Posted on 03/03/2003 11:36:46 PM PST by FairOpinion
The fog of war has enshrouded everyone and everything. But we must soldier ahead. And that means investors, too.
The economy looks good, despite the gloomy forecasts of those who can't see the positive indicators through the fog of pending military action against Iraq. In fact, with the economy so promising and share prices so inviting today, we might be looking at one of the best windows for investing in a very long time.
The latest report on gross domestic product was twice as strong as expected. When you take out the reverse algebra of trade-balance accounting, domestic GDP is up nearly 3 percent. Capital-goods investments by businesses have increased three straight quarters at an average 9 percent gain. Inflation is less than 1.5 percent, a miniscule amount. And both the money supply and commodities -- including aluminum, copper, steel, tin and zinc -- are rising, meaning that some of our cash-strapped businesses are getting back in the money.
Fourth-quarter profits were up 14 percent. Durable goods retailers (automobiles, trucks and office/business equipment) were up 10 percent, the health-care sector was up 18 percent, telecoms were up 16 percent, and airlines were up 39 percent. There is no way we are heading into a double-dip recession.
Is there a temporary oil shock? Yes. But the oil futures curve is inverted, meaning prices are summiting the hill and will soon be headed back down. Oil is now $36.50 a barrel. That price will be $33 in June, $30 in September, $28.60 in December, and all the way down to $23 and change in 2005.
Here's another point on oil: Yes, the recent rise in oil and gasoline and home heating-fuel prices may pinch consumers temporarily. But in constant dollars, today's $36 a barrel oil price would equate to $50 a barrel on the eve of the Persian Gulf War and over $90 in 1980. The current oil shock is actually less shocking when put in perspective.
We learned during the first Gulf War that Wall Street can quickly shake off the fog of uncertainty and turn in an impressive rally. Not only will that rally take place when Saddam and his henchmen are removed from power, but it could be even more impressive than the market spike 12 years ago.
Economic conditions are a lot better today than they were on the eve of the first Gulf War. Real GDP was 1.8 percent then, now it is 2.4 percent. Inflation was 4.3 percent, now it is 1.7 percent. The 10-year Treasury note was 8.5 percent, now it is below 4 percent. And the banking system is much healthier today than it was in 1991.
On the economic-policy front, Washington is currently much more stimulative than it was over a decade ago. Back then, the Federal Reserve was tight with the cash. Now, it is loose. Back then, Papa Bush was suckered into a tax hike. Now, Bush the Younger is cutting taxes everywhere he can.
As the booming '90s came to a screeching halt, we learned that investors cannot always bank on the promise of capital gains -- or shareholder returns based only on rising equity prices. But they can bank on a dividend check from those companies that pay them. The same holds for a corporate-bond coupon check. If stock prices rise and capital gains occur for investors, then all the better. But if the investor dividend tax is abolished in Washington, shareholders will be rewarded with a steady flow of real money from corporate America.
This is why investors should focus on cash-yield plays. It's almost a Dogs of the Dow strategy, centering on dividend yields and corporate-bond coupon yields -- not, however, on Treasury yields. There's been a mini bubble in Treasury prices, and they are way overvalued today.
Last year, the S&P 500 had an earnings per share of $45.80. This year, with 3 percent economic growth and 12 percent corporate profits, earnings per share could be $51.90, a 13 percent gain. With the humongous stock market correction of the past three years, the S&P 500 is now back to its long-run trendline growth of 7 percent per annum since 1969.
Cyclical stocks, big-cap techs, commodities, industrials and consumer discretionary stocks are all ripe for the picking today. And so are corporate bonds with juicy coupons, especially non-callable bonds and even high-yield junk bonds. These are all good plays for investors.
And here's one more comparison with 1991 that should get investors moving: Our high-tech, precision-bomb military capabilities are gargantuanly better today than they were for the first Gulf War. Saddam is history. America knows it, Bush knows it. Saddam may not know it, but he will soon learn it. Investors must believe it, too.
There may be more than a two-week time horizon for investors to get active again. Is it time to buy? Yes. Buy, buy, buy.
Beg pardon, are the ratios reversed? Factoring in inflation translates to a lower price in the past, not a higher price.
Trade index futures. I made 8% on my portfolio today...ONE day. Not unusual...average is 3.5% per day. The bigger the daily range the larger the potential profits.
Best to not make any really serious moves yet. Dibble and dabble. Be careful, very careful. Timing is all, but this market is shot full of holes.
Frankly I believe Warren Buffett is right. There will be Hell to pay, and the BIG investment houses are shaking in their boots.
Have a very good friend worked with me at one of the Big Wall Street firms. He had a heart attack. It resulted in a huge Golden Parachute for him. He is suing them on top of everything, for major bucks. When it is all over he will be worth more than all of his bosses put together. Andhe is still a young man.
All the bosses 401(k)s melted down to ashes and rubble. Thousands of high fliers were forced to quit the biz. How do you make payments on the two million dollar house, small yacht and the fancy cars when you are out of work ?
I have always invested and will continue to do so. Where I have lost, I have made some up in real estate. Investing is long term, not a quick "day trading" adventure for those seeking quick returns in a fundamentally unsound market. The signs were there, but no one wanted to see them. Now everyone pointing fingers, needs to take some resposibility for their own unsound and unsafe trading practices. GREED! So called "investors" able to buy on line, invested foolishly during the dot coms -- a monkey could have invested and made money then. One could buy a stock at $2 on Monday and the following week sell at $22. Then buy it over again at the dip and repeat the process. No one cared what that company made and more often, it had no income; but it was a dot com, so everyone wanted in. The market was moving on speculation, pumps and dumps.
What a few CEO's did should not reflect on others running financially sound corporations. Invest in companies with money in the bank, no debt, a stong P/E. There are plenty of those out there.
You don't buy a stock because some analyst touts a stock on MSNBC. Now analysts must disclose whether they own the stock or not. Before they usually owned what they pimped and sold when you bought. Pick up the book "Trading with the Enemy" and see one of your worst enemies..Creamer who still sits on MSNBC. Read how he manipulated stocks in his funds. He bought on rumor or made the rumor and sold on news or played short. Average investors were taken to the cleaners everytime. What goes up must comes down and usually did.
Some stocks rode the storm. If one had (KKD) Krispy Kremes,for example, they wouldn't be singing the blues. (HOTT) Hot Topics, for example had strong sales before, during this downturn and hopefully may continue to do so. (I don't own either)
The evidence of a dangerous bubble was rampant in everything from lofty valuations and soaring margin debt, to the price of a seat on the New York Stock Exchange and the record number of investment clubs being formed. But no one on Wall Street wanted to rock the boat in 1997-99.(And you wonder why I don't trust Greenspan) No one in control-neither the Federal Reserve or Exchange officials- wanted to take responsibility for ending the party.
Buffet says it best: "If you wait for the bottom, it will be too late." Invest in the future of this country. There will be some new young millionaires out there in 10-20 years, and if you are a wise investor, do your due diligence, spread your investments around, who knows you might be one of them.
God Bless America, Entrepreneurs and Capitalism!
If you plot the US Economy (GDP, whatever) and filter out the noise since WWII it has basically been one upward curve.
9/11/2001 changed that.
Now, if the economy has bottomed out and starts to trend upward again, the terrorists need only release anthrax in Philly, or a dirty nuke in Seattle, and down she goes again.
Thus, for the first time in history, our economy is in the control of terrorists. We know it. They know it.
What is the cause for optimism?...None, AFAIK, until every last terrorist and terrorist-supporting nation are gone.
That will take a while.
--Boris
Buy!! Buy!! Buy!!
FReegards...MUD
Avoiding a 'Mega-Catastrophe'
Derivatives are financial weapons of mass destruction. The dangers are now latent--but they could be lethal.
FORTUNE
Monday, March 3, 2003
By Warren Buffett
http://www.fortune.com/fortune/investing/articles/0,15114,427751,00.html"That dismal fact is testimony to the insanity of the valuations reached during the Great Bubble. Unfortunately, the hangover may prove to be proportional to the binge," he writes.
Buffett puts out two stories at once? One to buy ,buy, buy and the other :"Warren Buffett is poised to issue his most doom-laden forecast for the state of the world economy yet, including a damning verdict on the derivatives industry he fears could cause a global financial crisis-doomsday." I trust Fortune (Monday, March 3, 2003, By Warren Buffett ) and Money. Telegraph(Filed: 04/03/2003) over this Kudlow, whom I pay no attention.
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