Market Readying. New Dividend Payers with Monster Companies ! Update August 7, 2010

Marc's Notes:

Back from vacation and catching up, I first want to thank all those that attended our KVMR  talent show. Over 150 people showed up to enjoy over 5 hours of fun and music. News analyst Chamba Lane’s surprise appearance in a pink tutu was the thing I was glad I missed but understand the rest of the show was a grand ol’ time. Food poisoning made it difficult for me to attend so my regrets. The fund raiser was a great help to our finances.

Back to business. The markets are stuck in a tight range of the mid 10,000’s and remind me of the markets right before the 2007-2008 meltdown where fundamentals continued to deteriorate despite cheerleading by the Wall Street pundits. Much like then, economic figures showed a declining environment while the stock market enjoyed continuing rallies. Homebuilder stocks rallied right into the eye of the storm and you had to ask yourself how these companies stocks continued to go up in the face of worsening news. Investors who bought into the CEO’s bullish talk and CNBC’s insistence of a new economy (this time its different) got their heads hand to them when the markets finally realized the realities of the times. Mainly housing was toast and home builders as well as those that lent money to them and their customers were essentially throwing money into a rat hole of a bubble and what a bubble it was. Never before was so much money so badly spent on so many questionable borrowers and on such an overinflated asset. So go asset bubbles. They always end badly.

With stimulus ending and more bailouts getting unpalatable, the economic fundamentals are deteriorating badly. Advanced indicators, unemployment, housing, retail and foreclosure stats combine with unimaginable soaring deficits to make for little reason I can see for this market rally (6500 to today’s level) to continue. The most basic of indicators is the Baltic Dry Shipping Index. This shows how much stuff is being shipped around the world and therefore is a slam dunk indicator of how much stuff is being bought worldwide. This index is down almost 50 % in the last 48 days! Right at 2008 levels during the meltdown! Wow, what a plunge. With this index plummeting, it reflects demand is dropping off the cliff. Like I keep saying, don’t listen to what they say, look at the real numbers and draw sound conclusions.

Much like before the fall of 2007-2008, reality will bite soon and when she does, it will be nasty. My guess is late fall or sooner will harbinger a fast plunge, possibly to previous low levels and beyond. The FEDS will be making more announcements soon as they see the same figures I do and the only good news they could point to is the stock market not coming unhinged. This is probably due to their buying of equities (manipulation) indicated by hi mutual fund investor liquidations in the face of a rising market. This contradicts logic. Investors taking money OUT of mutual funds should lead to falling markets, yet they do not. This alone might not be enough to pinpoint FED market manipulation but an interesting thing is happening in US DEBT markets, commonly known as the Treasury market. The fact that the US is issuing massive amounts of debt in the form of Treasuries yet interest rates are the lowest on record is strange enough, Usually a brother in law writing IOU”s all over town result in people refusing to take them which would RAISE interest rates. Yet, in the face of this massive debt issuance, the appetitive for them is greater then ever. You have to wonder what the bond traders are thinking as these are the guys that buy all this stuff. Well, most of the speculative bond traders have been burned so many times by the FEDS manipulating the market by buying from overseas secret hangouts; these traders have been all but wiped out betting against the US. Just what the FEDS wanted. Burn anyone who dares to cross them. But there are many big buyers of these bonds who are legitimate investors such as sovereign funds, hedgies and other large money holders. The question is if a recovery is happening and the stock market is primed to go up, why are these guys buying Treasuries for almost no yield? Usually they buy low interest vehicles when they can’t get a better return elsewhere OR fear they will lose money elsewhere. Hummm… what could they be thinking then? You have to wonder. If the  big guys put their money in low yielding treasuries and NOT instead in the stock market.. WHY?  With so much big money going into treasuries, they must see something in the markets to make them stay away. This in not conjecture as the fact is they ARE buying treasuries by the boatload and the treasuries aren’t yielding anything over a few percentage points. Hence another indication all is not right in Kansas. One final point is the fact that Treasury sales usually spike when markets fall (investors sell stocks and buy safety) and treasury sales fall when markets are calm. But we are not seeing the usual pattern. The markets are essentially calm but Treasury sales are spiking. A precursor of things to come?  In my opinion, yes. Things are definitely not behaving normally for us discerning analysts and natures intentions will let us know what troubles her in due time. Trust me on this one. We will see. My opinion is “Something Wicked This Way Comes”.

On the housing front, rumor has it that Fannie and Freddie, the 2 mortgage giants now wards of the state will soon be offering refinances that will include PRINCIPAL REDUCTION!
HA!  No surprise there. I TOLD YOU!  The reduction of principal (major bailout) will be the real deal and will be the next offering. Washington denies it as of today but me thinks as housing craters BADLY in the fall (it is starting to now) the FEDS will ramp up the home bailout programs to include this option. Like I said, these programs will never end. Like the “quantitative easing program” they stopped a few months back but just announced they are considering another round of it soon should the markets continue to falter. As always said on Money Matters, it won’t be enough!.

Looking for dividend payers with some possible safety in market crashes?  Look no further then some monster companies that are household names. These behemoths may not pay as much as the Alpine Dynamic Dividend fund, but they probably won’t go to zero either. Take a look at   PFIZER  (PFE),   AT&T  (T),  ELI LILLY  (LLY),  VERIZON  (VZ),  SOUTHERN COMPANY  (SO) , BRISTOL MYER  (BMY), CONSOLDATED EDISON  (ED),   ALTRIA  (MO) or other large household names. All these companies are elephants and usually don’t fall as badly in a market crash then smaller companies . Most of these pay over 5 % and could be a way to earn dividends without the greater risk some of our higher yielding equities may exhibit. There are no guarantees of course but many of these bigger stocks are regarded as defensive plays and you could do worse. Yahoo finance.com has a good screener page which can lead you to all the company information by clicking around on the links. Enter the symbols in the quote square.

Next week is a LIVE SHOW you can witness at the Nevada County Fair on Thursday. It will be at noon or maybe one PST. I will email you as soon as they tell me. I will be there after the show for questions. KVMR’s booth is in the food area near the back towards the racetrack. They have maps at the gate to locate us. Topic will be the usual market coverage and “Beware the Ides of Fall”.

Other items include a Money Matters Margarita Dinner on September 1st (email me for details), mini consults are open now (don’t wait until the market crashes cuz I book up fast then),
My recommended Portfolios are on the website www.moneymanagementradio.com as well as past newscasts and shows and T SHIRTS.

Holdings remain the same as previous newsletter (see archives on left menu) and no news from Everbank on any Foreign Currency CD of interest. 

"Should You Stop Paying Your Home Mortgage"  the free show for this quarter is on the site under FREE SHOW. Take a listen and pass it around to your friends.

All for now, see you at the fair.

Feeling generous? Bring me some chocolate brownies at the fair for after the show!

Marc







__________ Information from ESET NOD32 Antivirus, version of virus signature database 5348 (20100806) __________

The message was checked by ESET NOD32 Antivirus.

http://www.eset.com