot of these, because I refuse to get into a stock unless I’m at least comfortable with the current valuation. It’s not only about making money – investing is also about not losing money. I would rather miss out on a 20% gain than to come away with a 50% loss. If you speculate on this or any stock, keep the investment a small part of the portfolio – you don’t want to postpone retirement because you rolled the dice too hard.

Got into InterDigital (IDCC) today at $33.00 and it closed at $33.07. I will follow up with the commentary on the analysis shortly.

News of the day

• Ex-Deloitte partner charged with insider trading
• Bonds rise on Fed purchases and safe haven buying
• Kocherlakota: Fed buys not seen sparking inflation
• Fed’s Kocherlakota says economy ‘decelerated’

Currency commentary
• Rumors of a Chinese rate hike followed by a variety of negative Eurozone rumors, including talk of a S&P France downgrade
• Widening periphery spreads are now impacting France and Belgium, with talk of emergency funding at the ECB overnight window, German Landesbanks facing liquidity woes and ECB buying of 5 year Irish bonds adding to a rumor mix.
• The EUR, not surprisingly, has been left battered and bruised.
• We should get a greater focus on USA developments as Home Prices, Chicago PMI and Consumer Confidence are all due for release.

Currency        Spot Rate       High    Low    
EUR/USD 1.3019  1.3149  1.2982 
USD/JPY 83.85   84.30   83.73  
GBPUSD  1.5528  1.5575  1.5509 

 Posted by at 12:06 am