There are too many questions and concerns about where the market will be in the next week or the next month. Should we buy into December where we normally expect a rally? Should we sell until Dubai fixes their debt problems? These are not the questions we should be asking ourselves. We should be investors, not traders.
Traders are the smart guys on Wall Street with years of experience and millions of dollars invested in the market at any given time. They buy and sell on knee-jerk reactions as news comes out to the investing community. Investors are ordinary, longer term oriented guys who want to keep stock for longer periods of time like Warren Buffett.
We should be buying and selling right now to either reallocate our portfolios for the new year or to get our taxes straight for this year. We should not be buying and selling based on how well holiday shopping is going or what is going to rally the market over the next month. We should be looking at what we think is going to happen in 2010 and 2011 and make investing moves preparing for it. How long before the economy stabilizes? How long before the consumer starts spending and stops saving? What will become of healthcare? Preparing for these longer term questions will allow us to allocate our portfolio in a way that will benefit us. We won't have to worry about what the market is doing each day. We can sit back and make sure the future is lining up the way we think it will. As Warren has taught us, that is the best way to make cash money.
Monday, November 30, 2009
Wednesday, November 25, 2009
Homebuilders Starting to Stabilize
Homebuilders saw a surge in sales over the summer as consumers took advantage of low mortgage rates, discounted home prices, and the first time home-buying credit. Lately, there has been talk of further depressed homebuilding returns for another several months. I do not think that homebuilders will see the returns they saw over the summer anytime soon; however, I do think that homebuilders will stabilize.
Construction has been cut back to get supply closer to demand. As a result, homebuilders can be a little more flexible with pricing. Instead of upping the price, they have been smart and kept the average price the same as a year ago. This has helped sales reach their highest level in over a year.
In addition, we cannot forget about mortgage rates. These have fallen to around 4.7%. This is probably the lowest they will be for a long, long time. With the extension of the housing credit, we can expect sales to remain stable as first time homeowners continue to combine this tax credit with abnormally low rates. I think this will be sufficient to keep homebuilders stable until the economy gets closer to strengthening. For the long term, there is cash money to be made in homebuilders. This will take a lot of patience as volatility is higher in this industry. The returns could be worth the wait.
Construction has been cut back to get supply closer to demand. As a result, homebuilders can be a little more flexible with pricing. Instead of upping the price, they have been smart and kept the average price the same as a year ago. This has helped sales reach their highest level in over a year.
In addition, we cannot forget about mortgage rates. These have fallen to around 4.7%. This is probably the lowest they will be for a long, long time. With the extension of the housing credit, we can expect sales to remain stable as first time homeowners continue to combine this tax credit with abnormally low rates. I think this will be sufficient to keep homebuilders stable until the economy gets closer to strengthening. For the long term, there is cash money to be made in homebuilders. This will take a lot of patience as volatility is higher in this industry. The returns could be worth the wait.
Friday, November 13, 2009
Dimon Gets It Right
Jamie Dimon of JP Morgan knows what is going on. We have known this since JP Morgan said they would not pay more than $2 for Bear Sterns. So what does he understand now that no one else seems to? Simple answer: the too big to fail concept.
In an editorial in the Washington Post, Dimon seems to understand exactly what the government needs to be doing. He says there is no such thing as too big to fail. We need only to save banks that perform, not just banks that are bigger than others. The government should be focused on banks that are not managing risk well, not the ones who are doing good business.
I agree 100% with Jamie. The government is too focused on trying to regulate the biggest banks that they are overlooking the ones with the problems. Just because a bank is big does not mean that it should not fail. They should be allowed to fail in a more regulated way that does not put the economy at risk. This is supposed to be a capitalist market. Almost everybody has paid back the TARP money. They do not owe the government anything anymore. Why is the government still trying to get a voice in on how these banks compensate their employees. If the government focused more on troubled banks, the smaller community banks would not still be failing everyday. The government needs to get their priorities straight. Cash money is made away from the government. They do not understand the innermost of these institutions. The harder they try, the worse it is going to get.
In an editorial in the Washington Post, Dimon seems to understand exactly what the government needs to be doing. He says there is no such thing as too big to fail. We need only to save banks that perform, not just banks that are bigger than others. The government should be focused on banks that are not managing risk well, not the ones who are doing good business.
I agree 100% with Jamie. The government is too focused on trying to regulate the biggest banks that they are overlooking the ones with the problems. Just because a bank is big does not mean that it should not fail. They should be allowed to fail in a more regulated way that does not put the economy at risk. This is supposed to be a capitalist market. Almost everybody has paid back the TARP money. They do not owe the government anything anymore. Why is the government still trying to get a voice in on how these banks compensate their employees. If the government focused more on troubled banks, the smaller community banks would not still be failing everyday. The government needs to get their priorities straight. Cash money is made away from the government. They do not understand the innermost of these institutions. The harder they try, the worse it is going to get.
Wednesday, November 11, 2009
Listen to the Fed
Futures were up today on the news that rates would stay low for well into 2010 if not longer. This is great for consumers as low rates spur more borrowing and essentially spending. Do not be quick to rush into the market thinking it's going to continue to rally on low rate news.
Why are rates going to remain low? Simply because the economy is going to slowly come around. I would like to emphasize the word slowly. We need low rates because the economy is still in the gutter. Consumers continue to borrow less and less. Retailers and shipping companies are optimistic about the holidays. Why? If unemployment is rising and consumers are borrowing less and less, why do we think the holidays will turn the economy around?
Listen to the Fed. The economic recovery is going to be weak and erratic according to Fed officials. Why are we getting optimistic about the holidays and low interest rates? Sure low interest rates should spur a quicker than normal recovery, but look at the deeper meaning behind this. The economy remains in terrible condition. Be hesitant to rush into what the media is telling you. Cash money is not always made by outperforming the market but by limiting losses in tough times. Get a few staples or high yielding companies that will give you some type of hedge. The economy is not going to be booming for awhile. Economists expect unemployment to subside halfway through 2010. This is not a normal recession. Plan accordingly.
Why are rates going to remain low? Simply because the economy is going to slowly come around. I would like to emphasize the word slowly. We need low rates because the economy is still in the gutter. Consumers continue to borrow less and less. Retailers and shipping companies are optimistic about the holidays. Why? If unemployment is rising and consumers are borrowing less and less, why do we think the holidays will turn the economy around?
Listen to the Fed. The economic recovery is going to be weak and erratic according to Fed officials. Why are we getting optimistic about the holidays and low interest rates? Sure low interest rates should spur a quicker than normal recovery, but look at the deeper meaning behind this. The economy remains in terrible condition. Be hesitant to rush into what the media is telling you. Cash money is not always made by outperforming the market but by limiting losses in tough times. Get a few staples or high yielding companies that will give you some type of hedge. The economy is not going to be booming for awhile. Economists expect unemployment to subside halfway through 2010. This is not a normal recession. Plan accordingly.
Friday, November 6, 2009
Is a Jobless Recovery on Hand?
Unemployment soared to 10.2%, the highest since 1983. Many people have mentioned a 'jobless recovery' reminiscent of the 1970s. Why a jobless recovery? GDP and manufacturing output have been improving as unemployment has been rising thus giving rise to a jobless recovery.
This is the first time in over a quarter of a century since unemployment has hit double digits. 10.2% is higher than the previously expected 9.9%. This puts the government at a job-first priority. This also further puts pressure on the stimulus plan and the fact that debt is too high to throw more money into the economy. The Fed is going to keep rates at an all time low for seemingly another couple of months as the economic rebound is supposed to be suppressed for another few quarters.
Companies have been laying off people left and right during the recession as restructuring has become a major priority. In all honesty, how many of these jobs will actually come back? If companies want to grow again, they will have to rehire some of these former employees. Will we see the rehiring happen overseas? Lower cost of labor, materials, and overall production costs make outsourcing a strong reality.
Even if we hire employees back in the US, we have a long time to wait. Companies have yet to improve year over year numbers. Until we see companies get back to where they were, we will not see hiring pick back up. We could be very well due for a jobless recovery. In the meantime, look for the quick respondents to an economic rebound for cash money.
This is the first time in over a quarter of a century since unemployment has hit double digits. 10.2% is higher than the previously expected 9.9%. This puts the government at a job-first priority. This also further puts pressure on the stimulus plan and the fact that debt is too high to throw more money into the economy. The Fed is going to keep rates at an all time low for seemingly another couple of months as the economic rebound is supposed to be suppressed for another few quarters.
Companies have been laying off people left and right during the recession as restructuring has become a major priority. In all honesty, how many of these jobs will actually come back? If companies want to grow again, they will have to rehire some of these former employees. Will we see the rehiring happen overseas? Lower cost of labor, materials, and overall production costs make outsourcing a strong reality.
Even if we hire employees back in the US, we have a long time to wait. Companies have yet to improve year over year numbers. Until we see companies get back to where they were, we will not see hiring pick back up. We could be very well due for a jobless recovery. In the meantime, look for the quick respondents to an economic rebound for cash money.
Thursday, November 5, 2009
It's Been 3 Weeks and the Market Hasn't Moved
It's been three weeks since I last blogged. My last post stated that the Dow was at 10,000. Coincidentally, the market has just crossed the 10,000 mark again. So what happened to make the market stand still? We have had a mix of news with earnings, outlooks, and economic conditions that have all moved the market in one way or another.
Earnings have been doing well so far this quarter. Most companies are seeing sequential improvements, although, year over year numbers are still down. A lot of optimism for improvements is being expressed for 2010. The only questionable area of optimism is with consumer discretionary. Consumer sentiment did fall as did expected holiday sales.
Economic conditions remain cloudy. The Fed is keeping rates low suggesting a slow rebound in the economy. Manufacturing output has increased suggesting a little bit of improvement from the recession. Unemployment is set to rise again.
The market can move on anything. Going forward, the thing we will have to look at the closest is economic conditions. It will get easier for companies to beat last year's earnings. It is the Fed and economic signals that will give away where we are headed. Cash money lies in the midst of these things. Separate the news from the noise and you will find where to invest next.
Earnings have been doing well so far this quarter. Most companies are seeing sequential improvements, although, year over year numbers are still down. A lot of optimism for improvements is being expressed for 2010. The only questionable area of optimism is with consumer discretionary. Consumer sentiment did fall as did expected holiday sales.
Economic conditions remain cloudy. The Fed is keeping rates low suggesting a slow rebound in the economy. Manufacturing output has increased suggesting a little bit of improvement from the recession. Unemployment is set to rise again.
The market can move on anything. Going forward, the thing we will have to look at the closest is economic conditions. It will get easier for companies to beat last year's earnings. It is the Fed and economic signals that will give away where we are headed. Cash money lies in the midst of these things. Separate the news from the noise and you will find where to invest next.
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