A Few Dollars More

“What is the government going to do about these gas prices?” a client from Texas asked me recently.

He had just filled up his Chevy pick-up and it cost him over $70. Together, we complained and commiserated over the coming $4/gallon gas price. We both agreed that the McCain/Clinton proposals to cut gas taxes during this summer’s driving season were not going to cut it long term, nor was a temporary suspension of stock piling more oil to our strategic reserve. I tried to think of a solution. In the ensuing silence, it finally dawned on me that there is no white knight out there that’s going to fix this.

In the spirit of True Confessions, I admit that for over three years now I’ve been waiting for someone to “fix my gas problem.” In the meantime, I continued blithely consuming gas and oil at an ever-increasing rate—until recently. When prices topped $2/gallon I grudgingly traded in my Ford SUV for a Subaru feeling guilty that for the first time in my driving life I was no longer buying America. My wife did the same and we cut our fuel consumption considerably but it wasn’t enough. My daily commute is 122 miles a day, from Hillsdale, New York to Williamstown, Ma. and back. My wife commutes to Troy which is a little shorter. Together we have seen our transportation costs double in about two years (about $850/month) despite down-sizing our autos. Now we are shopping for hybrids. [Read more →]

The markets spent the week trading in a tight range with only one day recording more than a one percent swing in prices and that day was down. After the bull run of the last few weeks a period of consolidation is not surprising. It is actually encouraging since a lot of stocks and sectors were getting “over bought” as traders would say.
The price of oil or “black gold” as some in my father’s generation once called it, gave investors the excuse they needed to sell. All week the markets struggled as oil raced up and ever upwards. Dire predictions of higher inflation and the ruinous impact that higher energy prices will wreak on the consumer kept the talking heads in business and you glued to the business TV channels.
Continued earnings disappointments from the financial sector gave investors another excuse to take some profits. American International Group, the mega insurer, joined the dubious group of record, loss-making companies Thursday evening. It announced a first quarter earnings loss of almost $8 billion blaming the credit crisis, mortgages and the financial markets for the disaster. That followed several days in which one regional bank after another reported a litany of huge losses while announcing their intent to raise capital. Friday, Citibank said it planned to sell some half a trillion (yes, I said trillion) in assets in order to return to profitability sometime in the dim future.

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We hit the top of my trading range on Friday (S&P 1416) before quickly retreating. So far this market bounce off the lows has increased in vigor as we moved higher. Since the second re-test of the market bottom (S&P 1270) back in March, the bulls have been pushing this huge ball of worry relentlessly up, up and up a slippery slope of foreclosures, bad earnings and nasty economic surprises. I am confident the S&P 500, Dow and NASDAQ will forge higher. How much higher? Assume 5 to 6% additional gains from here before we run into trouble. I think that is enough upside to add a bit more money here.

Investors obviously approved the Federal Reserve Bank’s quarter point rate cut and their statement afterward gave everyone what they wanted. Worried about recession? The Fed had a few soothing words. They promised to “act as needed to promote sustainable economic activity.” If instead, you were expecting a pause because more rate cuts will fuel an already ascending inflation rate, don’t worry, be happy, the Fed promises to “continue to monitor inflation developments carefully.”

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Over the last six years foreign stock markets have been the place to be if you wanted to capture double digit investment returns. This year overseas markets especially emerging markets have pulled back along with the U.S. markets. I see that as a buying opportunity for long term investors.
My own experience in foreign markets dates back to 1982. Back then there were only a handful of American investors willing to dip their big toes into markets like Europe or Japan. I would traipse around the world with twenty or so highly doubtful American money managers in tow visiting “exotic” places like the South of France and Melbourne, Australia. As time went bye more and more managers, attracted by the promise of greater returns, took the plunge. By 1989, most institutions had some exposure to overseas markets. By then I was already kicking tires and talking shop with companies in Brazil, Eastern Europe and that once, Evil Empire, Russia. [Read more →]

Whether you are a Tinker, Tailor, Soldier or Candlestick Maker, each profession has its own myths and legends. Wall Street is no different. Underneath our pinstripes and silk ties, the financial community is a superstitious lot who have divined the market’s direction by using indicators as diverse as the time of the year, sports events or the length of a women’s skirt.
This year I admit to paying rapt attention to one of the more popular seasonal indicators: January’s “first five days.” The legend states that whatever direction the market takes in the year’s first week so goes the market. Evidence indicates that this is not a very reliable indicator and yet I fell for it and have been bearish ever since. Statistically, it works best when the market is up on the first five days of any year.
“Sell in May and Go Away,” is one often quoted saying that implies that stock market returns are higher in the November-April period than in the May-October months. After 27 years experience in global markets, I tend to agree. My belief is backed up by multiple studies that indicate that in 36 out of 37 developed and emerging markets this indicator works the majority of the time. Although no [Read more →]