Dec 16th Market Updates

We are back to the top of the channel. Will we fall back a few hundred points or just continue inching our way upward? Health care, home builders and oil service stocks looking strong. A number of possible short-term stock trades are discussed in this video.



Here's another view on the market along with the nose bleed stocks.



Frankly, I'm playing it safe ( meaning holding more defensive or way oversold positions ). The market advanced into the meeting knowing what was going to be said. Now the question is will oil continue to climb back to the high $70's knowing that the fed has no plans to raise interest rates? If oil holds strong there are many oil service plays that have fallen back on oils fall from $79 to $69 to consider. I jumped into WFT, HLX and SUN today but hedged buy selling X, CHK and RIG. Sold my AMED medical stock yesterday as it hit the top of my target but I'll be looking to buy it back. Both AMED and AFAM are in the same markets and are forecasting very strong outlooks. Still holding dividend producer LLY. Sold my three day trade on China stock GIGM for $4.30 a fast 22% gain on the announcement and pop today. I'll consider buying back at $4. I'll be looking to get back into CHK and RIG on any market pull back ( assuming oil holds strong) or strong oil market.

The Future Of : Made In The USA

Watch it on CNBC tonight....Meeting of the Minds: Rebuilding America

Premieres Wednesday, December 2nd 8p ET

Manufacturing led the United States to become the richest nation in the world and has been the foundation of the middle class. But times have changed and today's economy values innovation and design over manual labor -- emphasizing mind over matter. This sea of change has spurred many questions: Are the manufacturing jobs in the US gone forever? Does an economy that doesn't produce anything have any real value and has 'Made in the USA' died, taking with it the soul of our country? CNBC’s Maria Bartiromo gathers some of the most influential leaders in manufacturing for a Meeting of the Minds at Carnegie Mellon University to answer those questions and plan for the industry’s future.

The CEO of GE points out an interesting fact: Germany exports are 40% of GDP and it has a more expensive labor force than the USA. The USA now only exports 7% of GDP down from 25% just 10 years ago. The CEO of Nucor points out that it's America's failed trade policies that has been distroying the middle class not the unions.

Here are just a very few moments from the business special. Forgive the commercial. I was unable to remove it from the free videos:

A steelworker asks GE CEO Jeff Immelt where the constant outsourcing of American jobs is likely to lead this country.


Unions are the focus of this comment by Bill Ford of the Ford Motor Company, who fields a difficult question from a student. Mr. Ford forgets to explain to the student VW is a higher cost Union shop than the USA.


GE CEO Jeff Immelt has a number of suggestions for how America can move beyond its current manufacturing crisis and get back on track.


Discussing America's once-great manufacturing base, and Nucor Steel CEO DiMicco's comment to one of the steelworkers in the audience, with CNBC's Maria Bartiromo.


Students, steelworkers and businessmen discuss the US manufacturing crisis. Bill Ford offers special advice to students.

Seven Reasons Why The Trend Is Your Friend

I will often joke about market technical analysis.

Daytraders often live and die by minute-by-minute moves and magical voodoo terms. Technical analysis is no more the holy grail than buy-and-hold investing. The presumption that the tail waggs the dog is dangerous and not grounded in any scientific evidence. Yet, my experience says it's of as much value as fundamental analysis in helping you determine if a stock could rise or fall. Above is the most recent analysis of the S&P Trend line which can help one reduce risk and increase profit opportunities. The idea is simple. Know when to plant seeds. Know when to harvest profits.

I was trained in Modern Portfolio Theory (MPT) in my business BBA program in the 70's.

Naturally at a University you'll learn what is believed to be the best researched and scientific based thinking of the time. Most often based upon utilizing mathematics to identify correlations and relationships in search of the holy grail of reducing ones risk while increasing the probability of maximizing your returns. So, all the Professors contributing to the knowledge of MPT, were strong mathematicians not past professional money managers.

The founding fathers of MPT, people like: Harry Markowitz Nobel Prize in Economics, 1990. Diversification reduces risk. The Role of Stocks James Tobin Nobel Prize in Economics, 1981 Single-Factor Asset Pricing Risk/Return Model. William Sharpe, Nobel 1990 Prize in Economics, for Capital Asset Pricing Model. Efficient Markets Hypothesis, Eugene F. Fama, University of Chicago. Fama was first to get access to using a Mainframe IBM computer to analysis massive amounts of historical data that had been collect in print.

Fama's, extensive research on stock price patterns was the foundation for Efficient Markets Hypothesis, which asserts that prices reflect values and information accurately and quickly. This was among the easiest of concepts to grasp. Yet, to this day this is the most misunderstood theory. Often those with no formal investment training such as journalist, will imply Fama's theory means the market must always be rational.

But the most valuable concept that I learned outside of the class room in real life money mangement pertaining both to the market and individual stocks was how to spot a simple trend and capitalize on that trend.

We spend a great deal of time trying to spot stocks heading in the right trend, or direction. Careful attention needs to be given to the support and resistance lines. These lines are also called trend lines.

Here are seven reasons why the trend can be your friend in investing:

1. These lines draw the general trend, or direction, the stock is heading. They’re not used for daily tracking, they’re more of a longer-term direction that the stock, mutual fund or commodity is heading. If you are using a longer term approach, the trend is what you really want to know, not necessarily the day to day wiggles in a stock.

2. Often times, the trend line will give you guidance in a stock for years, not just weeks or months. But these support and resistance lines are often bumpers, or guardrails, along the way. Stocks often drift toward their support or resistance lines and then bounce back in the opposite direction.

3. If you can pick off a stock you find attractive as it is bounces off the support line, it could be a terrific time to buy. The reason is you have a strong, logical place for your stop point...just under the support line, which is really close by. This helps minimize the amount you have at risk.

4. Some of the best winners come from stocks that are purchased just as the stock breaks through overhead resistance and forms new patterns. Holding the stock until it breaks support line (which might be possibly many months, or even years later) can really help your overall performance!

5. The reasons behind why a stock jumps through a brick wall are often not clearly visible. The reasons for the move may emerge days or weeks (or even a year!) down the road. But when a stock or a mutual fund breaks through the trend line, either up or down, it’s important news.

6. If a stock or mutual fund we are following breaks through it’s overhead resistance, we have a high level of confidence that the stock will continue to climb upward.

7. Lastly, if the support line of your mutual fund or your stock is broken, beware! This is a very clear signal we should consider selling a portion (or maybe even the entire) position. Breaking the support line is the ultimate sign that supply is now clearly in command. Your principal is now at risk.

Bullish Momentum or Bearish Mojo ?

Bearish triple Ms? Doje? Bearish flag? Bearish Cross? Bearish Reversal Candlestick Patterns? Advance on low volume bull trap? Say all the mojo vodoo you want, but the market exploded open today moving up 100 plus points within the first 15 minutes today.

After a year of listening to people say buy-and-hold and passive investing and EMT is dead...those who did nothing but stick with a passive index fund, are the real market gurus. I've listen to high paid money managers and CNBC "experts", say the market would turn south for months once it hit 8,500...then 9,500 for sure was the top...and now were at 10,500. Hay, I thought 9,800 was tops. I too was expecting a little 5% pull back, that never came in the index. Lots of stocks have pulled back but the market index has continued to climb higher.

Gold and commodities explode up today. No idea why the 180 reversal from last Fridays stronger dollar. India must be passing out free glasses of Champane to Americans visiting their country, as their new stock pile of gold rise in value.

Triple shorts and double short ETFs got clobbered today regardless of low volume. So should we change our thinking? Dow 11,000 now? Well,today was great for index investors but I saw a ton of selling during the first 30 minutes with many prices falling thereafter. So, lets listen to Ron explain this from his market technicals point of view. He explains why he's staying short and bearish near-term on the market.


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DOW Hits 10,400 What's Next ?

Now that the Market hit a new high 10 days ago what next?

What next? Dow 11,000? or 9,800? Well, after listening to all the newly minted market wizards on Seeking Alpha.com make continuous market crash perdictions, since the mother-of-all-bounces (in our lifetime) began, they final stopped about two weeks ago as the market was agin hitting new highs. Now that they stopped I'm ready to get very defensive. No as, I've said before, I see no 20% correction for certain in the next few weeks. Getting defensive, for me, means selling the stocks and sectors that have risen the most and rotating into stocks with perdictable earnings and good dividends that have not enjoyed a big market advance. And if there were a 5% correction you can bet I'd be looking to buy unless we had new negative economic data, in addition to our serious unemployment problem. Remember unemployment is a a very serious problem but if companies are expected to earn more resulting from these lay-offs and if the future economy is expected to get better then stocks can continue to slowly rise or go sideways as they did in 1983-84 and 1991-92 even as unemployment was high. But lets just consider whats more likely for the next few weeks.


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So, to help me confirm or reject my guess I'm calling in advice from the Voodoo Chartist as us EMT boys like to joke about. I'm not one to get excited about minute by minute market technical's and charts. But I do make major portfolio shifts in allocation between sectors, industries and cash based upon my technical advisors in addition to fundamental analyst recommendations.

When one chooses a technical advisor I recommend one be chosen based upon their knowledge of fundamentals, market history and knowledge of how portfolio managers think too. I'm going to share with you Ron Walker ( one of my advisors ), a man who's ego is in check and is worth your listening time. Now given the market has had its greatest move up since the 1930's I'm worried the markets now ready for another minor 3 maybe 5% pull-back similar to the last two.


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Another technical advisor I follow Carter Worth, of Oppenheimer Fund Management has also advised me a correction is now the most likely near term outlook. And we've said all along that the market seemed insistent on going back up to the pre-Lehman bankruptcy level of last September. We've hit those levels. Based upon his training and experience Carter says, "that's the wall we'll not climb above for some time now." He believes a correction is due. Does it mean we must have a sharp correction? No. It can be a slow back and forth but continuous drip down into December. Even if we have no correction now, I'd bet it would come in January when large investors choose to take capital gains for all of 2009 profits, on their 2010 tax return, simply by waiting to sell on January 1st 2010. Most likely the big winners in commodities related stocks will sold. But let's not start speculating beyond the next few weeks.

Last week I saw the fertilizers companies and telecom companies rise while oil drillers like my favorite RIG were extra weak. I've sold my fertilizer play IPI and oil tanker shipper FRO. I'll look to buy it back below $25, I hope. I'm holding my DRYS due to the rising BDI rate rising. I'd be looking to buy more RIG below $82. Metals like X and AA can be bought on any noticeable drop. Large banks and insurance companies like BAC, WFC, C, STI, GE, PRU, MET and HIG seem on very firm ground and in little risk of falling down more than 6-10% compared to other jumbo winners in 2009. I'd be looking to buy BAC, GE or HIG on any noticeable pull back. I also notice that some of my favorite defensive plays with excellent yields continued rising as other socks weakened last week. Finally boring defensive stocks like WMT, MO, LLY, PE, VZ and CHL (I hold positions it all four stocks) moved up. These stocks may finally be in a mini-break-out mode which makes them a safe play to hold (even in a correction) as one takes other short positions ( as Ron describes ) or moves to 50%+ cash levels ( which I am ).


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These videos are more for individuals with some good basic understanding of technical analysis. It's for those who want an in-depth market analysis and opinion on if the market is more likely to move down or up in the next two weeks.

Special Note: The average individual needs to spend more time developing a long-term savings and investing plan instead of a market trading plan. Market timing and market trading and daytrading is a very time consuming activity. Those selling monthly subscription services will always tell you "passive index" or "monthly dollar cost averging plans" or "buy and hold" is dead. Yet, many traders make less money than a simple buy and hold passive investing strategy. The down side of daytrading is rarely discussed. What does it cost you to be spending 8 hours a day five days a week on market trading?

Death Of A City - 1/2 Million Buys Silverdome

A once great domed football stadium built as just one part of the Detroit MI area mid-70's reveal plan just sold for about 1 percent of what it cost to build.

China, India, Kuwait take note. You want a deal on real-estate? Do you want to buy at prices below the usual going-out-of-business 65% off everything? How about prices at 90% off?

The Pontiac Silverdome — once home to the NFL’s Detroit Lions — was just sold for $583,000, or about 1% of the $55.7 million it took to build in 1975.

The Silverdome, an 80,300-seat stadium located in Pontiac, Mich., is the latest example of how comprehensively the recession has socked southeastern Michigan.

Mass layoffs and automotive plant closures have wreaked havoc on the local economy. Budget deficits are deep, foreclosures are widespread, and the population shrinking – from about 2 million people in the 1960s to about 900,000 today.

As a former Michigander and Detroit resident I'm sadden by the death of the area. The once great Silverdome stadium may be a metaphor for the state of business and employment in Detroit MI.

Here are just a few other examples of the death of a city.

When I worked in the Detroit area the K-Mart headquarters was a shiny new showpiece (employing thousands)and business was booming. K-Mart filed bankruptcy in 2002.

Rockwell International(my Detroit employer) was number 27 on the Fortune 100 corporation list. Rockwell International had a workforce of over 100,000, organized into nine major divisions. By 2001 what was left of Rockwell was split into two smaller companies.

Just 10 years ago most believed GM was at the top of its game, a much leaner and more efficient company from the 70's and now their bankrupt.

Michigan unemployment now exceeds 15%, but real unemployment in the whole Detroit metro area is at depression levels (25%). It's just one more example in a long string of examples of the shifting sands of world economic fortunes.

Death of a Great City, an article written in September by Daniel Okrent, a Detroit native, outlines the city's economic plight and compares it to a natural disaster we all recall, hurricane Katrina, which devastated the city of New Orleans.

" Three years after Katrina devastated New Orleans, unemployment in that city hit a peak of 11%. In Detroit, the unemployment rate is 28.9%. That's worth spelling out: twenty-eight point. Unemployment in Pontiac is at 35.0%."

He concludes with:

"...the story of Detroit is not simply one of a great city's collapse. It's also about the erosion of the industries that helped build the country we know today. The ultimate fate of Detroit will reveal much about the character of America in the 21st century. If what was once the most prosperous manufacturing city in the nation has been brought to its knees, what does that say about our recent past? And if it can't find a way to get up, what does that say about our future?"

Brasil is Hot -Part 2

Here is the editor of Intelligence Report discussing why he likes Brazil. This follows on the heals of my prior post on Brasil.

Richard C. Young, editor of Intelligence Report, says Brazil is an emerging economic power with a stable democracy and a healthy financial system.

As an investment destination, Brazil offers profound promise. Slightly smaller than the continental US, Brazil [has] a population of 190 million. More than half the population is now considered middle-class by Brazilian standards.

Unlike many emerging-market countries, Brazil is not overly dependent on commodities or exports. Its economy is highly diversified, with personal consumption expenditures accounting for 60% of [gross domestic product] and exports accounting for only 14.3% of GDP. Manufactured goods account for 60% of exports. Brazil is the world's seventh-largest manufacturer of automobiles and the fourth-largest manufacturer of airplanes.

Brazil is the only BRIC nation that is both a stable democracy and at peace with all its neighbors. Brazil's financial system is healthy: Total credit to GDP is only 41%. Brazil has $233 billion in foreign exchange reserves, which is equal to 19 months of imports and fully covers the country's public and private external debt.

Brazil is also endowed with natural resources. It is the world's leading exporter of iron ore, coffee, soy, orange juice, beef, chicken, sugar, and ethanol. Brazil has 958 million acres of highly productive arable land, with 222 million acres that have yet to be farmed. The country generates 73% of its energy needs from hydroelectric power. Brazil is also home to one of the ten largest oil reserves in the world, the Tupi field.

Decades of recurring turmoil, arcane lending laws, and high inflation have kept Brazil's economy underleveraged. Mortgage debt in Brazil is equal to only 2.5% of GDP, compared to 80% in the US. There is huge pent-up demand waiting to be unlocked in the housing sector. Mexico, which has 60% of the population of Brazil, builds four times as many homes.

Lower interest rates and changes to lending laws are likely to unlock Brazil's pent-up demand for housing over the coming decade. Falling interest rates have already begun to unlock credit growth in consumer loans—65% of car purchases are now made on credit, and purchases with credit cards have been growing at 22% annually during the past decade.

Brazil has always had great potential, but has consistently managed to stumble. Change is now under way. Inflation has been tamed, the state has found an acceptable balance with private industry, excessive government debt is no longer a problem, and stability has returned to the economy. A more stable Brazil should result in higher earnings multiples on Brazilian stocks, lower interest rates on Brazilian debt, and a more valuable currency.

You should continue to expect wicked volatility when investing in Brazil. The government still has its hands deep in the private economy, as evidenced most recently by the implementation of a tax on capital inflows. Plus, while Brazil is headed toward developed market status, it is not there yet. Begin with a starter position in Market Vectors Brazil Small-Cap (NYSEArca: BRF) or iShares MSCI Brazil (NYSEArca: EWZ), and add to your position on dips.

Brazilian Stocks Are Hot

International stocks continue to gain popularity as investors look to align their portfolios with emerging market economies and creditor nations.

China, India and Brazil are all economies with a growing middle-class on the rise. A rising middle-class in America was accompanied by a rapidly rising 20 year market from the 1950's to 1970. Just something to consider. I'm not totally comfortable with investing in emerging markets. But my eyes can not deny the trend in growth and in stock prices.

Consider Brazil. Brazilian stocks have been among the top of the emerging market list, with the South American juggernaut being fueled by a pro-growth government, booming exports and the modernization of its infrastructure.

Pro-Growth Government

Brazilian President Luiz Inácio Lula da Silva, otherwise known as "Lula", has led the country's pro-growth strategy, appointing the market oriented economist and former CEO of Bank Boston Henrique Meirelles as head of the Brazilian Central Bank. Lula and his administration quickly strengthened the country's relationship with the IMF by renewing agreements and paying off its debt early.

Next up was the Growth Acceleration Program, an initiative designed to free the country's economy from growth constraints. By 2008 Brazil had became a creditor nation, with its debt recently getting the nod from Standard & Poors as investment grade.

Booming Exports

Much of Brazil's incredible growth trajectory is being driven by its strong export business as a commodities powerhouse. Here is a big surprise to me. Brazil is the world's leading beef and soybeans exporter, and ranks high in a number of other agricultural categories like chicken, orange juice and coffee. With the exception of coffee these are all areas where I was use to the USA being the agricultural export powerhouse. Brazil's service industry is also on the rise, with new exchanges and financial services companies helping to create a more balanced economy.

Infrastructure

An infrastructure story will be a recurring theme associated with emerging markets, but infrastructure development is literally and figuratively the road that leads a country to prosperity. In 2007, Brazil launched a four-year plan to spend $300 billion to modernize its roads, power plants and ports. The development of modern infrastructure and middle-class amenities has helped Brazil establish credibility as a progressive nation and future economic leader.

Now comes the important part, how to capitalize. One way would be to move to Brazil and invest in a textile plant or soybean farm. That actually sounds like a lot of fun, but might not be realistic for most of us. Here is an easier way; buy Brazilian stocks.

There are plenty of great Brazilian stocks that trade as ADRs on American exchanges, providing a nice dose of transparency and regulation to a less familiar investment destination. Here are four Brazilian stocks to watch. Interesting to note that while the USA stock market stands near it's 1999 high our market has been used to raise trillions for foreign stocks.


Basico do Estado (SBS - Analyst Report) provides sanitation and environmental services in Sao Paul, the most populous Brazilian city. As a utility, this is one of the more conservative Brazilian stocks, but that helps create a more balanced approach to the market. The Zacks #2 rank stock looks like a great value pick, trading at just 6.5X projected current-year earnings.


Petrobras (PBR - Analyst Report) is a oil stock many may be familiar with as one of the more popular Brazilian stocks. This integrated energy company will be involved in some of the largest oil projects in the world in coming years as it works to tap into the deap-sea discoveries off the coast of Brazil. The next-year estimate looks solid at $3.57, a 22% growth projection.


Gafisa SA (GFA - Analyst Report) is a Brazilian real-estate developer. The company just reported amazing third-quarter results, with its revenue more than doubling from last year. Analysts are looking for next-year earnings of $2.79 per share, a bullish 72% growth projection. Based on the current-year estimate, GFA has a forward P/E multiple of 20X, a reasonable valuation for a company growing this quickly in the strong Brazilian economy.

Price-to-Cash Flow

The Price to Earnings ratio (or P/E) is probably the most common ratio in determining whether a company is under or overvalued. I would add that a much better measure used on Wall Street is Price-to-Earnings-to-Growth (or PEG. And one must always put more weight on Forward Earnings not Trailing Earnings.

The Price to Cash Flow (or P/CF) is another great ratio. Cash is vital to a company's financial health, especially in tight credit markets, in order to finance operations, invest in the business, etc.

And cash can't really be manipulated on the Income Statement like earnings can.

The reason why some people like this measurement better than the P/E ratio is that the net income of the Cash Flow portion rightly adds back in depreciation and amortization, since these are not cash expenditures.

Whereas the net income that goes into the Earnings portion of the P/E ratio does not add these in, thus artificially reducing the income and skewing the P/E ratio.

Many analysts prefer using the Price to Cash Flow metric to judge a stock's value.

And just like the P/E ratio is calculated by dividing the Price by its Earnings per share -- the Price to Cash Flow ratio is calculated by dividing the Price by its Cash Flow per share.

Also like a P/E ratio, the lower the number, the better.

Currently, the average Price to Cash Flow (P/CF) for the stocks in the S&P 500 is 9.6. For the 12-month forward P/E ratio, it’s 15.3.

But just like the P/E ratio, a value of less than 15 to 20 is generally considered good.

But make sure you compare the stock's P/CF to its Industry, since different Industries will have different numbers that are considered normal.

For example: the average Price/Cash Flow for Gold Mining companies is about 30, whereas it’s about 3 for Telecom.

There were 30 stocks that came thru this week's screen. Here are 5 of them:

BARE - Bare Escentuals, Inc.
CMN - Cantel Medical Corp.
HS - HealthSpring, Inc.
TTC - Toro Company
VIA.B - Viacom Inc.

USA Unemployment Hits 26 Year High

The American unemployment rate surged to 10.2 percent in October, its highest level in 26 years, as the economy lost another 190,000 jobs, the Labor Department reported Friday.

The nation’s jobless swelled to 15.7 million. Since late 2007, payroll employment has fallen by about 7.3 million. Only 1.8 million jobs were lost in the 2001 recession. So, this is 3 times worse. More than a third of the nation’s unemployed — 35.6% — have been out of work long-term, defined by the Labor Department as a period of 27 weeks or more — that's the highest proportion since World War II.

The jump into the realm of double-digit joblessness— provided a sobering reminder that, despite the apparent "technical" end of the Great Recession, economic expansion has yet to translate into jobs, leaving tens of millions of people still struggling. And many with a job are wondering if their next.

The labor situation is actually worse than what these figures and the 10.2% rate show. The government doesn't count as officially unemployed the so-called discouraged workers who have given up looking for jobs -- which in October numbered 808,000, up from 484,000 a year earlier.

There also were 9.3 million people who reported they had little choice but to work part time because their hours had been cut or they could not find full-time jobs. If this group and discouraged workers are included, along with others on the fringe of the labor market, the nation's unemployment and underemployment rate in October was 17.5%.

The last time the jobless rate crossed double digits was during the recession and initial recovery period of the early 1980s. Then, unemployment hit 10.1% in September 1982 and stayed at or above that level, rising to a high of 10.8%, until June the following year. This time around, unemployment has risen even faster and, by many analysts' and economists' predictions, could hold above 9% through 2010.

While it seems counter intuitive the stock market in 1982 was similar to 2009, as it also rose over 60% -even as unemployment was rising. Now let's hope the 2010 stock market is more like 2004 then 2002 market. Even, some market bulls find it hard to believe (with this recession dwarfing 2001) that we are at levels above DJIA 10,000.

Current Ratio Analysis

Current Ratio Education Combined With Zacks Analysis By: Kevin Matras



Current Ratio is calculated by dividing current assets by current liabilities. The higher the ratio the better, meaning the company has more liquid assets to meet its short-term obligations. A ratio of 2 or more (meaning a company has at least twice as many short-term assets than short-term liabilities) is generally considered good.

Currently, the average current ratio for the stocks in the S&P 500 is 2.09. This is a nice improvement from mid-year when it was at 1.75; and an even bigger improvement from the beginning of the year when it was at 1.67.

Screening for this is quite easy to do.

It's a ratio, so on any stock screener programs, including the Zacks Research Wizard, you'd want to first go to 'Ratios'. And then go to the 'Liquidity and Coverage' section. From there, you'll find an item called 'Current Ratio'. That's the one.

As for what value to use, I prefer to compare a stock's Current Ratio to the median for its Industry. And in this week's screen, were doing just that. We'll also add in some other items to help us find sound companies with solid prospects for the future. But please keep in mind variables like the individual companies and industry outlook are far more important than its current ratio in moving stock prices.

Screen Parameters. Below is just one example.

■Zacks Ranks = 1
(Only Strong Buys allowed.)

■Current Ratio > median for its respective X Industry
(Looking at the companies with the strongest liquid positions to meet their short-term financial obligations.)

■Current ratio > 2
(And at the very least, we want the companies to exceed the commonly held definition of good, which means greater than 2.)

■Projected 1 Yr. Growth Rate > median for its respective X Industry
(This means we’re looking for the companies with the best growth rates within their groups.)

■Projected 1 Yr. Growth Rate > 0
(I only want positive projected growth rates.)

■Price >= $5

■Volume >= 100,000

Here are 5 stocks that passed this week’s screen:
BLK - Snapshot Report BlackRock, Inc.
CBT - Snapshot Report Cabot Corp.
FIRE - Snapshot Report Sourcefire, Inc.
ISRG - Analyst Report Intuitive Surgical, Inc.
VRX - Snapshot Report Valeant Pharmaceuticals

Note: Current Ratio Analysis is only one of many financial ratio's and I'd say you would only use this as a confirmation of your investment choice based on economic and industry outlooks combined with the more important earnings and revenue outlook for the company you are considering investing into.

First GDP Growth in Four Qtrs

The 3.5 percent GDP growth rate in the July-to-September quarter represented the first positive growth in the figure after four straight quarters of declines.

It was the largest gain in two years. But the concern is that this growth will falter given the huge problems still facing households.

Yes, much of the increase can be attributed to the governments controversial Cash-for-Clunkers and New Home Buyers refundable tax credit program. The real test for the economy will be the upcoming Q4 2009.

Most economists don't expect the economy to grow quite as much in coming quarters, but they aren't forecasting a double-dip recession, either. Most see growth in the 2% to 3.5% range. The adjustment in inventories could add to growth for several more quarters.

The big question confronting policymakers, investors, consumers and economists is whether the economy will be able stand on its own as the federal government's stimulus begins to wane.

Here is a breakdown of this quarters GDP drivers:

2.36 percentage points of the 3.5 percent third-quarter growth in GDP came from consumer spending. Car sales alone represented 1 percentage point of total growth, reflecting the success of the government's Cash for Clunkers program.

This is the biggest question facing the fledgling recovery, given that consumer spending represents 70 percent of total economic activity. Can consumers keep spending with unemployment at a 26-year high of 9.8 percent and expected to keep rising until next summer?

1.22 percentage points of the 3.5 percent GDP growth came from investment, with nearly half that strength coming from a surge in residential construction, an area that had been plunging since 2006.

The $8,000 new home buyer refundable tax credit was a major contributor along with falling prices. much of Business spending on computers and other equipment showed gains but spending on commercial structures such as office buildings and shopping centers continued to decline.

0.48 percentage points of GDP growth in third quarter came from the increase in government spending.

All the strength in third-quarter government spending came from a 7.9 percent rise in spending at the federal level, reflecting in part the boost from the stimulus program. That offset a 1.1 percent drop in state and local spending, where budgets have been hard-hit by the recession. The expectation is that the stimulus program, which is helping states weather the recession, will keep government spending growing in coming quarters.

Baltic Dry Index Rising Again

In September the outlook for shipping and dry bulk shipping rates, was very poor even while the stock market surged up in September. The video above tells the story. But in October the rate has moved up, as world trade in the Atlantic is expanding.

The Baltic Dry Index is a daily average of prices to ship raw materials. It represents the cost paid by an end customer to have a shipping company transport raw materials across seas on the Baltic Exchange, the global marketplace for brokering shipping contracts. The index is quoted every working day at 1300 London time. The Baltic Exchange is similar to the New York Merc in that it is a medium for buyers and sellers of contracts and forward agreements (futures) for delivery of dry bulk cargo. The Baltic is owned and operated by the member buyers and sellers. The exchange maintains prices on several routes for different cargoes and then publishes its own index, the BDI, as a summary of the entire dry bulk shipping market. This index can be used as an overall economic indicator as it shows where end prices are heading for items that use the raw materials that are shipped in dry bulk






This would be a good time to consider names like DRYS, EGLE, DSX or GNK.

US National Activity Index

Consumer sentiment is greatly impacted by the jobs market and their perception of the USA economy going forward. Consumer sentiment began rising in the first two quarters but has most recently declined.

The magnitude of the surge in the stock market was a surprise to everyone. Examining the US National Activity Index helps us better understand the panic market selling in Q4 2008 and Q1 2009 followed by the biggest V-shape market bounce back from the deep dark abyss since the 1930's.


CHICAGO FED Business Activity Report-- At –0.63 in September (up from –0.96 in the previous month), the index’s three-month moving average, CFNAI-MA3, suggests that growth in national economic activity was below its historical trend. However, the CFNAI-MA3 in September improved to a level greater than –0.70 for the first time since the early months of this recession. For the four previous recessions, the first month when the CFNAI-MA3 was above –0.70 coincided closely with the end of each recession as eventually determined by the National Bureau of Economic Research (see top chart above showing the last three recessions).


The chart above shows the monthly change in the CFNAI-MA3, which has been positive for the last eight months (February through September), the first time since 1975 of eight consecutive monthly increases, and similar to the seven consecutive monthly increases from December 2001 to June 2002 that marked the end of the 2001 recession (see shaded areas).

What is the National Activity Index?

The index is a weighted average of 85
indicators of national economic activity.
The indicators are drawn from four
broad categories of data: 1) production
and income; 2) employment, unemployment,
and hours; 3) personal consumption
and housing; and 4) sales, orders,
and inventories.

A zero value for the index indicates that
the national economy is expanding at its
historical trend rate of growth; negative
values indicate below-average growth;
and positive values indicate above-average
growth.

The Committee Failed America

In 1987 Ronald Reagan's, anti-government free-markets philosophy had gained a solid foothold in the American economic physic.

The newly appointed federal reserve chairman Alan Greenspan (an Arthur Burns protégé) subscribe to economist Milton Friedman and philosopher Ayn Rand's laissez-faire philosophy of no government intervention.

In the early 90's a powerful private financial committee was formed in Washington D.C. to promote the free-financial markets philosophy and to overturn the last great regulation hold-out from the 1930's financial crisis, the Glass-Steagall Act. The boys title for the bill was 'The Financial Modernization Act.' And so if you don't want to modernize, I guess you're considered hopelessly old fashioned."

By 1999 TIME's World section, takes you inside the most powerful economic triangle in Washington in its cover story on the Committee to Save the World, a.k.a. Fed Chairman Alan Greenspan, Treasury Secretary Robert Rubin and Deputy Treasury Secretary Larry Summers.

The Glass-Steagall Act was created after the first great financial crisis

The Glass-Steagall Act is the Depression-era law that separated commercial and investment banking. It was functionally repealed in 1998, when Travelers (the parent company of Salomon Smith Barney) acquired Citicorp. And it was officially repealed in 1999. And just seven years later the world found itself in another 1930's style worldwide financial crisis.

Recent events on Wall Street...the failure or sale of three of the five largest independent investment banks-have effectively turned back the clock to the 1920s, when investment banks and commercial banks cohabited under the same corporate umbrella.

Ironically the very ideology that said monopolies are bad and capitalism should allow bad businesses to fail...failed us. In the end we had private Capitalism of profits and excessive compensation but when the losses from those bad decisions came they were Socialized with taxpayer money. Amazingly both right and left wingers came together to say, "No Bail-Outs". Yet, the fear of systemic risk ( finance code for risk of collapse of an entire financial system or entire market ) seemed so great two presidents of two parties came to the same conclusion, government action not in action was required.

The architects of that failed philosophy now get promoted to clean up the mess. Thank you, Timothy Geithner and Lawrence Summers. These boys have make a great political living for themselves. Here is just one recent article on Larry Summers connections.

The Young Turk Gives Greenspan Advice


Last October Alan Greenspan, former Federal Reserve chairman, at a hearing on Capitol Hill (during the financial crisis) makes a profound self discovery. Greenspan Concedes a possible flaw in his thought process. This is classic Greenspan. He's incapable of admitting mistakes were made. Instead he carefully admits there may be a "flaw" in his ideology that says less financial regulation is always better for the public. He talks as if his decisions were based upon scientific models and rocket science rather than personal opinion.

Alan Greenspan is a classical intellectual. He's ideally suited to discuss macroeconomic issues, musical history and Adam Smith or Ayn Rand philosophy. Unfortunately that background is of little value in monitoring the realities of microeconomic details and human nature. He's not the type of detail oriented person you need to develop a minimal intrusive yet efficient and effective regulation system to protect America. And paradoxically the man who believed in free-markets and Laissez-Faire/hands-off government was in charge of the Federal Reserve, an entity created by government.

Over the last 10 years I've had the pleasure of listening to Treasury Wizard Greenspan speak many times. He is the master of grace and speaks with such elegance. Greenspan, a musician at heart, could make words dance to please democrats and republicans alike. Unlike others, I do not blame a few men or one party for the greatest financial crisis of our lifetime. There is plenty of blame to go around in Washington D.C., Wall Street and on Main Street. What's done is done. The question is will anything change for the better?

Listen to the PBS Frontline Special Report ( $25 DVD Video) for free (while we still have the viewing rights) below.

Shattering Glass-Steagall

The Senators, Economist and Glass-Steagall

Worldwide Bounce Back

The worldwide recession appears to have ended, with surveys showing manufacturing activity is on the rise nearly everywhere. “It is the emerging markets that are leading, with the U.S. following and Europe lagging,” said Chris Williamson, the chief economist of Markit, a company that surveys manufacturers in many countries.

The surveys, conducted in the United States by the Institute of Supply Management and in other countries by Markit, measure not the level of manufacturing output but the way it is changing. The surveys have a reputation for showing turns in the economy, often before other indicators do. In the charts above, the index figures have been converted to show the number of points over or under 50 for each of 12 countries, from the end of 2007 through September.

While details vary, the slump was sharp in nearly every country, reflecting the sudden decline that came after Lehman Brothers collapsed in September 2008. That worsened a credit squeeze, which meant some companies had no choice but to cut back on everything they could, from inventories to marketing expenditures to jobs. Others, fearing that the economic outlook could become much worse, cut back voluntarily.

It now appears that companies cut too much, and the surveys of manufacturing show that companies are expanding in most countries. Over all, the surveys indicate that the manufacturing sectors of China, Taiwan, South Korea and India had begun to grow by April, but that the United States did not follow suit until August.

Source: New York Times

Brand American Rising?

Every now and then you come across a little piece of news that has great importance, yet is under reported in today's news sensation world. Here is such news. If I'd heard it from a friend I'd say that's not possible (not that I'd expect the USA to be in the bottom 10). What does this have to do with investing? Peoples attitudes about countries affect their desire to invest in the companies of that country.

Why the change? Why does the ranking shake out this way?

NEW YORK, Oct. 5 /PRNewswire-USNewswire/ -- Brand America is now ranked #1 by global citizens, according to the GfK Roper Public Affairs & Media, a division of GfK Custom Research North America. Results from the 2009 Anholt-GfK Roper Nation Brands Index(SM) (NBI), which measures the global image of 50 countries, show the United States taking the top spot as the country with the best overall brand, up from seventh last year.

"What's really remarkable is that in all my years studying national reputation, I have never seen any country experience such a dramatic change in its standing as we see for the United States in 2009," explains Simon Anholt, NBI founder and an independent advisor to over a dozen national governments around the world. "Despite recent economic turmoil, the U.S. actually gained significant ground. The results suggest that the new U.S. administration has been well received abroad and the American electorate's decision to vote in President Obama has given the United States the status of the world's most admired country."


Anholt-GfK Roper Nation Brands Index(SM)
Overall Brand Ranking
(Top 10 of 50 Nations)

2009
1 United States
2 France
3 Germany
4 United Kingdom
5 Japan
6 Italy
7 Canada
8 Switzerland
9 Australia
10 Spain, Sweden (tie)

Source: 2009 and 2008 Anholt-GfK Roper Nation Brands Index(SM)

"This improved perception of the U.S. is not only in the area of Governance, there are improved perceptions for People, Culture and even Tourism of the United States," adds Xiaoyan Zhao, Senior Vice President and director of the NBI study at GfK Roper Public Affairs & Media. "While most nations' reputation does not undergo major change from year to year, the U.S. has clearly bucked the trend. What's key for the U.S. and other world's leading nations is to strike while the iron is hot and develop focused policies and communication that draw businesses, financial investors and tourists -- in order to help lift their national economies and their global credibility."

The NBI is based on a global survey in which people from across 20 major developed and developing countries are asked to rate each nation in six categories: Exports, Governance, Culture, People, Tourism and Immigration/Investment. The NBI ranking is based on the average of these six scores.

Turning to the rest of the NBI rankings, mostly the same countries are in the top ten as in 2008 - but also with some shifts in position. France again captured second place overall, while Germany and the United Kingdom fell to third and fourth, respectively. Japan (5th) and Italy (6th) did not shift rankings from 2008. However, Canada lost ground, slipping from fourth last year to seventh in 2009. Switzerland, Australia, Spain and Sweden round out the top 10.

Other major movers in the overall ranking include several developing countries - such as China, which climbed several spots from last year to 22nd in 2009.

This year's NBI study also includes questions on the impact the global economic crisis is having on people's opinions and perceptions towards the nations tracked. Top-line results from this area will be released late fall 2009.

To request a copy of the Anholt-GfK Roper Nation Brands Index(SM) (NBI) 2009 Highlights report or for more information on the Anholt-GfK Roper Nation Brands Index(SM) (NBI) and Anholt-GfK Roper City Brands Index(SM) (CBI), please visit www.gfkamerica.com and/or www.simonanholt.com.

About the Anholt-GfK Roper Nation Brands Index(SM)

Conducted annually in partnership between independent advisor Simon Anholt and GfK Roper Public Affairs & Media beginning in 2008, the Nation Brands Index(SM) measures the image of 50 countries with respect to Exports, Governance, Culture, People, Tourism and Immigration/Investment. Each year, approximately 20,000 adults ages 18 and up are interviewed online in 20 core panel countries

Given the China economic success why do you think they only rank 22nd.?

Interest Rates Foresee No Inflation

(10-18-09 update)
A run away inflation train is what many believe we'll see resulting from tons of USA money printing and borrowing.

Many of us recall the rising inflation days of the 70's exploding into ultra high interest rates that peaked around 1981. But if history is to repeat itself then we should be seeing rising interest rates in 2009 not declining (or stable) rates. And our governments selling of 30 year bonds at less than 1/2% interest rates to investors (during the fall 2008 financial panic) was the shrewd financial move of this decade. What does that make the buyers of those bonds? Can you say...fools.

The charts below show no rising interest rates (for now).

The times, as Bob Dylan sang,"..they are a changing" and someday we (USA) may have hyperinflation or stagflation again. But for the next year just expect Japanese style stagenation. After all, if the Japanese can be in a 20 year stagnation cycle of low inflation and low interest rates why can't the USA have the same. Japan has even had much lower average unemployment than the USA with low inflation. But wait, I'm forgetting one gagantic detail. Our excessive national debt. True that will come into play but I'm perdicting later not sooner.

The countries with the greatest potential for inflation are India and China. But they can view that as more a sign of their positive economic outlook and growth from much lower GDP levels of 20 years ago.

Why has the USA market continued to climb?

Less market fear and lower interest rates combined with some economic green shoots has resulted in the greatest American market bounce back since the 1930's. And lower corporate borrowing cost and slashed employee staffs mean higher future profits for large corporations even if revenues do not grow.

Forget what you want to believe and examine the data. During the 70's and 80's interest rates rose and fell but as you see in the charts below the trend was rapidly rising. This is the opposite trend of what we've experience over the last 20 years. So, while traditional beliefs may not have changed clearly the data shows something has changed. So what has changed?

What causes inflation?

Milton Friedman noted, “Inflation is always and everywhere a monetary phenomenon....It is a situation in which too few goods are being chased by too much money". The monetary policy is as lose as it gets. Economic's teaches us that inflation has two key drivers. #1. Cost-Push Inflation, workers’ ability to negotiate higher wages for themselves and business ability to raise prices. Rising commodities prices and product shortages can also cause this problem. We have neither. #2. Demand-Pull Inflation, resulting from an increase in aggregate demand, caused by an increase in money supply and increases in government and consumer purchases. We have both with one big exception. Consumer spending is only modestly recovering.

True, government gifts for spending like Cash for Clunkers $4,500 and $8,000 for first time home buyers resulted in a spike in spending. But at this point no bear or bull nor economist believes consumer spending is rapidly rising.

Therefore the U.S. monetary policy will (most likely) maintain the Fed-Funds rate under 1% through 2010. You can thank (or curse, if you have large amounts of savings earning near zero rates) our governments for keeping rates low like they did in 2001-2004. But unlike 2001-2004 we have record breaking amounts of unemployed and under employed people. And the (2001-04) housing building and spending boom is now bust. So, I'd bet we'll not see any meaningful spike inflation until late 2010.

What about our gargantuan national debt?

There’s also the inconvenient truth of U.S. debt, running up such gargantuan fiscal liabilities, both privately (consumers) and publicly. And just like the 70's once again were spending a fortune on war and the military. This time it's in Iraq and Afhganistan. Combine this with our future social security and medicare liabilities. No question we have long-term issues that could result in rapidly rising future inflation. The only hint of big inflation now is oil prices. Oil prices are now inversly correlated to the value of the dollar more than world demand and supply factors. Still one big variable has changed from the 70's that is keeping inflation low.

One big change from the 70's. One word. CHINA.

Yes, our enemy for 35 years has evolved into the worlds factory for cheaply built products (thanks to it's inclusion into the World Trade Organization). China has become our banker and product supplier. We have become their most important export market. We are their consumer market.

Why all the worry over China's willingness to lend us money? Why the worry over China dumping dollars? Why the worry over China wanting to cash in their USA treasury bonds? Folks, forgive my bluntness but these are nonsense worries (if only in my mind). It's like saying we need to worry about drug dealers not wanting to sell drugs for profit and employment to drug users.

I hear a few people saying: what is this Madman-Across-The-Water saying?

Think about this. The USA is China's number one export market. China will gladly work to keep us (and the world) addicted to buying their goods to keep their labor force employed. And do you really believe that China wants to kill the U.S. Goose that lays their golden eggs? No. Just because you're a Communist does not mean you're an Economic Neanderthal Man. There's no better way to beat a Capitalist then at his own game and on his home field!

30-Year Conventional Mortgage Rates, 1971-2009:


30-year Treasury bond yields, 1977-2009:


Baa Corporate 30-year Bond Yields, 1962-2009:


AAA Corporate 30-year Bond Yields, 1962-2009:


Prime rate, 1955-2009:


Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. He (and many other economist) have pointed out that historically low 30-year mortgage rates reflected relatively low market expectations of future inflation. Some commenters (and Robert Shiller on CNBC) pointed out that the Fed is buying mortgage securities, which is temporarily keeping 30-mortgage rates low, rather than low inflation expectations keeping rates low.

What we believe and what is, are often two sides of a coin.

But the charts above show that other long-term rates (30-year Treasury bond, 30-year AAA corporates and 30-year Baa corporates) are historically low, as well as the prime rate being historically low, and these low rates wouldn't necessarily have anything to do with Fed purchases.

Question: How could all of these long-term rates be so low if there were inflationary pressures building up in the economy, which would lead to higher expected future inflation, and higher nominal long-term interest rates, and not historically low long-term rates?

We each have different inflation rates.

Now when it comes to inflation, each person or family will have a different index based upon what you must buy and want to buy. If you are an older American family, whose house was paid off years ago and who now needs to spend large sums of money for health care and college education (for your children or grandchildren) then your real inflation rate is sky high.

If you are young with no health care expense and renting or buying a home at today's ultra low mortgage rates along with lots of fantastic electronics goods at excellent low prices your inflation rate has been declining dramatically from 20 years ago. In the 70's I recall getting annual letters from my landlords explaining why due to inflation my rents would be rising by 7% even thought 85% of the landlords ownership cost in the property were fixed. But everyone just came to expect rising rents. Today rents have not only been level but in many cases they had to declined to keep renters. Each person or family's situation will be different.

But while each person's inflation index will be different, in aggregate the USA CPI is still the best gage of our nations inflation rate (consistently applied over time). I would agree with the debate that we need to examine the relevance of the variables making up the index to our lives and required expenditures' vs. desired expenditures'.

Buy Doom Sell Boom

Now that the DJIA just hit 10,000 (again) I thought it would be interesting to listen to what the wanabe market gurus and high paid experts were saying in the first half of this year. Here are just two examples of the many classic doom perdictions.

I'll be the first to admit the most advance I was looking for was DJIA 9,500. But it has become clear to me I need to be looking to buy stocks on break-outs and pull-backs. And one can always find lower risk stock laggers to hold into year-end (as discussed in prior articles). Each day as I scan the market details I continue to find strenght in many stocks. Many stocks are above their 2007 levels. A few with excellent earnings outlooks like Apple and IBM are near their 2008 all-time highs!

But even in July, I was reading non-stop articles on SeekingAlpha.com from their mega posters preaching how, at DJIA 8,200, the market was due for a correction back to 6,500. When it didn't happen they wrote articles telling you why the market was wrong and they were right. The real problem was just to many kids with great educations but like knowledge of market history.

The lesson to learn? One must establish a long-term savings and investment plan. And one must understand that the market is a leading economic indicator not a lagging indicator. If you wait to invest only when the economy is ideal...you are too late! If you only invest when the economy is horrible and the market has declined by 40% you certainly stand a better chance at higher long-run returns.

What now? You, need to understand this market momentum can continue to push the market up, back to last summer's pre-Lehman Brothers collapse levels ( around DJIA 10,500 or S&P 1200 ), by year's end. Yes, at this point forget thinking you will see a 10% correction, about the most we'll get is 5% because traders and investors see benefits in buying the dips again. Now this momentum can turn negative in 2010 just as it did in 2002. But as professional traders say, "You need to trade the market you see not the one you think it should be" and "The trend is your friend" the two best money making ideas they never taught me in BBA or MBA investment classes.



The young man above was just one example of how individuals will extrapolate out the current trend (when making market predictions). Listen to one of the many high paid experts who was perdicting the DJIA would fall to 5,500 and the S&P 500 would fall to 400! Folks the S&P 500 is now at 1,100 ---- 275% above this guys perdiction.

In September I gave readers just one more example of how Blogger Youthful Investment inexperience (in understanding stock markets and the data behind charts) cost his followers thousands
Eleven Reasons These Charts Are Worthless

6 Articles 92 Stock Ideas

Want a stock idea that has been prescreened from a trusted source. Here you go...6 articles and 92 stock ideas. What's your favorite stock to buy now? Why?

5 small-cap stocks to buy now

5 Best Stocks to Buy Now

12 top stocks to buy at the bottom

4 Cheap Stocks to Buy Now

6 Best Stocks to Buy Now

7 Dividend Stocks Increasing Cash Payouts

33 Relatively Safe Dividend Stock Yields

20 Stocks with the Potential to Pop

Dividends For Defensive Investors

Turning to dividend-paying stocks in times of market turmoil is not a new concept. In fact,noted analyst Benjamin Graham recommended shares of large, prominent and conservatively financed companies as a defensive equity strategy when he wrote The Intelligent Investor more than 50 years ago.

And with a population of nearly 80 million baby boomers starting to retire, this need for income will become even stronger. With longer life expectancies and the potential for rising inflation, income-seeking investors will need to make sure their money continues to grow.

Consider the facts uncovered in a Legg Mason Study:

Especially relevant to today’s volatile markets is the record of outperformance that dividend-paying companies have posted in down years for the market. Our chart below illustrates how, since 1980, dividend-paying stocks of S&P 500 Index have outperformed non-dividend-paying stocks in each year the broader index generated a negative total return. Dividend-Paying stocks have outperformed non-dividend-paying stocks in down years for the S&P 500 Index (%)

Especially in a difficult equity market, dividends do matter.

• For the defensive investor, dividends have the potential to cushion returns in a down market period, as they have in every down market period since 1980. Of course, past performance is no guarantee of future results.


• As illustrated the Legg Mason study of Standard & Poor’s “Dividend Aristocrats,” on the front side, companies with a long-term history of rising dividends have generated higher total returns with lower risk over time.


• Remember, too, that dividends have always been an important component of total return, especially when they are reinvested and compounded over time. As illustrated in the Legg Mason study, $1 invested in the S&P 500 Index from 1929-2008 would have grown to $37; but with the reinvestment of dividends, the same $1 would have grown to $929.
  
  Note: Past performance is no guarantee of future results. All
  investments involve risks, including loss of principal
  amount invested. Common stocks are subject to market
  fluctuations. Dividends and yields fluctuate and are
  subject to change. Yields and dividends represent past
  performance and there is no guarantee they will continue
  to be paid. While dividends may cushion returns in down
  markets, investments are still subject to loss of principal
  amount invested.

Recent Article on Which Dividends Are Safe Now?

Unemployment Ominous Jobless Recovery

In my prior post I reported on the speck of light we saw in the Septembers unemployment report. We said the positive sign was the fact that new unemployment claims as a percentage of the labor force had declined. This was a positive sign relative to the recessions we had in the 70's and 80's.

Now for the really bad news. As a result of are outsourced and imported economy, beginning in 1991 American began experiencing what economist call "jobless" recovers. In other words unlike the 70's and 80's were we saw big spikes in job hiring at the end of recessions, we no longer see large job creation improvements.

Why? Because unlike the 70's and 80's we now purchase much (maybe most) of what we buy from foreign lands. In fact the economic training I and every economist gets totally ignores the negative impacts of importing more than you export. Instead economist will dwell all day on elementary examples of the benefits of "Comparative Advantage" which like their theory of "The Rational Man" has value but are far to simplistic to exist in a complex world of humans and changing economic tides. And so it is you will be hearing more of this cherry coated term, "jobless" recovery in the future.

Yes, economist called attention to this in the 1990-91 recession when unemployment continued to rise after the "official" recession end. The chart above shows the monthly U.S. jobless rate back to January 1990 (BLS data here), highlighting (in grey) the 1990-1991 and 2001 recessions, and the two periods following the last two recessions that were referred to as the periods of "jobless recovery." Following the 1990-1991 recession, the unemployment continued to increase for 15 months until it peaked in June 1992 at 7.8%, and following the 2001 recession, the jobless rate increased for 19 months until June 2003 when it peaked at 6.3%.

Assuming that the most recent recession ended in June 2009 (as many economist believe) and we have another jobless recovery of at least 16 months, we can expect the unemployment to realistically continue to increase at least through the end of 2010 before it reaches its post-recession peak in the current "jobless recovery."

How can this impact the stock market? Well, the most recent example was the 2001-2003 market which climbed for months after the 9/11 final sell-off which proved to be the end of a much shorter recession. But by March of 2002, after a period of inventory restocking similar to our current experience the market fell for 9 straight months back to its 2001 lows before rebounding again in 2003 when unemployment finally began declining.

Let's just hope history doesn't repeat itself.

New Unemployment Claims Show Hope

You can forget using cold heartless statistics to define the difference between a recession and depression for a family. Former President Harry S. Truman defined it best without using one number. He said, "It's a recession when your neighbor loses his job; it's a depression when you lose yours."

Yes, unemployment is now standing at 9.8% and that's bad. I'm not here to paint you a rosy economic picture. But one must always keep in mind night is followed by day. Actual unemployment is considered a lagging indicator while changes in weekly unemployment claims is considered a leading indicator of what's to come. And there we are seeing signs of light on the horizon. Signs that daylight is coming.

This chart shows weekly claims as a % of the total workforce. That percentage dipped with last week's report to its lowest level for the year. Comparing the severity of this recession to others based on this metric, we are in better shape now than in the recessions of '74-'75 and '81-'82. The economy is now about 3 months into a recovery with a workforce disruption metric that has fallen to 0.42%. It took almost one year of recovery for that same metric to drop to this level following the '81-'82recession, and almost 18 months of recovery following the '74-'75 recession.

Now, I find this little speck of light positive for another reason. Back in the 70's and 80's it was easier to have a more powerful job creation uptick when the economy was improving due to the lack of outsourcing jobs to foreign countries back then. It would also be interesting to know how high the underemployment rate reached back then compare to now.

If anyone has any additional interesting facts to add about last weeks unemployment report, please let us know. Here is the official American September Unemployment Report for all to see.

Conservative Investors Should Consider Dividends

In today’s low interest rate environment with $3.5 trillion dollars earning almost zero, concervative investors might want to consider investing in financially strong blue chip companies that offer the potential for stable and solid dividends. A filtered of the 200 largest U.S. stocks (by market cap), reveals the 20 highest dividend yield companies (sort by yield %).

Company, Ticker, P/E, Yield & Debt/Cash Flow

Reynolds American Inc. RAI 16 7.4% 2.3
Altria Group Inc. MO 12 7.4% 3.4
Progress Energy Inc. PGN 14 6.3% 13.6
Duke Energy Corporation DUK 17 6.2% 6.0
AT&T, Inc. T 13 6.2% 2.1
Consolidated Edison Inc. ED 16 5.9% 14.7
Lilly & Co. LLY 5.9% 1.4
Verizon Communications Inc. VZ 14 5.9% 2.3
Southern Company SO 15 5.6% 7.7
Bristol-Myers Squibb Co. BMY 8 5.6% 2.1
Lorillard, Inc. LO 13 5.5% 0.9
Spectra Energy Corp. SE 13 5.3% 5.9
Dominion Resources, Inc. D 12 5.2% 4.4
American Electric Power Co. AEP 11 5.2% 7.7
EI DuPont de Nemours & Co. DD 44 5.1% 2.9
FirstEnergy Corp. FE 10 4.9% 4.9
PPL Corporation PPL 15 4.7% 6.9
Merck & Co. Inc. MRK 11 4.7% 2.6
Philip Morris International, Inc. PM 14 4.7% 1.9
HJ Heinz Co. HNZ 13 4.4% 4.1

Out of 20, 9 of them are utilities. Keep in mind utilities traditional carry high debt loads but benefit in todays low interest rate environment.

Out of 20, 9 of them are utilities. Keep in mind utilities traditional carry high debt loads but benefit in today's low interest rate environment.

Four of them are tobacco companies. Tobacco, specifically international tobacco, (USA market has been dying for years) is proving to be exceptionally resilient to recession. However, not all of them are created equal. For example, Reynolds American and Altria Group Inc’s payout ratios are more than 100%. The best seems to be Lorillard, Inc. Its debt to operation cash flow ratio is 0.9. In other words, in theory it could pay off all its debt within 1 year.

Three of them are pharmaceutical and 2 are tech related. Mary Buffett and David Clark point out in their new book Warren Buffett And The Interpretation of Financial Statements, what seems like a long-term competitive advantage is often an advantage bestowed upon the company by a patent or some technological advancement. If the competitive advantage is created by a patent, as with the pharmaceutical companies, at some point in time that patent will expire and the company’s competitive advantage will disappear. If the competitive advantage is the result of some technological advancement, there is always the threat that newer technology will replace it. Today’s competitive advance may end up becoming tomorrow’s obsolescence. This has always been true and one must always keep in mind change is constant. Still, it's doubtful that there is anything within the next 12 months that will radically change the investment outlook for the companies above products and services demand. And even utility stocks will benefit from a improving industrial output economy.

Mutual Funds or Exchange Trade Funds (ETFs)are an even more conservative diversified investment play. The following are the top 10 dividend ETFs(by net assets)you may wish to consider:

# Fund Name & Ticker

1 iShares Dow Jones Select Dividend Index DVY
2 Vanguard Dividend Appreciation ETF VIG
3 SPDR S&P Dividend SDY
4 WisdomTree LargeCap Dividend DLN
5 Vanguard High Dividend Yield Indx ETF VYM
6 WisdomTree International SmallCap Div DLS
7 PowerShares Intl Dividend Achievers PID
8 WisdomTree Europe Total Dividend DEB
9 WisdomTree Dividend ex-Financials DTN
10 WisdomTree International Div ex-Fincls DOO

While these are all conservative alternatives it doesn't mean they can't decline in value if the market declines. Still, for those with large stock investment exposures now (or those just getting started) these stocks are worth considering now. Most of the dividend stocks listed above have barely risen in value, as investors passed up conservative stocks in favor of the most depressed stocks over the last 6 months.

Disclosuer: I hold long positions in AEP, LLY, VZ, MO

FINRA SaveandInvest.org

FINRA BrokerCheck® This is an excellent source for investors to check out people who solicited them with investment products. You always need to know the background of the person and company you are talking with when considering investments.

FINRA saveandinvest.org is a great place for both young military people and older people wanting basic personal finance education from a trusted source thats not selling products. FINRA is the largest independent securities regulator in the US their chief role is to protect investors by maintaining the fairness of the US capital markets.



A new educational video on investment fraud is coming out soon.