Happy New Years

Happy New Years from URBANOMICS

I wanted to wish everyone a Happy New Years. To all the first time investors, part-time investors, or people interested in their financial well being: Welcome to the site that explains everything financial in an easy to understand format.  We have it all covered from how to check your credit for free, tax advice, and where to invest in the complex stock market. 

Meet Me @ The Gas Pump...It's Going Down

Literally, it may be time to meet at the gas station because the prices are finally going down.  When I thought about gas prices I obviously had the rap song "It's Going Down", by Yung Joc in my head.  It's been going down to the tune of 21 STRAIGHT DAYS with an average price around the country now at $3.60.  Yes I said to the tune...I can get that song outta my head.

Why is this happening??

Economy
 Well, start by taking a look at my last post written almost a month ago that outlined how high gas prices and not enough job creation hurts an economy.  If prices stay high for too long it begins to change the way people do things.  Remember Yung Joc said, "Meet me in the Mall, Meet me in the Club...it's going down"...well when gas prices stay high people start cutting back on buying gas and going to those spots.  As more and more people cut back, carpool, take public transportation or just travel less, the demand for gas will continue to fall and so will the prices. 

Over-Speculation
The other reason is there have been some high profile prosecutions recently of traders who were manipulating oil markets which has an impact on gas.  These traders can at times make the supply or demand greater or less than what the real market demand is for oil and when the fools are removed from the equation it helps to bring gas prices down.

Oil Reserves
Lastly, the US government just released barrels of oil from a strategic reserve that is maintained for emergency situations.  This was a coordinated effort of 28 countries around the world to release oil from emergency stashes in an effort to begin reducing the price and impact high gas is having on the global economy. The group of 28, also known as International Energy Agency (IEA), has taken these steps only three other times in history.

How to Invest - Stay defensive at this point - Dividends, Healthcare, and Energy

What's Up With The Economy, The Deficit...

That is a really good question, "What's Up With the Economy?"!  The best analogy is the economy is sorta like a really nice business train that is slowly chugging along and starting to lose passengers at each stop.  I think this is an accurate picture because the data is definitely mixed, showing corporate businesses are doing quite well and chugging along, like the train.  The passengers being lost at each stop are comparable to middle-class Americans that are being negatively impacted by: 1) high gas & food prices, 2) declining housing prices, 3) still high unemployment numbers.  And the biggest problem is JOBS, JOBS, JOBS, or the lack thereof.  Jobs are so critical because they give Americans confidence that the economy is getting better when they see their neighbors getting up and going to work, coming home with bags of groceries, and investing in their homes.  So who is focusing on getting more Americans jobs? That's the question that needs to be asked of everyone from the president and his administration, to your senators, then your local congressmen, and also of the companies that are doing well.  Every moment should be spent on turning the dismal job scenario around and we've seen our politicians come up with some solutions but not nearly enough.  The formula is not that difficult as it usually comes down to stimulating Americans and stimulating the companies who are tasked with hiring more Americans.  Its a shame the debate in Washington is whittled down to spending versus tax cuts, but that has been the case.  Last time I checked both scenarios cost taxpayers money but are needed to bring this economy back to life.

It's A Long Way Up the Mountain: Iron Mountain

Iron Mountain (NYSE: IRM) was a recent recommendation that we've highlighted. Look back (using the search bar) at previous posts and you will see that we watched this stock as it violently fell to new lows and eventually hit a 52 week low, its lowest point for the year. We swooped in during these turbulent times and made solid calls to buy this stock as it was nearing a these lows and as we felt there was enough of a safety margin to begin buying. Once bought you must remember one of our fond URB Lessons Learned:

URB LESSON LEARNED ~ Monitor your holdings for underlying data that either 'supports' or 'rejects' your reason for buying the stock.

If there is evidence to reject your reasons for buying the stock, then while is hard to part ways you must dump the stock.

Recent Data from Iron Mountain:

~ Quarterly Dividend was raised 200% from 6c to a whopping 18.5c!!
~ Recommended by a well know investment analysis firm
~ The most recent earnings beat the estimate of Wall Street...and this has been the recent trend
~ And they have raised future earnings expectations. My experience is firms don't do this unless they believe those numbers will be reached

The dividend increase and the rise in future earnings are excellent signs to support our recommendation.

Santa Claus Rally...

This rally came too early to be called a Santa Claus rally this year!! To have a quick flashback you will recall that we recommended increasing our holdings of stocks to take advantage of certain actions earlier in the year like Quantitative Easing (QE). Looking back, I agreed with the thoughts of many other investors and economists that it was time to move up in the risk spectrum. At that time, I believe QE would negatively impact bonds and favorably impact stocks. Our picks ranged from: 1. Dividend Stocks 2. Commodities 3. Large Cap 4. Our Usual --Down and Out Stock w/ Great Upside Potential.

Urb Lessons Learned: Keep some skin in the game on speculative stories that perform well.

This year I learned to trust my instincts but I wasn't consistent with my usual strategy of keeping a little bit of a well performing stock. The following stocks fit our Down and Out Stocks w/ Solid Upside, however we sold early and didn't keep any to enjoy this even more of the upside:

~ Boston Scientific (BSX): Bought this down and out and eventually accumulated this stock at a dollar cost average of $6.20s. Looking back we sold this stock around $7 and now it boasts an asking price of $7.82. Things that make you go hmmm.

~ Audiovox (VOXX): This consumer technology play was a solid call after it clear our down and out strategy with great upside. Consumers are coming back and they make the great Xmas devices that are on people's wishlist. Bought around 6.40s, sold around $6.8os because I got jittery and this stock now trades around $8.45!!! Wow

This reinforces my lesson learned in 2010, keep some in the game, you'll regret it less later!

Here is a look at other nice calls since our shift away from bonds:

~ American International Group (AIG): Gone from $30s to $50s and it looks like the upside is just beginning. This was part of our down and out call, no dividend so the upside needs to be significant

~ Collectors Universe (CLCT): Maintained our position here from levels that range from $ 4 to 9 bucks. This stocks boasts a healthy dividend payout of 32.5 cents a share and keeps the income stream coming in. Management has cash so the dividend looks solid. And the ride up to the $14-15 dollar level has given us nice appreciation.

~ Iron Mountain (IRM): This stock is a quiet surprise because its seen good upside very quickly. Roughly a 20+% move, this was a down and out stock that boasted good dividends.

~ Republic Services (RSG): Waste management has never looked so sexy. I personally think this stock was battered for tough reasons, which gave us a great entry point and this stocks has a dividend.

~ Oracle (ORCL): I don't write often about this stock because I have never sold it since in 1999 or 2000. Yes, I have loyally owned it for 10 years. I never owned a lot and perplexed as to why I never bought more but its now gives out a small dividend which allows me to reinvent in ORCL.

UNDERPERFORMERS for 2010

~ Radisys (RSYS): The reason why this stock is listed in the underperform section because it hasn't gone down but its basically DONE NOTHING! If you don't believe me, check out my dog and largest shareholder David Nierenberg's letter to RSYS: Letter

Note: Please read this letter. Nierenberg has asked RSYS to take a number of steps to improve the stock price. It appears that RSYS just announced one of those actions, however it comes on the heels of RSYS trimming its 4th Quarter Outlook.

STAY TUNED FOR 2011

Dark Knight ~ The Economy

Or should I saw dark nights and days are hovering above the economic horizon (the only idiot that can't see this is Larry Kudlow...who thinks this is just a blip in an economic "Goldilocks" rally) What do I mean by this...well I won't act like the politicians and keep telling you about my record on how I got this right (but if interested see my last post)! Because at this point in the game, pats on the back won't do because I believe we are in a seriously bad spot right now in the economy. I am going to continue to break course from my usual buy and hold mantra and say that we are in turbulent times and with the actions taken by the federal government make it difficult to take a historical perspective and apply it to today's situation. The fact of the matter is things are changing very rapidly...in ways that we haven't seen before and even your smartest people are having trouble getting this right.

Backdrop:

And I know that you are often told if you are young investor then just weather the storm and it will be alright. But as a 20 something that has seemed to be ahead of the curve of the direction of this unbelieveable storm that is now upon us, my interpretation is to head to safer ground until the storm passes. Why because we've been ahead of the game a few times now: I have written posts using logic and my very basic understanding of Econ 101 to identifiy the potential for a housing bubble...then we were ahead of the curve when we combined the everyday realities ofsoaring energy and food prices to point out that the average person on MAIN STREET (i hate this term) was already feeling the effects of inflation!

The Federal Reserve finally caught on and to their credit took some action to combat the inflationary pressures of soaring food and energy prices, however, one problem was still left unaddressed and that was the housing bubble. Limited action was taken to help main street solve the mortgage crisis which spilled over into Wall Street. Wall Street felt the effects through deteriorating mortgage backed securities and a rising waves of credit default swaps (basically insurance to investor when toxic securities began to crumble). You may call it karma but our inability to help main street has seriously crippled wall street. In my last post, I tried to highlight this problem and indicate that I believe that even with a much needed bailout package we haven't truly explored all of our options to begin to resolve this crisis and a 360 degree approach my be needed. To make a long story short, I believe the Fed now sees the need for some of the points that were raised in the last post, such as stepping in and being an intermediary for short term lending to companies (basically being a bank & lending companies money b/c the banks don't to and can't do it right now).

If you weren't aware companies are having trouble getting short term loans (for supplies, payroll, etc) and many get their loans through a market called commercial papers. We have previously raised a point in the previous post that the Fed may need to "act" as a direct lender and today, the Fed, concerned that the commercial paper market has dried up look to breathe life back into this market by basically providing companies with short term funding.

Current Environment:

I believe the storm is just setting in because of the aggressive and unprecedented steps that the Fed (some listed above) has had to take along with the most recent words from the Fed Chairman, Ben Bernanke. I know you don't think words are important but when one of the most financially informed persons on the earth believes that the economic outlook has "worsened", economic activity is likely to be "subdued", and the financial turmoil may "lengthen weak economic performance" we must all take heed. I am hear to tell you that the Fed Chairman never wants to scare us but he must paint an accurate picture...and when he uses words like subdued economic activity then we are probably going to experience some serious economic pain for a period of time.

Supporting Evidence:

~ Fed Chairman's recent words
~ Today's global rate cut by the US and other major central banks
~ Commercial paper markets (corporate short term funding) has dried up and the Fed has announced that is will step in and create a market to revive this much need source of funding
~ The economic slowdown and financial crisis is spreading GLOBALLY
~ The bailout will take time help financial firms solve their liquidity problems
~ Rate cuts along with other things historically push INFLATION higher

Problem Solving (Only my recommendation):

~ If you are an older person nearing retirement, you are in a very difficult situation and I don't have many solutions here

~ Middle aged people and people with children: you have a few other responsibilities that will need your immediate attention, so capital preservation will be very important (see below).

~ Young people, I am going against the grain and telling you to be concerned and focus on capital preservation also! Move 401K balances, IRAs and brokerage accounts into safer grounds and due to inflationary concerns that appear to be surfacing I would reallocate your portfolios in this order (if possible):

• Gold (as fears continue this is a global safe house and great inflation play)
• Treasury Inflation Protection Securities (this security give you the Treasury yield and accounts for the rise in inflation)
• Treasury and Money Market Securities (safest investment out there, but inflation will eat away at your savings, eventually)
• Bonds (even bonds have lost money but obviously a better option than stocks)
• Smart Dividend and Value Stocks - At this point I am recommending this only for your brokerage account and don't go for the highest yielding firms b/c they may be the first to cut their dividend (i.e., Bank Of America), which means that stock will then fall sharply. Look for the the stocks that will continue to pay a dividend and increase their payments (Kinder Morgan - Jim Cramer pick, Enterprise Partners - Urb pick, GE - Urb pick are names that will help you pay yourself during this tough economic period)

I'm Out!