The countdown continues as the Federal Reserve lower the interest rate past most expectations to a level between 0 and .25. This is a strategy that appears to be similar to the one taken by Japan during the economic period that was similar to ours years ago. What does this do to the markets:
It dramatically pushes down the rate of return on a money market fund and Treasury bills. There are very few ways rates in these assets and one is lowering interest rates and the other is the increased buying of rates by the public usually due to economic concerns of the market. If you recall, when I noted that the markets would be experiencing a rough time I sent readers here to these assets mainly due to safety reasons. Now the fed's actions want to force us to put our money to use elsewhere, mainly the stock market because it doesn't make sense to stash them in money markets and T-bills because we won't make any money!
The only things that makes me a little skeptical is that we are experiencing rough economic times and I don't think the average investor will flock to stocks right away. I think there is still alot of fear out there and people will take little to no returns as compared to big losses from holding stocks. The one thing I am now completely bullish on is GOLD, as the fed's action of moving rates to zero is equivalent to pulling out the printing press in the middle of the street and giving money freely to anyone who is asking.
Tuesday, December 16, 2008
Sunday, December 07, 2008
Too Legit To Quit...
Yeah I am taking it back to the old school and hitting you up with a little MC Hammer. Back in the day, Hammer had a little assistance from his buddy neon Deon Sanders with this anthem To Legit Too Quit. And with the latest bailout money being tossed around for the auto industry it seems like Congress is saying that Ford, GM and Chrysler are to legit (or to big) to quit! And we have stronger evidence this weekend, with a report written by the Wall Street Journal that indicates that the Big 3 get big dough from a bailout plan that is currently in the works. What does this sound like?!? Well it sounds an awful lot like the bailout deal that was struck for financial firms on Wall Street. However, there is a slight difference and that difference is there are definite strings that it appears will be attached to the Big 3. How odd Congress didn't choose to place these same type of strings on the 700Billion dollars that was given to the Wall Street firms but hey who's counting, right!?!
My job is to capitalize on this new development, dubbed the Auto Bailout and figure out how we can make a trade on it. I am going to argue that you may see some of a bounce in Ford and GM's stock but there is still too much risk in investing in these commpanies, because just like AIG, the only financial firm to have signficant strings attached to their bailout deal, strings in your deal mean that the common stockholders get crushed in the process. They get sent to the back of the payment priority line and have nothing to look forward to in owning the stocks for the next few years as the government moves into the pivotal number 1 slot of receiving its payments first. Say goodbye to fat dividend payments to common shareholders. So whats the trade YOU ASK!
I say buy the beaten down auto parts makers!!! BUY: Lear (LEA), TRW Automotives (TRW), Johnson Controls (JCI), and Borg Warner(BWA) because of this reason:
A buy on auto parts manufacturers make sense here because we have a high probability that the auto bailout will be approved. While it is unsure whether the bailout will wipe out shareholder value for GM and Ford...it definitely gives the auto part makers a huge boost in the short term because their worst case scenario, which was priced into the stock, its now of the table because the Big 3 are saved for the time being. In plain English, no bankruptcy means these guys actually survive and that should be great news for the stocks!
And I am adding these bad boys to the STOCK TRACKER to see how this trade would work out.
My job is to capitalize on this new development, dubbed the Auto Bailout and figure out how we can make a trade on it. I am going to argue that you may see some of a bounce in Ford and GM's stock but there is still too much risk in investing in these commpanies, because just like AIG, the only financial firm to have signficant strings attached to their bailout deal, strings in your deal mean that the common stockholders get crushed in the process. They get sent to the back of the payment priority line and have nothing to look forward to in owning the stocks for the next few years as the government moves into the pivotal number 1 slot of receiving its payments first. Say goodbye to fat dividend payments to common shareholders. So whats the trade YOU ASK!
I say buy the beaten down auto parts makers!!! BUY: Lear (LEA), TRW Automotives (TRW), Johnson Controls (JCI), and Borg Warner(BWA) because of this reason:
A buy on auto parts manufacturers make sense here because we have a high probability that the auto bailout will be approved. While it is unsure whether the bailout will wipe out shareholder value for GM and Ford...it definitely gives the auto part makers a huge boost in the short term because their worst case scenario, which was priced into the stock, its now of the table because the Big 3 are saved for the time being. In plain English, no bankruptcy means these guys actually survive and that should be great news for the stocks!
And I am adding these bad boys to the STOCK TRACKER to see how this trade would work out.
Wednesday, November 26, 2008
Is there a Superman to our Markets
Now I know we would all love to look up in the sky and see Superman flying in to save the day but what we need is a dose of reality to face these markets. And instead of relying on one person which is what Wall Street usually hopes for, the President - elect may be taking the best approach of them all. With most people completely discounting the words of the current president, George Bush, everyone is turning to the guy who isn't the current president to make presidential decisions before he hits the office. Obama is going against the grain and this must be his motto at this point. The prevailing model has often been 1 man running- the- show and that one man gets the credit like in the days of Alan Greenspan or more recently as we've relied on Ben Bernanke and Hank Paulson. Well, this time around President - elect Obama appears to be naming a Super Team to handle this Super Crisis! Obama is naming people on both sides of the economic aisle in an effort to determine a way to bring us out of this mess.
Now my orginal story is trapped on another computer but here is the direction I was going while I was putting that together, what do we do from here. Here are snippets of what I am thinking and I will include my pre-written thoughts a few days from now:
Access Current Economic Environment: I have to admit that I am early or wrong in thinking that the recent economic declines would begin to push demand for regular goods high (i.e., inflation) while the government prints money uncontrollably. Well we have seen that the economic indicators are far worse and that is leading to a rapid decline in every good across the board which is more like deflationary pressures on our economy.
What Solves The Situation: One thing the market is looking for is clarity about what the future will look like and they haven't been able to get that from the Lame Duck President George Bush. I think Obama's team has taken a delicate but decisive approach and released 3 straight days of news that is addressed directly at the economy...something I would expect from our current President. And notice what the results have been, a strong response from the markets even with more bad news coming out. That is a very solid sign when bad news is coming out but the markets are "shrugging them off".
What am I going to do: I am taking an aggresive approach and dividing my world into 2 segments. My retirment world and my investing world is what I call them and here is the part that you are most concerned with. In my retirement world, I have sat on the sidelines with no cash investment in stocks for the last few months because of the uncertainty out there. I believe we may have taken the right approach as the markets have gone down further and tests lows not seen since roughly 2001-02. But the market has been bounced off of these levels and in my opionion I may shift back into the markets if and when we near those levels again.
In my investing world I am searching for the worst of the worst and trying to find opportunities for long term and short term investments. For instance I like the stocks that will benefit from the roughly 1 trillion dollars that we are currently throwing at the markets. So I am weeding through the financial sector, beaten down stocks, and then I am going to the other side of the spectrum and looking for those least affected by all of this.
Financial:
How about looking at Citigroup (C), at this point they appeared to be dying like a patient with a bad heart but they have been give recesitation by the government. This means dying is not a option and I would buy on any dips in this stock...of course I have a thing for 52 week lows, which means below $4!
Also, how about Discover Financial (DFS), who is stuck in the middle of all this credit crunch. They are exposed to credit consumers as they hold consumer debt, but have a transaction processing network and stand to gain from the legal battles with Visa and Mastercard. With recent run-un, I would again wait until this drops below it 52 week low and begin forming a base at around $6.50.
Limited exposure to credit consumers: There are transaction processors that are indirectly affected by the credit crunch but this group is not directly affected. The likes of Visa, Mastercard, and others may be interesting plays. Again I would take an agressive approach and buy at 52 week lows which is $43 and $113 respectively.
Just simply beaten down:
Sirius - this is trading @ 14c, can it go any lower
Jeffries - an investment bank still standing
Big Lots - discount retailer, and logic says consumers may start turning to this sector
Apple/Research in Motion - they make stuff ppl want
Radisys - 2 straight quarter of solid results and no huge move in the stock...only time they will figure it out
Give consideration at 52 week lows!
The Trend is your friend:
SSG - This ETF shorts the semiconductor sector. A great hedge as we expose ourselves to the sectors like technology, but if the market continues to go down we have a friend. Look at $140
S&P Financials - Is this too beaten down, maybe not because the TARP money will not be used to bail buy bad assets which means they will need to be written off. So short this sector!
Retailers - Short retailers, simply no one has any money to buy a damn thing! Even luxury retailers Saks, Coach are claiming they have to give discounts to lure "affluent" customers...I guess the trickle down effect doesn't work in this market
STAY TUNED! More to come
Now my orginal story is trapped on another computer but here is the direction I was going while I was putting that together, what do we do from here. Here are snippets of what I am thinking and I will include my pre-written thoughts a few days from now:
Access Current Economic Environment: I have to admit that I am early or wrong in thinking that the recent economic declines would begin to push demand for regular goods high (i.e., inflation) while the government prints money uncontrollably. Well we have seen that the economic indicators are far worse and that is leading to a rapid decline in every good across the board which is more like deflationary pressures on our economy.
What Solves The Situation: One thing the market is looking for is clarity about what the future will look like and they haven't been able to get that from the Lame Duck President George Bush. I think Obama's team has taken a delicate but decisive approach and released 3 straight days of news that is addressed directly at the economy...something I would expect from our current President. And notice what the results have been, a strong response from the markets even with more bad news coming out. That is a very solid sign when bad news is coming out but the markets are "shrugging them off".
What am I going to do: I am taking an aggresive approach and dividing my world into 2 segments. My retirment world and my investing world is what I call them and here is the part that you are most concerned with. In my retirement world, I have sat on the sidelines with no cash investment in stocks for the last few months because of the uncertainty out there. I believe we may have taken the right approach as the markets have gone down further and tests lows not seen since roughly 2001-02. But the market has been bounced off of these levels and in my opionion I may shift back into the markets if and when we near those levels again.
In my investing world I am searching for the worst of the worst and trying to find opportunities for long term and short term investments. For instance I like the stocks that will benefit from the roughly 1 trillion dollars that we are currently throwing at the markets. So I am weeding through the financial sector, beaten down stocks, and then I am going to the other side of the spectrum and looking for those least affected by all of this.
Financial:
How about looking at Citigroup (C), at this point they appeared to be dying like a patient with a bad heart but they have been give recesitation by the government. This means dying is not a option and I would buy on any dips in this stock...of course I have a thing for 52 week lows, which means below $4!
Also, how about Discover Financial (DFS), who is stuck in the middle of all this credit crunch. They are exposed to credit consumers as they hold consumer debt, but have a transaction processing network and stand to gain from the legal battles with Visa and Mastercard. With recent run-un, I would again wait until this drops below it 52 week low and begin forming a base at around $6.50.
Limited exposure to credit consumers: There are transaction processors that are indirectly affected by the credit crunch but this group is not directly affected. The likes of Visa, Mastercard, and others may be interesting plays. Again I would take an agressive approach and buy at 52 week lows which is $43 and $113 respectively.
Just simply beaten down:
Sirius - this is trading @ 14c, can it go any lower
Jeffries - an investment bank still standing
Big Lots - discount retailer, and logic says consumers may start turning to this sector
Apple/Research in Motion - they make stuff ppl want
Radisys - 2 straight quarter of solid results and no huge move in the stock...only time they will figure it out
Give consideration at 52 week lows!
The Trend is your friend:
SSG - This ETF shorts the semiconductor sector. A great hedge as we expose ourselves to the sectors like technology, but if the market continues to go down we have a friend. Look at $140
S&P Financials - Is this too beaten down, maybe not because the TARP money will not be used to bail buy bad assets which means they will need to be written off. So short this sector!
Retailers - Short retailers, simply no one has any money to buy a damn thing! Even luxury retailers Saks, Coach are claiming they have to give discounts to lure "affluent" customers...I guess the trickle down effect doesn't work in this market
STAY TUNED! More to come
Wednesday, November 19, 2008
Bonds May Be Safe Alternative
Write now I stand by my earlier posts and believe bonds may be the best short term alternative. This markets is wilder than a rollercoaster going up 5% one day and down 7% the next. Further proof that people may follow our direction and head to safer ground was found is this article here posted by CNN:
http://money.cnn.com/2008/11/19/markets/bondcenter/credit_market/index.htm?postversion=2008111917
http://money.cnn.com/2008/11/19/markets/bondcenter/credit_market/index.htm?postversion=2008111917
Thursday, November 13, 2008
Bailout / TARP Abandoned
Here goes another I told you so. The bailout money allocated to buy distressed assets was abandoned by the Treasury Department. I wrote here early, that this program was flawed for so many reasons. The biggest reason: "There was no way they could value the bad assets, manage them, or dispose of the assets correctly!!!"
Fundamentally I agree with the fact that a bailout is needed but I have noted that the government needs to address both the supply and demand side of our economy. On the Supply side, I don't mind the Treasury department injecting cash into banks but I do think that one of the strange things is that but private investors like Warren Buffet are brokering better deals then the GOVERNMENT is. Part of the problem is no oversight or poor oversight because these banks are not lending to the public! This would begin to address the demand side, however the banks are getting the cheapest money ever made available and using it to MAKE INVESTMENTS like buying other banks...SEE PNC Bank's acquisition of National City.
What the Government Should Require:
- All common stock dividends should be taken away
- Force banks to lend to consumer
- Punitive terms of the banks (firing managers)
- Goverment must get Main Street bank on their feet through mortgage adjustments, incentives for homebuyers to acquire homes, addressing unemployment, and some sort of stimulus (tax cuts/credits)
Where do we go from here:
The markets will continue to trend lower for remain in a trading pattern. When I first spoke of actions to take to address the direction of the markets I recommended most folks get a majority of their money out of the market and into bonds. Then the Dow Jones Industrial Average (basket of the 30 large stocks representing the US economy) was trading around 9000 and my guess was that we would head lower and test recession like lows. The last time we could compare lows like this was in roughly 2002-2003 when the market hit lows of roughly 7700 (I believe). My assumption is that this will be the prudent time to begin to reallocate your portfolio back into the market. Again that is an assumption because I don't really think that this last time can be effectively compared to now. We are facing a local recession, rising probability of a global recession (in most areas except for China), and if these conditions exist we could be facing a depression due to deflationary pressure. This could be the one area that I initially got wrong...I thought we would be facing inflationary pressures or rising costs but that appears to be far down the line. Right now deflation is running wild and that is evident is the sharp decline of prices across the board. Gas is down from $4.00 to now roughly $2.00 and everything is falling with it, stocks included. If this trend continues deflation could lead to an extended recession and Dow 7700 may not even be a legitimate floor for the market.
Fundamentally I agree with the fact that a bailout is needed but I have noted that the government needs to address both the supply and demand side of our economy. On the Supply side, I don't mind the Treasury department injecting cash into banks but I do think that one of the strange things is that but private investors like Warren Buffet are brokering better deals then the GOVERNMENT is. Part of the problem is no oversight or poor oversight because these banks are not lending to the public! This would begin to address the demand side, however the banks are getting the cheapest money ever made available and using it to MAKE INVESTMENTS like buying other banks...SEE PNC Bank's acquisition of National City.
What the Government Should Require:
- All common stock dividends should be taken away
- Force banks to lend to consumer
- Punitive terms of the banks (firing managers)
- Goverment must get Main Street bank on their feet through mortgage adjustments, incentives for homebuyers to acquire homes, addressing unemployment, and some sort of stimulus (tax cuts/credits)
Where do we go from here:
The markets will continue to trend lower for remain in a trading pattern. When I first spoke of actions to take to address the direction of the markets I recommended most folks get a majority of their money out of the market and into bonds. Then the Dow Jones Industrial Average (basket of the 30 large stocks representing the US economy) was trading around 9000 and my guess was that we would head lower and test recession like lows. The last time we could compare lows like this was in roughly 2002-2003 when the market hit lows of roughly 7700 (I believe). My assumption is that this will be the prudent time to begin to reallocate your portfolio back into the market. Again that is an assumption because I don't really think that this last time can be effectively compared to now. We are facing a local recession, rising probability of a global recession (in most areas except for China), and if these conditions exist we could be facing a depression due to deflationary pressure. This could be the one area that I initially got wrong...I thought we would be facing inflationary pressures or rising costs but that appears to be far down the line. Right now deflation is running wild and that is evident is the sharp decline of prices across the board. Gas is down from $4.00 to now roughly $2.00 and everything is falling with it, stocks included. If this trend continues deflation could lead to an extended recession and Dow 7700 may not even be a legitimate floor for the market.
Saturday, October 18, 2008
Cash Is King...
I know people always ask the question what are you doing right now?!? And that is a difficult question because many of us out there are so confused. So I always tell everyone to remember one of the most important rules that we have here at Urbanomics and that is "keep your ear to da streets". Read, read, and when you're tired read some more. Find out what smart people with big money are doing. For example, let's take our friends over in the hedge fund industry who many wonder what they are doing with their cash during these tumultuous times. I began to do my research looking to hear how these kings of cash are managing their money. Thanks to the Wall Street Journal we got an insight into the management of 3 of the industries best, Steven Cohen, Israel Englander and John Paulson. The reason why we are off on this search is to either confirm my initial sprint to cash and short term bonds or to rethink where I may have gone wrong.
To make a long story short, The Wall Street Journal reported the hedge fund managers have come to a similar conclusion we made here and Urbanomics by deciding to take a TV timeout and MOVE their funds to "money-market funds and other short-term securities". There recent reallocation is summed up here in the following points:
Everyone should tread very carefully and wait for extreme undersold levels in some of the best companies in their industries or stocks trading at irrational levels. I often like to analyze historical price patterns to determine where support levels exist. A few names that have come to mind at this point are:
National City (NCC) - After reviewing the historical price and charts, I loved this stock at $1.25 and 1.75 with the first target being the 52 week low. Three weeks ago I picked up NCC when it approached the 1.75 and from that point on it has been a thing of beauty. I sold a majority of my stake when it crossed $3 and the rest last week after the announcement of the merger with PNC Bank.
Visa (V) and Mastercard (MA) - Now you may question why I would mention these names when I took a moment in previous posting to blast Capital One (COF). Well V and MA are a little different in they just process transactions and have limited exposure to the credit risks of having actual bank customers. They may and are projecting a decrease in the number of transactions they will process but the trends are in their favor. We live in a world that is moving away from cash and onto plastic. And what's even more dynamic is they continue to see a dramatic increase in debit transactions. These transactions are essentially cash like transactions because the customer swipes their debit card, which takes money out of their bank account, to pay for goods.
I have seen support at the price level of 47 for V, but the initial public offering (IPO) price of around 44 would allow you to own this stock as if you were an initial owner a year ago!!!
MA is a little more difficult and looking at charts, I would expect to see support at the price level 145.
Discover Financial (DFS) should also benefit from its ownership of the PULSE network which handles debit card transactions, however like other pure credit card companies like COF a slowdown in the economy will like affect this industry. DFS also see brighter days after the recent settlement with V and MA for antitrust practices. I would expect to see initial support and levels near the 52 week low of 7.50.
Disclosure: I own or am actively looking to add shares of the firms mentioned above at the recommended price points. As noted above, NCC has been sold last week.
To make a long story short, The Wall Street Journal reported the hedge fund managers have come to a similar conclusion we made here and Urbanomics by deciding to take a TV timeout and MOVE their funds to "money-market funds and other short-term securities". There recent reallocation is summed up here in the following points:
- Steve Cohen’s SAC Capital Advisors will leave 1/2 of their $14 billion money markets until year-end.
- John Paulson's Paulson & Company’s is moving a large chunk of their $35 billion into cash.
Everyone should tread very carefully and wait for extreme undersold levels in some of the best companies in their industries or stocks trading at irrational levels. I often like to analyze historical price patterns to determine where support levels exist. A few names that have come to mind at this point are:
National City (NCC) - After reviewing the historical price and charts, I loved this stock at $1.25 and 1.75 with the first target being the 52 week low. Three weeks ago I picked up NCC when it approached the 1.75 and from that point on it has been a thing of beauty. I sold a majority of my stake when it crossed $3 and the rest last week after the announcement of the merger with PNC Bank.
Visa (V) and Mastercard (MA) - Now you may question why I would mention these names when I took a moment in previous posting to blast Capital One (COF). Well V and MA are a little different in they just process transactions and have limited exposure to the credit risks of having actual bank customers. They may and are projecting a decrease in the number of transactions they will process but the trends are in their favor. We live in a world that is moving away from cash and onto plastic. And what's even more dynamic is they continue to see a dramatic increase in debit transactions. These transactions are essentially cash like transactions because the customer swipes their debit card, which takes money out of their bank account, to pay for goods.
I have seen support at the price level of 47 for V, but the initial public offering (IPO) price of around 44 would allow you to own this stock as if you were an initial owner a year ago!!!
MA is a little more difficult and looking at charts, I would expect to see support at the price level 145.
Discover Financial (DFS) should also benefit from its ownership of the PULSE network which handles debit card transactions, however like other pure credit card companies like COF a slowdown in the economy will like affect this industry. DFS also see brighter days after the recent settlement with V and MA for antitrust practices. I would expect to see initial support and levels near the 52 week low of 7.50.
Disclosure: I own or am actively looking to add shares of the firms mentioned above at the recommended price points. As noted above, NCC has been sold last week.
Thursday, October 16, 2008
What's In Your Wallet...
Its for damn sure not a Capital One credit card and I can tell you that. Now I have nothing against Cap One but they may be cutting back on their crazy commercials pretty soon. The reason why is because I have been posting for awhile now that our economy is showing signs of the dreaded "R" word recession. Yup, I am proud of myself today as I used the "search" feature on the site to determine when was the first time I began identifying a spiraling trend of distress for the average American and found out that my postings almost bring us back to exactly a year ago!!! Check it out: http://urbanomics.blogspot.com/2007/10/welcome-to-good-life.html
Notice, a year ago I began mentioning the developments of financial institutions currently plummeting or no longer in existence as a public companies.
And for you lazy folks, here is a quick excerpt from OCTOBER 24, 2007:
Let's see, we have major financial companies, Bank of America, Merrill Lynch, Citigroup, and Wachovia Bank all getting hammered by the weakness in the credit markets and the mainly through the bad investments that were made. Add to that the mortgage crisis in the US which has led to homeowners everywhere defaulting on their homes. All the companies in these areas, which were once living the "Good Life" are singing the blues and laying people off. Then there is that pesky thing called energy...it currently sits at levels that are unthinkable. Oil is reaching levels of roughly 90 dollars a barrel and predicted to continue to rise. Now maybe I am too young to really know what I'm talking about but there has been the "R" word thrown out by some analysts and that would be RECESSION and from what I am seeing in the markets I don't think that some of the whispers are too far off.I am no mathematician but poor financial markets + bad consumer debt + rising foreclosures + declining property values + layoffs = something is wrong (possibly RECESSION). I am not comfortable with the volatility in the market because as companies are beating earnings or being upgraded they go up and then immediately the market brings them right back down due to all the negative news.
Now you see why I say if I am able to logically come to this conclusion over roughly a year ago where were the geniuses in the Federal Government who are supposed to put policies in place to navigate us through these difficult times! Good question, but we really want to know where do we go from here and the likely answer is probably down or sideways. I haven't put that much thought into it but logic now tells you that the perfect storm has been created. All forms of creating wealth have been completely taken to the woods and shot and now there is not much left to do but clean up the mess. This is what I mean, some may argue there are three main avenues for wealth creation in the United States: Real Estate, Investments, Entrepreneurship. These three avenues have been taken out in the following order:
Real Estate - The first area to get hit and many felt the pain from real estate brokers to new homeowners. The worst may not be behind us unless something to do something to stabilize foreclosures. This decline in real estate lead to the decline in Investments.
Investments - The crumbling real estate market blazed a path of destruction that has hit the stock market with breathtaking speed. Banks, investment banks, insurance companies and other institutions have been impaired. This is leading to the decline of the American economy and entrepreneurship.
Entrepreneurship - The impact of the real estate market and now the stock market is leading to layoffs and a slowing down of the economy. There are less investments to start businesses and every day workers like you and me are cutting back on our spending. This will now impact businesses and franchisees across the country. The next decline in my mind will be Retailers, Consumer Services, Restaurants, and Travel and Leisure sectors. I say this from experience as I am not eager to travel, cut back on my credit card spending, limited eating out, and even if my clothes don't fit they will have to be good enough for now.
This means that the pain in the stock market, your 401K portfolio is not over. We will now see companies start to feel the effects in these sectors:
Credit Cards - Capital One
Retailers - Saks, Nordstrom
Restaurants - Brinkers International
Travel and Leisure - Hotels, Airlines
Short these sectors as the recession will now enter a downturn.
Notice, a year ago I began mentioning the developments of financial institutions currently plummeting or no longer in existence as a public companies.
And for you lazy folks, here is a quick excerpt from OCTOBER 24, 2007:
Let's see, we have major financial companies, Bank of America, Merrill Lynch, Citigroup, and Wachovia Bank all getting hammered by the weakness in the credit markets and the mainly through the bad investments that were made. Add to that the mortgage crisis in the US which has led to homeowners everywhere defaulting on their homes. All the companies in these areas, which were once living the "Good Life" are singing the blues and laying people off. Then there is that pesky thing called energy...it currently sits at levels that are unthinkable. Oil is reaching levels of roughly 90 dollars a barrel and predicted to continue to rise. Now maybe I am too young to really know what I'm talking about but there has been the "R" word thrown out by some analysts and that would be RECESSION and from what I am seeing in the markets I don't think that some of the whispers are too far off.I am no mathematician but poor financial markets + bad consumer debt + rising foreclosures + declining property values + layoffs = something is wrong (possibly RECESSION). I am not comfortable with the volatility in the market because as companies are beating earnings or being upgraded they go up and then immediately the market brings them right back down due to all the negative news.
Now you see why I say if I am able to logically come to this conclusion over roughly a year ago where were the geniuses in the Federal Government who are supposed to put policies in place to navigate us through these difficult times! Good question, but we really want to know where do we go from here and the likely answer is probably down or sideways. I haven't put that much thought into it but logic now tells you that the perfect storm has been created. All forms of creating wealth have been completely taken to the woods and shot and now there is not much left to do but clean up the mess. This is what I mean, some may argue there are three main avenues for wealth creation in the United States: Real Estate, Investments, Entrepreneurship. These three avenues have been taken out in the following order:
Real Estate - The first area to get hit and many felt the pain from real estate brokers to new homeowners. The worst may not be behind us unless something to do something to stabilize foreclosures. This decline in real estate lead to the decline in Investments.
Investments - The crumbling real estate market blazed a path of destruction that has hit the stock market with breathtaking speed. Banks, investment banks, insurance companies and other institutions have been impaired. This is leading to the decline of the American economy and entrepreneurship.
Entrepreneurship - The impact of the real estate market and now the stock market is leading to layoffs and a slowing down of the economy. There are less investments to start businesses and every day workers like you and me are cutting back on our spending. This will now impact businesses and franchisees across the country. The next decline in my mind will be Retailers, Consumer Services, Restaurants, and Travel and Leisure sectors. I say this from experience as I am not eager to travel, cut back on my credit card spending, limited eating out, and even if my clothes don't fit they will have to be good enough for now.
This means that the pain in the stock market, your 401K portfolio is not over. We will now see companies start to feel the effects in these sectors:
Credit Cards - Capital One
Retailers - Saks, Nordstrom
Restaurants - Brinkers International
Travel and Leisure - Hotels, Airlines
Short these sectors as the recession will now enter a downturn.
Subscribe to:
Posts (Atom)