Coastal Damage Rhode Island

This link will take you to flikr pictures of the damage along coastal Rhode Island.  Remember Rhode Island was nowhere near where the storm made landfall.

Server Issues.

I'm sending this via my phone.  I'm unable to post on my regular site due to server issues related to the storm.

Will post my thoughts later today or tomorrow.

Sandy From A Distance.

"Chicago's Office of Emergency Management and Communication is warning that winds up to 60 mph could send waves as high as 25 feet crashing along the shoreline," reports the Chicago Tribune.  Sandy's damage is being felt far and wide.  Still the initial reports seem to indicate the damage and loss of life is not as extensive as experts predicted.  I know that the  Rhode Island Branch office of Lumen Capital Management {AKA Summer retreat for the English family-thats for newbies here} lost a few trees and that's about it.  However, Narragansett is quite a ways from the epicenter of the storm which was centered down in New Jersey.

While we can perhaps breath a sigh of relief that things did not hit that worst case scenario, this may be a bit like saying the London Blitz during World War II wasn't so bad if you lived far enough away from the bombings.  We'll have to see in the next few days.  I remember that the initial assessments of Katrina were more upbeat before news of the events in the Superdome, in New Orlean's lower 9th Ward and the breaching of the levees were understood.

Major exchanges are planning to open tomorrow.  I will be back in the morning with a more thorough assessment of where things stand as information comes out.

Noli Me Tangere! Some Still Stand Watch!

This picture of 3d U.S. Infantry Regiment {The Old Guard} is for all of those who will stand watch today and throughout the night both here and abroad.

Spc. Brett Hyde, Tomb Sentinel, 3d U.S. Infantry Regiment (The Old Guard), maintains his vigil during Hurricane Sandy while guarding the Tomb of the Unknown Soldier at Arlington National Cemetery, Va., Oct., 29, 2012. In 1948 the Old Guard assumed the post following the unit’s reactivation in the nation’s capital. (U.S. Army Photo by Sgt. Jose A. Torres Jr.) Digital

This picture is from today and can be found at the Facebook page for The Old Guard.  

Hurricane Sandy and a Blast from the Past.

"Long Island and New England had been lashed by rain for four straight days. The air was unnaturally warm & muggy. Ears felt queer because atmospheric pressure was decreasing. In Vermont people noticed the smell of the seashore in the air"......The storm happened quickly. People on the southshore of Long Island saw what one of them described as a 'thick and high bank of fog rolling in fast from the ocean...When it came closer we saw that it wasn't fog. It was water. '....The storm surge stuck Long Island around 2:30 PM (near high tide) on September 21st 1938. So mighty was the power of that first storm wave that its impact registered on a seismograph in Sitka, Alaska, while the spray carried northward at well over a hundred miles an hour whitened windows in Montpelier, Vermont."*   

Back in 2006 I wrote a post about the New England Hurricane of 1938, dubbed later as the "Long Island Express".   I noted back then, "to grasp the energy of these storms remember that  a category 1 hurricane-one with winds blowing in excess of 75 m.p.h. is as powerful as 500 Nagasaki-type atomic bombs and contains more electricity than the entire United States uses in six months."  

Hurricane Sandy is a category 1 storm but her energy levels as she collides with a cold front coming out of the Midwest makes her an exceptionally powerful and dangerous storm.  All stock exchanges are closed today and tomorrow.  It is impossible to say at this juncture what kind of economic and personal damage Sandy will bring to the eastern seaboard.  Right now we are seeing rainfall projections of biblical proportions.  Flooding from both rain and from the storm surge will be extensive.  Sandy is also making landfall at astronomical high tide which will compound the misery.  Power in the direct path of the storm is expected to be lost from three to seven days.  

Sandy is an unmanageable portfolio event in the fact that she could not have been anticipated until the very end of last week and the investment community did not fully understand her implications until the weekend began.  Futures were down about 1% today, although as mentioned earlier stocks did not trade.  We will have to see how this sorts out in the next several days and of course our thoughts are with all of those in harms way.  Back when we know something more concrete.  Here  is a link to the original post I referred to at the beginning of this article.  For those interested if you actually go to the link, the hurricane barrier in Providence, RI is closed.   

*Paraphrased from The Glory & the Dream, William Manchester, Bantam Books, 1973. pp 183-186.

Short Term Oversold

Markets may be in for some sort of bounce in the next few days based on this data from Bespoke Investment Group. The data set is a day old but no less relevant after yesterday.   According to Bespoke:

"For each sector, the dot represents where it is currently trading within its range, while the tail represents where it was trading one week ago.  The green shading represents oversold territory (more than 1 standard deviations below its 50-day moving average), while the red shading represents overbought territory.

As shown, the S&P 500 and two sectors -- Consumer Staples and Industrials -- have moved from overbought to oversold in just five trading days.  Consumer Staples has had the biggest negative swing, as it is now more than two standard deviations below its 50-day.  Technology and Telecom are the other two sectors that are oversold.  

While five sectors were overbought last week at this time, no sectors remain overbought after today's big market decline.  Just three sectors remain above their 50-day moving averages -- Health Care, Utilities and (surprisingly) Financials."

*Long ETFs related to the S&P 500 in client and personal accounts.  In addition we own various sector ETFs listed above in both client and personal accounts.

Finally a note on posting.  I'm still trying to work the kinks out of my new system which has been giving me fits over the last month and has reached a breaking point this week.  While I'm able to put something like this up today, its taking me 3x the amount of time and effort as in the past.  Frankly I don't have that kind of time.  I have somebody coming in here tomorrow that is hopefully going to set everything up in a way that works and in a way that I can understand.  I will post tomorrow if able but should be back in the saddle next week.

Technical Difficulties

Greetings from the world of new technology.  In the past few months I have been going through a series of upgrades to our equipment which will be a great benefit to both the firm and my clients going forward.

Right now it's a pain in the a**.  Especially since I can't seem to post much of anything to the blog.  Hopefully I'm going to have some time today {markets have been keeping me busy these past few days} to figure this out.....

Back when it's fixed!

{Sent from my iPhone}

an tSionna {10.18.12}

From chart of the day.com:  Below is their commentary regarding this long term view.

"For some perspective on the latest stock market action, today's chart presents the trend of the S&P 500 so far this millennium. As today's chart illustrates, stock market action since 2000 has been extremely volatile with two massive bear markets each being followed by a strong recovery rally. It is interesting to note that both of these bear market rallies are somewhat similar in form (i.e. strong first-year rally followed by a more moderate rally in succeeding years). As for the current state of the market, the S&P 500 continues to trade within the confines of its three-year uptrend but is currently testing resistance."

*Long ETFs related to the S&P 500 in client and personal accounts.

Note I will be traveling on Monday so the next post here will be on Tuesday.

What IF The Economy Is Doing Better Than We Think?

One of the things you are going to here me discuss in more detail going forward is that I think that a big issue flying under the radar is that the economy, that real land somewhere out beyond the horizon where people actually make things, is doing better perhaps than the national press and most of the rest of us think.  This post from businessinsider.com paints a picture of employment and consumer spending that is more positive than what you'll see in the national press or popular imagination.

These charts in the link above paint a picture of an economy that is bubbling under the surface and could be ready for much stronger upside growth than most are currently looking for.  This is important because if the economy expands at a much faster rate than current economic estimates, then an argument can be made that forward estimates for companies next year are too low.  If that is the case than stocks are much cheaper than we think right now.  Now let's say right up front that I don't know that in regard to earnings that this is correct quite yet.  I do know that so far as we look at earnings season, stocks in aggregate are issuing better quarterly numbers than most were looking for over the past few months.

Now I know this is a variant view and I know the pushback is going to be this.  "Just look at the economy in ________."  {You fill in the blank, maybe your hometown, someplace nearby or someplace you've either read about or seen on TV}.  I know there are parts of the country where there is still a depression going on.  I know that the difference in employment is staggering between those without college degrees and those who do.  I also know that the damage done by the Great Recession {I'm going to use this as a title now as that seems to be the name settling in on what to call the last half decade or so.}is lasting and the scars are  likely to be with us for a generation.  But I also know that auto related jobs in Northern Ohio are booming.  I know that energy jobs in the plains states and in the midwest are booming.  I know that housing is beginning to make a recovery.  Finally I know that there are new technologies and industries that are just beginning to be felt in the economy at large.  All of these paint a picture of an economy that may have previously been on the mend in fits and starts but may be finally starting to find its legs.  If I'm right then this has very positive implications for investors in the next few years.

Finally if I'm right then this has large political implications.  It is probably happening too late to be much of a factor in this election cycle.  But whoever becomes President next month will be the beneficiary of this economic tailwind if it occurs.  It would be especially ironic if Gov. Romney wins and it turns out to be that the policies put in place by his predecessor allow him to take credit for economic growth whose birth he had little to do with and whose policies he did not agree with!

Stay tuned!

The Presidential Race {So Far}

We are three debates down and about three weeks away from the election.  Here are my random thoughts.

1.  Debates still advantage Gov. Romney.  The Governor pulled himself back in the race a few weeks ago with his performance against the President.  Last night was somewhere between a draw to a slight win for the President but Romney did nothing in my opinion to hurt his standing among independent voters.  Romney reintroduced himself to the public with his performance in the first debate and earned the right to continue as a serious contender after last night.  That is nobody scored a knockout blow with their performance.  The President came to play last night though and that likely staunched the bleeding on his end.

2.  The race is tight.  Two areas of concern for the President should be that conventional wisdom holds that undecided voters at this late date tend to break towards the challenger and the huge swing in the polls after the first debate away from the President and towards the Gov. Romney indicate that the President has very soft support amongst a sizable portion of his supporters.  Besides the obvious advantages that the office confers, the President has more ways to win via the Electoral College then Gov. Romney.

3.  It is likely that the race will be decided in a handful of states.  Ohio, Iowa, Florida and Wisconsin are my top picks to decide the whole thing.  If it comes down to who wins Ohio then I think the President will win.  However, it's tight so anything could happen.

4.  Whoever wins is likely to benefit from an improving economy but unlikely to be able to claim any sweeping mandate.  If the President wins I think he is so politically wounded that he is a lame duck the day after his inauguration.  Romney will face at least one  branch of the Congress, likely the Senate, not controlled by the GOP.  The winner either way is going to have to compromise if we are to avoid the "fiscal cliff" set to kick in at the end of the year.

5.  I think the market at these levels discounts that the President wins.  Market has the potential to rally if Romney wins.  The scenario that I believe is not factored in is if either candidate fails to reach the required 270 electoral votes.  This would result in uncertainty which markets hate.  In 2000 when this occurred the market fell about 10% and I think this is a real possibility if we wake up on November 7th and don't have a reasonable idea of who won.  We don't necessarily have to know the day after the election, but the longer doubt over who won continues, the less markets will like it.  For what it's worth an election that makes it to the House of Representatives likely results in a Romney victory.  See CNN here.

12 Rules of Investing {Barry Ritholtz}

1. Cut your losers short, and let your winners run.

2. Avoid predictions and forecasts

3. Understand crowd behavior.

4. Think like a contrarian.

5. Asset allocation is crucial.

6. Decide if you are an active or passive investor.

7. Understand your own psychological make up.

8. Admit when you are wrong.

9. Understand the cycles of the financial world.

10. Be intellectually curious.

11. Reduce investing friction.

12. There is no free lunch.

Link :  Washington Post via Pragmatic Capitalism

an tSionna {Market Volatility}

Market chart from JP Morgan Funds via "The Big Picture" blog showing market returns and largest draw downs or intra-year declines going back to 1980.  Notice that the draw downs or volatility has increased significantly during this decade.  One of the reasons we study money flows is to try to mitigate this effect by raising cash when stocks become over bought.  Pretty sure that the rise in this volatility has to do with the witch's mix of hyper-programed trading, decimalization of stock prices and today's shoot first ask questions later trading mentality.  Oh and a pretty rotten decade for stocks hasn't helped matters much either.

*Long ETFs related to the S&P 500 in client and personal accounts.

A scheduling note.  I am traveling tomorrow and Monday I will be with clients so there will be no posting until Tuesday of next week unless events warrant an update.

Washington Post: A Close Up Look At Congressional Wealth

In depth study by the Washington Post on Congressional net worth links here.   Regardless of your political leanings, we all are better served by understanding how those we elect represent us.  In that vein the Post illuminates members of both sides of the aisle in regards to their familial net worth.  It is interesting to me to note that in the upper echelons of the "net worthosphere", Democrats and Republicans seem to me to be equally represented.  

This is how the Post represents their findings:

"A Washington Post analysis of the personal finances of all 535 members of Congress reveals how the nation’s lawmakers position their portfolios and how they win and lose money on Wall Street. Some invest aggressively in the stock market; others seek the shelter of bonds and mutual funds. They range from the super-rich to the deep-in-debt, from inherited wealth to married wealth to no wealth at all. They are entrepreneurs and farmers, oilmen and ranchers, lawyers and real estate developers. Explore this first-of-its-kind analysis and see where your lawmakers fit in:"  

Here are some of the highlights according to the Post from prominent politicians of both parties {Those we see often on television talk shows} and those that represent us here in Illinois.  Net worth figures as noted by the post are as of 2010.  The highlights are made without political comment or reference to party except for noting that Paul Ryan is the current Republican candidate for Vice-President.   For the record this article seems to only cover the Legislative Branch of our government.  It did not cover the same statistics for the President, the Vice-President or Governor Romney. 

Rep.  Danny Davis {My Representative from Illinois}

Estimated Net Worth:  $460,506.   Financial Approach: Spousal Assets

Rep.  Jessie Jackson Jr.  {Illinois Representative on medical leave from Congress}

Estimate Net Worth:  $256,506.  Financial Approach:  Spousal Assets

Senator Dick Durbin {Senator Illinois}  

Estimated Net Worth:  $1.1 million.     Financial Approach:  Real Estate

Rep.  Paul Ryan {Current Republican Vice-Presidential Candidate}
Estimated Net Worth $2.1 million  Financial Approach:  Institutional Investor

Senator Mark Kirk  {Illinois Senator recovering from the consequences of a stroke}  

Estimated Net Worth:  $89,003.  Financial Approach Institutional Investor

Rep. John Boehner {House Majority Leader of the House}

Estimated Net Worth:  $4.1 million.  Financial Approach:  Stock & Bond Investor

Rep. Nancy Pelosi {House Minority Leader}
Estimated Net Worth: $101 million.  Financial Approach:  Spousal Assets

Senator Harry Reid {Senate Majority Leader}
Estimated Net Worth:  $6.8 million.   Financial Approach:  Real Estate

Senator Mitch McConnell {Senate Minority Leader}
Estimated Net Worth:  $27.2 million.  Financial Approach:  Cash

Senator John McCain
Estimated Net Worth:  $16 million.  Financial Approach:  Heavy Trader

Senator John Kerry
Estimated Net Worth:  $231.7 million.  Financial Approach:  Spousal Assets

A final comment.  When it comes to investing I'm pretty apolitical, so don't try to read some hidden agenda into this post.  The Washington Post put out this large interactive piece and I think it behooves us as Americans to understand as much as we can about the people we elect to represent us.  That's it as far as I'm concerned.  End of story.

Third Time's a Charm?

Chart via "The Big Picture" blog and from JP. Morgan Funds showing the compression of the S&P 500's price multiple over the past decade or so.  I know we're  not there yet but we're close enough now to have the discussion on PE {Price to Earnings} multiple compression.  This is the third time we've knocked on new highs over the past dozen or so years. The mid-1500s on the S&P 500 has proved to be a very formidable barrier during this time.  The difference as we approach this level again today versus the past two periods is the market's multiple.  

Back in March of 1999 when stocks first reached these highs, the markets carried a PE multiple over 25 times the S&P 500's earnings.  What's not shown on the chart is the Earnings Yield {again the inverse of the PE} which was around 2.5%!  In 2007 the PE was a bit over 15 times earnings and the earnings yield was about 5%.  In both of these periods interest rates were considerably higher than they are today.  By comparison, today stocks carry a PE a bit under 13 and an earnings yield over 7%. 

As an aside of stocks would carry a PE today similar to where they were back in 2007 then the market would be worth 1550-1575 on 2012 earnings.  You are starting to see S&P 500 earnings estimates now for 2013  from Wall Street analysts.  Right now those fall in a range between $111-114 per share earnings.  I think these are too high and have been using a preliminary earnings range next year between 104-108.  Mid-pointing Wall Street's estimates for stocks next year the market could conceivably carry a price range between 1460-1700.  Using my price range stocks are worth next year 1390-1600.  We'll refine this more at a later date but wanted to throw some preliminary numbers out there for 2013.  Not saying we're going to get there as there's too much time and too many events that need to pass between now and then.  Just throwing out there for the good of the Corp what those numbers could mean.

*Long ETFs related to the S&P 500 in client and personal accounts.

an tSionna: Jobs Data From Last Friday

Data & commentary regarding last Friday's jobs report from Chart of the day.com.

The latest jobs report came out {last Friday} with the Labor Department reporting that nonfarm payrolls (jobs) increased by 114,000 in addition to the unemployment rate dropping to 7.8% for the month of September. Today's chart provides some insight into the current US job market by comparing the percentage change in total nonfarm payrolls (blue line) since the declared end of the Great Recession to the performance of the private sector job market (gold line) and government sector job market (red line) during the same period. As today's chart illustrates, the overall job market (blue line) continues to trend higher albeit at a pace that has slowed over the past several months. Today's chart also illustrates that the government job market trended significantly lower since the first half of 2009 (with the exception of temporary census hiring in mid-2010). This decline was due to federal, state and local governments attempting to realign their budgets following an unexpected decline in revenues (e.g. property taxes, income taxes, etc.) as a result of the historic plunge in housing prices and nonfarm payrolls. Over the past three months, however, the number of government jobs has been on the rise.

My thoughts:  Data is consistent with an economy that is plodding along but has the potential to pick up a bit of steam sometime in 2013 assuming some governmental compromise regarding the so called "fiscal cliff" at the end of the year.


Link:  Chart of the Day: Jobs Data

Smidiríní

It's been awhile since we've run one of these posts.  Here's some of the things I've been reading this week.

Why High Speed Trading Will Never Go Away.  {Zero Hedge}

US as a Debt Addict {Bill Gross, Pimco}

More evidence that hedge funds are lagging benchmarks.  {ETF replay.com}

We showed yesterday a smattering of major national publications first thoughts on Wednesday's debate.  I like Bloomberg news because they tend to be more politcally neutral than most other publications.  See this article about Wednesday's debate:  What Romney's Debate Victory Means.

We are 'evolving' the military to be a human force that performs civil-military relations and infrastructure work with a smaller 'killer elite' group of spec-ops, intelligence, and drone units that operate in the dark without the knowledge, let alone supervision, of the civilian society that's supposed to control them. We know less and less about what our military is doing, but the really troubling part is that we like it that way.   

Quote from over at Rick's Foreign Policy.com

Scoop on today's jobs data.  Revisions Help Blow Jobs Number Away  {Business Insider.com}

Finally a note.  I try to highlight and color code when I link posts.  For whatever reason when I write on my iMac, sometimes the program will let me do this and at other times it won't.  Not sure if that is an issue with the computer or the blog itself.  At any rate I have another windows based system coming in sometime in the next few weeks and I'm going to see if some of these things can be taken care of better on that system.  Until then I apologize for the optics on how this looks sometimes.

The Debate

Consensus is that Governor Romney clocked the President last night.  We'll have to see what the polls show in the battleground states.  Here's what the New York Times thinks.  Here's the opinion of Dan Henninger over at Wall Street Journal.  The opinion makers over at the  Washington Post are all over the map but the census is that Governor Romney helped himself.  Finally since these are the President's hometown newspapers, here's the main editorials regarding the debate from the Chicago Tribune and the Chicago Sun Times.  The "Trib" scores it for Romney, Sun Times is more even in who won.

Regarding the markets, the consensus seems to be that an Obama victory is already priced into stocks and that the thoughts of a Romney win could bolster the market.  That may be the case.  I'll throw out something else.  Markets like certainty.  It is entirely possible if the election becomes more of a toss-up in the eyes of investors that stocks could experience a period of turbulence.  Don't know that will be the case but we have to be prepared for it.  

The worst case scenario in my opinion would be an undecided election that lingers like that in 2000.  Stocks would not like that one bit.

Money Flows & Bond Funds

Much buzz around the blogosphere the past few days about this news out of Reuters:

Bond and money market assets at Boston-based Fidelity now total $848.9 billion, more than half of the company’s $1.6 trillion in managed assets. Ford O’Neil, a top bond manager at Fidelity, underscored the milestone on Wednesday during a media presentation in Boston.

The rise of bond and money market funds, including institutional assets, is a remarkable turn of events for Fidelity. The company built an empire in the 1980s and 1990s on stock funds and star stock pickers like Peter Lynch. Fidelity’s stock mutual funds held $761 billion at the end of June.

One blogger goes so far as to call this the single most bullish data point since the beginning of the Iraq War.   The chart above from JP Morgan Funds via "The Big Picture" blog  the public's disgust with stocks.  

Me?  I'm not so sure about what this means.  We've discussed in the past here ,  here,  and  here.  I'd like to think that at some point all of this money is going to come rushing back into the markets.  Certainly in time I believe some of it will.  Whether that will be from lower market levels or from levels appreciably higher is anybody's guess.  Here's what I think is holding investors back.

1.  Fear of markets, distrust of Wall Street.  This has been covered in many other spots so I'll leave it stand for what it everybody has heard over the past few years.  

2.  Paying down debt/ future obligations.  Given the uncertainties of stocks in the past 10 years investors  have made the choice to pay down debt obligations and to simply hold monies for large future purchases {college} in cash.  It makes sense from this perspective to pay down high interest level credit card debt, refinance a mortgage or pay off a car when you're unsure of what kind of return you can get in stocks.  In re large purchase items like college.  Too many people have been burned the past 10 years in say college savings accounts that have lost 20% just when they needed the cash.  That money may not be earning much but people know what it will be worth when they need it.

3.  Retirement homes.  Something nobody ever talks about and I can't prove it is so far a competition for cash dollars but say today you're 55-60 and you know that somewhere in the next ten years you're going to retire.  You also know that places you might like to go {Florida, Arizona etc} have experienced a massive decline in housing prices.  You might decide that a retirement home/ 2nd home is a better place for your money than the stock market, especially at today's still discounted prices.  The home may not appreciate much in value but it's probably not going to go away unless there's a hurricane.  You also get the advantage of using the property or maybe even renting it out.  Not sure that's a huge competitor for market dollars yet but it wouldn't surprise me if somebody discovers someday that it is.

By the way the piece I penned here back on August 19, 2010 I stated that I thought stocks would outperform bonds over the next 1, 3, 5 and 10 years.  So far that call is proving prescient.  While bonds have experienced a pretty decent rally of anywhere between 14-18% {depending on what index you look at and the time frame you use}, US stock indices are up somewhere between 35 and 45% during that time.  The difference is that bonds have gone up in something of a straight line as yields have collapsed during this period as a result of the Federal Reserve's commitment to keep interest rates low. Stocks have gone higher during this period with quite a bit of volatility.  Individuals don't like volatility.

Problems At Mutual Funds.

Adding to the mutual fund industries worries is the increasing arrival of hedge fund managers to their long only turf...

Profit-starved hedge fund managers, best known as masters of the financial universe, are turning to an unlikely place for their next windfall: the unglamorous world of long-only asset management. Amid volatile markets, constraints on the capacity of their main trading strategies and an ever more conservative investor base, some of the industry’s biggest names are focusing on raising money for pared-back versions of their main portfolios, eschewing leverage and short selling in pursuit of assets and stability. Hedge fund managers see big opportunities in bringing their skills – and the higher fees they charge – to an increasingly passive long-only investment world. “There is a trend now to grow [long-only funds run by hedge funds] quite aggressively, the main attractions are that you diversify your fee base and expand your investor universe,” said Daniel Caplan, European head of global prime finance at Deutsche Bank. “In addition, you may not face the same capacity constraints that you do with a hedge fund product.” (FT)

Link:  361 Capital Weekly Reports Via the Reformed Broker Web Site.