Mother-of-all-LEI Recovers

Did you find the sharp turn in the market upward last year surprising? Is the continued thundering stampede of bulls running upward still totally baffling to you? Yes. Well then, take a look at one of America's most accurate predictors of future economic health (above).

The LEI index (leading economic indicators) has gone straight upward,for one year. It now stands at a new four year high. A high point above the 2007 level when the DJIA reached the 14,000 level.

This has been the mother of all LEI recovers. While we're not experiencing a V shaped employment recover we sure had one of the sharpest V shaped LEI recovers in history.

Hopefully this sharp 2009 market reversal, which was even greater than the 2003 bull run has convinced everyone that, if you're going to invest in the market, you need a long-term plan. No, your plan shouldn't be: I'll only invest after everyone agrees the economy is firing on all cylinders and sell only after I've watch my portfolio decline by 50%.

Over 35 years of market experience has taught me, more than all my finance classes, that stock markets are forward looking not backward looking.

Too many people choose to liquidate all of their stock holdings during the horrible market down days of November 2009 through February 2010. Worse yet, many choose to lock in their market losses AND take the money out ignoring their Uncle Sam's 10% early distribution penalty.

So, they: 1) Locked in there market losses; 2) Where not able to take any capital loss deductions on their tax returns; 3) Had to pay a tax 10% penalty for early withdrawal; 4) Most likely where pushed into a higher tax bracket which resulted in more tax due than normal; 5) Missed out on a once-in-a-life-time market turn around.

Below are the micro details of the LEI along with economist comments. The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.1 percent in February, following a 0.3 percent gain in January, and a 1.2 percent rise in December.

Ataman Ozyildirim, Economist at The Conference Board: “The LEI for the U.S. has risen rapidly for almost a year now and it has reached its highest level. But, the sharp pick up in the LEI appears to be stabilizing. As the economy moves from recovery into early phases of an expansion, the leading economic index points to moderately improving economic conditions in the near term. Correspondingly, the coincident economic index has been rising since July 2009, albeit slightly because of continued weakness in employment.”

Adds Ken Goldstein, Economist at The Conference Board: “The indicators point to a slow recovery this summer. Going forward, the big question remains the strength of demand. Without increased consumer demand, job growth will likely be minimal over the next few months. ”

The Conference Board Coincident Economic Index® (CEI) for the U.S. rose 0.1 percent in February, following no change in January, and a 0.1 percent increase in December. The Conference Board Lagging Economic Index® (LAG) increased 0.3 percent in February, following a 0.2 percent decline in January, and a 0.4 percent decline in December.

Note: I'm still sticking to my prior post regarding caution, buying more conservative dividend plays and selling the biggest winners into this advance now. It's possible we can hit Dow 11,000, before any pull back. But I'll be selling into advances and still betting we see another 5-10% pull back beginning no later than May. See prior post for more details.

Pause or Pull Back Time ?

Ok, so we made some more money, now what? Hold'em or fold'em? I'm in agreement with Mr. DoJo above. I'll keep it simple. The probability of another two weeks like the last two is slim and none. I hate to try to play the market timing game but after a monumental run up this is a better time to sell than buy. At best I'd guess we have a sideways zigzag trending to the downside. So if you're in an index type fund and want to be safe rather than sorry sell Monday or into the next up day.

Now this is not to say in a pull back all stocks will fall. No. Some stocks will hold ground and some will even rise. But can you tell me which ones? If you're smart enough to know which ones those are please post your picks for all to see. Since I'm not that smart I'd say if you want to hold or buy some stock now than first look at those blue chips paying fat dividends which have not enjoyed any big increases like BP, XOM, LLY, VZ, T, PFE and MO. Utilities can work here too.

The oil sector service stocks that were sizzling hot in 2009's first two quarters look sick and weak. Still if you get a chance to buy RIG or DO around $80 or below do so. Mr. Cramer says buy WFT. The natural gas index UNG declined the whole month of March. While there is good reason not to like this ETF index I'm buying at $7.45-7.50 today. This index has now been declining for two years, so I'm betting my downside risk is low. A related stock pick would be CHK.

So, I'd sum up my view as selling all big winners this month and reinvesting ( or holding)1/3 to 1/2 in the areas I've discussed.

Market Making You Nervous Nelly?

In 2009 the USA market had the greatest nine month advance since the 1930's. Now what are you planning to do with your money in 2010? Do you feel like nervous Nelly?

No faith in the stock market, short-term outlook? Worried our government's monetary policy will lead to rapid inflation that will reduce the value of your high grade corporate bonds? No interest in investing in tax-free muni-bonds, because of the rising financial problems within states? Not ready to lock-in your money for 5 years in a CD paying a whopping 2.0%? Tired of sitting safe and liquid inside a stable Money Market Mutual Fund paying a ridiculously low 1/4%?

If you've answered YES, it's time to consider investing in some blue chip dividend paying stocks.

When your money earned 5.5% in safe FDIC insured bank accounts owning a stock paying 2.5% sounded unappealing. But today it's a whole different financial ball game. And you need to wake up and smell the dividends.

These companies recently raised dividend distributions, a sign of positive business outlooks.

AT&T (T), which is one of the top telecommunications companies in the US, increased its quarterly dividend by 2.40% to 42 cents per share. AT&T has increased its quarterly dividend in each of the past twenty-six consecutive years. The stock currently yields 6.00%. (analysis)

“Our 26th consecutive annual dividend increase underscores the Board’s continued commitment to stockholders and confidence in our strong financial position,” said Randall Stephenson, AT&T chairman and chief executive officer."

This was the slowest dividend increase for the telecom company in 8 years. The company already has a very high payout ratio of 83%, which leaves little room for further dividend increases, without a substantial increase in earnings per share. Still a steady rise in smart phones and iPhones sales (with consumers buying more expensive wireless internet connect services) should more than off-set landline sales declines. Verizon (VZ) which I own, is a similar investment play.

Pfizer Inc. (PFE), which engages in the discovery, development, manufacture, and marketing of prescription medicines for humans and animals worldwide, increased its quarterly dividend by 12.5% to 18 cents per share. The stock currently yields 3.90%. The company cut its dividend in early 2009 after announcing its intent to acquire rival Wyeth in a 68 billion deal. Although the dividend appears to be well covered today, the business model which had previously allowed Pfizer to raise dividends for 41 years appears to be broken. Over the past decade the company has acquired new drugs through acquiring rivals and not organically through R&D. Without solid underlying strength in fundamentals, which would propel future earnings growth, the possibility for a long-term sustained dividend growth is low.

Dominion Resources (D), which engages in the generation, transmission, and distribution of electricity. The company generates electricity through coal, nuclear, gas, and oil resources, increased its quarterly dividend by 4.60% to 45.75 cents per share. This is the seventh consecutive year in which Dominion Resources has raised its quarterly dividend. Dominion Resources (D) does look like an interesting utility company, with one of the lowest payout ratios in the industry plus some solid earnings and dividend growth. The only issue is that the company does not have a long history of raising distributions. The stock currently yields 4.50%.

Hatteras Financial Corp (HTS) invests in adjustable-rate and hybrid adjustable-rate single-family residential mortgage pass-through securities guaranteed or issued by the United States Government agency, or by the United States Government-sponsored entity. The company announced its fourth consecutive distribution increase to $1.20/share. The new dividend is 4.3% higher than its Q3 dividend, and 20% higher than the distribution from this time last year. The stock currently yields 15.80%. While the yield might be tempting it is important to understand that the company makes money by borrowing money using short-term rates and then investing it in long-term government agency bonds, while earning a return in the process. This exposes the company to fluctuations in interest rates. If the FED starts raising rates in 2010, companies like HTS might be negatively affected in the process.

Waste Management, Inc. (WM), which offers collection, transfer, recycling, disposal, and waste-to-energy services, increased its quarterly dividend by 8.60% to 31.5 cents per share. This marks the sixth consecutive year that the Company has increased its quarterly dividend. The stock currently yields 3.50%.

BCE Inc. (BCE), which provides a suite of communication services to residential and business customers in Canada, increased its quarterly dividend by 7% to 43.5 cents per share. This is BCE's third increase to the annual common share dividend since the termination of its proposed privatization agreement in December 2008. The stock currently yields 5.90%.

General Mills (GIS), which engages in the manufacture and marketing of branded consumer foods worldwide, increased its quarterly dividend by 4.2% to 49 cents per share. General Mills has increased its quarterly dividend in each of the past six consecutive years. The stock currently yields 2.80%.

This is just a small list of possibilities. I'll share with you in a future blog a list of blue chips many consider the Best-of-Breed.

Remember, I advise low net worth investors, to consider the benefits of a diversified Mutual Fund Portfolio as a safer alternative to putting all your financial eggs into a couple of stocks. The odds of us picking the next GOOGLE or APPLE stock are slim.

Financial Disclosure: On 3/11/2010 of the stocks discussed within this article I held positions in Version and Pfizer

Large-Cap Stocks Are The Cheapest They've Been In 30 Years

Barton Biggs the crusty old 1999 Bear now turned Bull is betting on one more year of another positive market.

Nothing like last year but still something better than a 1.8% Bank CD.

(This guest post comes courtesy of The Mad Hedge Fund Trader)

Confessions of a Bull. Barton Biggs, founder of mega hedge fund Traxis Partners, spent an hour outlining his current investment strategy with me. Barton is a man of strong opinions, backed with intensive research, which he communicates with his characteristic gravel voice. I spent the better part of the eighties debating every pebble of the investment landscape with Barton. As I recall, what to do about Japan was the topic of the day, and I was bullish.

Today, Barton can say with "real certainty" that large cap multinational equities are the cheapest they have been in 30 years using sophisticated models that analyze price/sales, price/free cash flow, price/earnings, and a whole host of other metrics. Looking just at price/book ratios, these stocks have been this cheap only three times in the last 120 years.

Big cap technology stocks, like Microsoft (MSFT), Intel (INTC), Cisco (CSCO), and Oracle (ORCL) are at the top of his list. Other multinationals with plenty of emerging market exposure are attractive, such as Caterpillar (CAT). The easy way in here is to simply buy the S&P 100 ETF (OEF).The market is now at a 15-16 multiple, discounting S&P 500 earnings for 2010 at $75/share. A stronger than expected economy will take that figure as high as $90/share, which the market is not expecting at all.

Barton sees the US as half way through an economic recovery, and the main benchmark indexes could surprise to the upside, as they have such heavy big cap weightings. He would avoid domestic companies, such as those in real estate, as the environment for stocks generally is poor. He foresees a "new normal" of a lot of volatility in stocks for the next 4-5 years. Longer term he sees US GDP growth downshifting from the heady 3.8% annual growth rate of the last decade to only 2.5 % in this one.

But big cap multinationals should be able to bring in a reliable 5%-6% annual return on top of inflation. Looking at the world as a whole, Barton thinks Asia is the place to be. A bubble may be developing in China, but it is at least 3-5 years off, and there will be plenty of money to be made until then. India is another big pick because it is ten years behind China, and has yet to experience its big growth spurt. South Korea, Thailand, H-shares in Hong Kong, and Turkey are also lining up in Barton's sites. Looking at a 1%-1.5% growth rate, things look grim for Europe, with the possible exceptions of Poland and Russia. Traxis is short Brazil, because it has already had a great run, and because the country still faces some severe social problems.

Commodities had their run last year, and won't do much from here, but they aren't going to crash either. He sees oil grinding up because the cost of new sources is becoming astronomically high. Barton avoids gold because it has no yield or PE, and would rather not be associated with the crazies that inhabit that space. Bonds will be deflation driven for the next year, but are definitely not for your "Rip Van Winkle" investor, as they represent poor value for money. Real estate is dead money.

To hear my interview with Barton at length, please click here.

Featured Trades: (MSFT), (INTC), (CSCO), (ORCL), (FXI), (PIN), (EWY), (THD), (EWT), (EWH), (TUR), (PLND), (RSX), (EWZ), (USO).

NOTE: Give me a pat-on-the-back for my last months call on the third mini-market correction (-7%) ending. I'll call your attention to just one good guess...AIG then $23 now $33.

Now lets just hope the market can inch out a new high. But I'd be shocked if we got above 11,000 before May. And the biggest opportunities in this bounce came from the stocks that rolled-over last Sept. many in the Oil Service and Financial sectors, along with my two China small cap. picks.