Archive for the “Money News” Category
Posted by: in Money News
Filed under: Rants and raves, Home Depot (HD), Lowe’s Cos (LOW), Presidential elections, Headline news, Stocks to Buy
 The first major economic act of presidential hopeful Barack Obama will be to add Hillary Clinton to the lower half of the democratic ticket. If he does not, he will be throwing caution to the wind.
All indications are that he does not want to do this and hopes he’ll not have to — but he might not have any choice.
It is just good business and if he is too stubborn, too arrogant, or just misguided by favorable polling numbers, he should think again. There are several Hillary supporters who will find McCain more centrist than Obama and switch parties. There will be very few, if any, to the right of McCain who will vote for Obama. They are more prone to not vote than support Obama.
Adding Hillary Clinton, in most people’s eyes, will slam dunk the presidential race and if Obama does not make this tough decision, putting success in front of politics and personalities, then I am afraid all his speak of being able to stand up to special interests and take the heat in the kitchen is just that.
You can’t hope to lead the nation if you cannot make a tough call before you even get to the Oval Office. Success in business, as with life in general, is all about making the tough call. Earlier in the month I did so with Serious Money: Tempting fate with 10 financials.
Today I’ll do so again by suggesting that it is time to get back into Home Depot (NYSE: HD) and Lowes Co (NYSE: LOW), two stocks that would be on the most hated list if there was one.
Both companies reported continued losses and most people hate the stocks right now. The prognosis for the housing market is still poor and consumers are cash-strapped and credit-restrained. However, Home Depot remains optimistic. Both companies have clean balance sheets and Home Depot is my favorite of the two because of the absence of debt and the 3.27% yield.
Home Depot shut yesterday at $26.96 and Lowes closed at $24.54. They are about 50% off their respective highs. If you think it’s too early, put them on your watch list and if you are correct you can purchase them cheaper. Or for you options players, perhaps doing puts would grant you to make some side money while you wait.
In my thought, you would be buying quality enterprises cheap for the long haul that’ll have competitive advantages over any upstarts when the economy picks up. Even if it does not do so soon, historically, homeowners and do-it-your-selfers will lend support to the stocks at these levels.
A glimpse of my track record: Serious Money: How safe were BRK, BUD, PG, SO, & UPS?
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I do not own shares of HD or LOW today.
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Posted by: in Money News
Filed under: Market matters, Federal Natl Mtge (FNM), Headline news, Housing
 Barron’s (subscription required) cites a government source who warns that absent raising at least $10 billion in capital each, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) common and preferred shareholders will be wiped out or severely wounded in a government takeover of the two Government-Sponsored Entities (GSEs).
The problem with Fannie and Freddie is that depending on how you count the beans, their liabilities are worth more than their assets. Using so-called fair value bookkeeping — which marks their assets and liabilities to immediate market value — Fannie is worth $12.5 billion (a sliver of equity supporting $2.8 trillion in assets) and Freddie has a negative net worth of $5.6 billion. Others compute that both have a negative net worth of $50 billion.
The Bush administration wants to gut these GSEs (they’re Democratic strongholds). How will the GSEs perish? Barron’s reports that if Fannie and Freddie fail to raise at least $10 billion in fresh capital, the administration is “likely to mount its own recapitalization, with Treasury infusing taxpayer money into the enterprises. The infusion would take the form of a preferred stock with such seniority, dividend preference and convertibility rights that Fannie’s and Freddie’s existing common shares effectively would be wiped out, and their preferred shares left bereft of dividends.” But wait, there’s more.
The White House also wants to exact vengeance on Fannie and Freddie’s management. It will replace management, limit their investments, and sell their assets before reselling them to the public or merging them with other GSEs. In particular, Barron’s writes that “Treasury would install new management and directors at both, curb the GSEs’ sometimes reckless investment and guarantee operations, and liquidate in an orderly fashion the GSEs’ troubled $1.6 billion in on-balance-sheet investments. Then the companies could be resold to the public without their explicit government debt guarantees, or folded into government agencies like Ginnie Mae or the FHA.”
Whatever amount of taxpayer money is used to bail out Fannie and Freddie, I hope that the government uses the $38 million earned by taxpayers such as Richard Syron, Freddie’s CEO, and the other executives and directors of Fannie and Freddie, before it uses my taxes. Then they have the ability to go after the pay of those government regulators who were supposed to be supervising them.
They should pay the first price for their mistakes.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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Posted by: in Money News
Filed under: Rants and raves, Presidential elections, Oil, Headline news, Federal Reserve
 Republican presidential nominee-in-waiting, John McCain is going to be all smiles as we approach the November election. If you are a conspiracy theorist, or just find it a curious irony as I do, you must be noting that, just this week, the Federal Reserve decided to leave the Fed loan rate at 2%, the Iraq and U.S. governments are negotiating a withdrawal timetable for our troops, and oil prices are falling fast.
All of these headline-worthy items will benefit the Republicans more than the Democrats. Furthermore, all of these improvements will help the folks on Wall Street and Main Street. The stock market is way up today, they state on dropping oil prices: Stocks jump as oil prices fall sharply.
This has the taint of political engineering or “electioneering,” even if it is just coincidence. Maybe the world is just happy to see Dubya go into retirement … who knows?
Earlier I posted Obama’s $1000 giveaway is a take away! and now it’s time to rant about Dear John. He’s on record as claiming he has the ability to balance the federal budget by the end of his first term without raising taxes. I think we have heard that before. It’s not going to happen. Why do politicians insist on uttering such nonsense?
This ridiculous campaign rhetoric comes with ZERO corresponding thought about what major programs could be cut to even come close to this worthy goal. The answer is none that I know of.
The only way that the federal government will balance the budget will be if officials simply take more expenditures off-budget and pretend to have accomplished something. If you ask the American people what things government does extremely well, you will find agreement that it ‘pretends’ excellently.
If John McCain’s budget balancing act continues to be discussed, then he’s truly the more experienced candidate, for he can pretend with the best of them.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.
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Posted by: in Money News
Filed under: Rants and raves, Apple Inc (AAPL), General Electric (GE), Exxon Mobil (XOM), Johnson and Johnson (JNJ), Chevron Corp (CVX), ConocoPhillips (COP), Politics, Presidential elections, Oil, Headline news
 If Barack Obama is receiving advice from “my pal Warren” then he must not be listening. There’s no way that Warren Buffett, the national debt hawk, would support Obama’s stupid idea of giving another $1,000 back to every family in America. It is reported that he would pay for this by creating a windfall profit tax on oil companies.
This give-away program is an attempt to purchase votes plain and simple. It would add to the national debt, discourage oil companies from investing and worse it would handicap American companies more than others and mortgage more of our children’s futures.
The last thing the the people of the United Says need is more deficit spending. If we did tax oil companies, which I am against, I would only support using the funds for expanding education, research and development in science and engineering with the goal of maintaining our waning leadership in technology.
We need to do things that increase our productivity. Increasing our dependency on government handouts is a colossal mistake.
The so-called windfall profits of the oil companies is another thing I question. The profits are large because the demand is high and the gross receipts are high. It is simply a large number, not necessarily a high margin. When the profits were absent during periods of lower oil prices, nobody stated anything.
Here are some net profit margin facts.
Three oil companies:
Three popular large non-oil companies in three different industries:
I would much prefer to hear anything about balancing budgets, or even just slowing down spending, not more government taxing and spending. In the end Obama’s give-away would be a take-away!
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of COP, GE, & JNJ.
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Posted by: in Money News
Filed under: After the bell, Good news, Market matters, Money and Finance Today, Economic data, Commodities, Oil, Headline news, Federal Reserve, Recession
The Federal Open Market Committee issued its decision to leave interest rates at 2%. This was as expected. However, the statement was much more dovish than expected. Language in the previous statement indicating that downside risks to growth ” appear to have diminished somewhat” was deleted, and the focus clearly remained on the economic situation even though inflation risks continue to be acknowledged.
The U.S. equity markets rallied prior to the statement being released and continued after the decision was issued. Oil prices also continued their retreat.
The dovish nature of the decision was indicated by the fact that there was only one member voting for an increase. As many as three members were expected to vote for an increase. Despite the recent hawkish statements, all members voted to maintain the 2% level.
This confirms what I have said in current posts that hawkish talk does not necessarily translate into hawkish action. As I’ve stated in my book, Follow the Fed to Investment Success, “watch what the Fed does not what it says.”
The economy is still far too weak for the Fed to begin raising rates.
Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, and is the author of Follow the Fed(R) to Investment Success: The Effortless Strategy for Beating Wall Street. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.
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Posted by: in Money News
Filed under: Market matters, Money and Finance This day, Economic data, Headline news, Federal Reserve, Recession
The U.S. Bureau of Labor Statistics released the July Employment Report — it was a blended bag. Wall Street, concerned that the report would be much worse than expected, promptly breathed a sigh of relief with equity futures rallying after the release.
July nonfarm payroll employment was down by 51,000, which was less than expected. In addition, June unemployment was revised upward from -62,000 to -51,000. However, the unemployment rate was 5.7%, rising from 5.5% and was higher than expected. Hourly earnings rose by 0.3%, which was in line with expectations. Job losses were across the board, with the exception of job increases in healthcare and mining.
There was no real indication of any improvement in the economy. Why then did Wall Street react so positively? There is a huge fear that the economy is about to crash into a deep recession. This report gave at least some short-term comfort that the economy, even though deteriorating, is muddling along.
Recently, there have been other economic reports that have given positive indications. Consumer confidence came in superior than expected, and the ADP report on employment was quite positive. Additional fiscal stimulus came with the President signing the Housing bill into law. Also, oil prices have decreased. Exports continue to be the silver lining in the economic situation.
Does this indicate a bottom in the economic situation with a bounce in sight? It may indicate that at least a short-term bottom might be developing. However, I believe that a meaningful bounce is quite some time in the future.
I say this for several reasons. Current recessions have not been as severe as ones in the past. However, the recovery period has been longer and much more gradual. This is because the economy’s reliance on manufacturing has decreased. The housing crisis also threatens to be much deeper and prolonged than expected. Gas prices still remain a wild card despite the current decline.
Because of this economic weakness, I don’t believe that the Fed will be raising interest rates in the near future. As I mention in my book Follow the Fed to Investment Success, periods of loose Fed monetary policy such as this are usually associated with small-cap outperformance. This can occur even if huge stocks, such as those in the S&P 500, have problems.
Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, an independent research firm focusing on investment strategies using the Federal Reserve’s impact on the stock prices, and is the author of Follow the Fed(R) to Investment Success: The Effortless Strategy for Beating Wall Street (www.FollowtheFedtheBook.com ). He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.
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Posted by: in Money News
Filed under: International markets, China, International Business Machines (IBM), Johnson and Johnson (JNJ), PetroChina Co Ltd ADR (PTR), Huaneng Power Intl ADS (HNP), Johnson Controls (JCI), Honeywell Intl (HON), United Technologies (UTX), China Life Insurance ADS (LFC), Headline news, Aluminum Corp of China ADS (ACH), China Mobile Limited (CHL), China Med Technologies Inc. (CMED), East West Bancorp (EWBC)
 The Summer Olympics are only eight days away and what the Chinese had hoped would be their coming out celebration to celebrate all that is good, may instead become quite the opposite.
The air pollution in Beijing is so bad that even reducing vehicle traffic by 50% has not helped much. China is now considering a 90% reduction according to news reports. Athletes are staying in other countries until the games begin so that they might train somewhere they have the ability to breath. There are also reports that many athletes involved in stamina events will be forced to wear masks to protect themselves from the particulates in the air.
Now Reuters is reporting that “Some International Olympic Committee officials cut a deal to let China block sensitive websites despite promises of unrestricted access, a senior IOC official admitted on Wednesday.”
So the world media won’t be able to do their jobs in a manner they’re accustomed to. But who are we actually referring to? Western media, of course, because half the world still limits access to information to some degree.
The biggest problem for the Chinese and the West is, and has always been, one of communication. The Chinese have made great strides to improve the paltry conditions that I will not even refer to as a living standard for their people. And yes, they are control freaks. I’ve witnessed that here too, even though it is the western media that tries to balance this out. But we want to impose our rules and our timetable on another country and another people without walking a mile in their shoes.
They too don’t understand much about the West and have been a closed society for so long that what some see as limited progress is actually gargantuan. Then there’s Tibet, another controversy that will not go away in our lifetime.
In the meantime, investors the world over have been supporting Chinese markets and most massive companies can’t stop salivating over the expansiveness of China’s market potential. I own Chinese stocks and our site has posted a multitude of stories on the subject. Some of the companies worth watching include:
American companies that are likely to benefit or continue to benefit from the Chinese economy as related to pollution clean-up, management, health care and maintenance include:
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of ACH, HNP, JNJ, PTR.
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Posted by: in Money News
Filed under: Good news, Products and services, Industry, Headline news, Agriculture
 Park Falls Wisconsin is just like any of the hundreds of other bustling small towns across America. At least, it was until Monday July 14, 2008. That was the day when it was announced that the Department of Energy had awarded a $30 million grant for the construction and operation of a bio-refinery at the existing Flambeau River Papers, pulp and paper mill. The project shall be a show piece, and the first of it’s kind.
The Park Falls Herald reported that, when in full operation, the bio-refinery is expected to produce a minimum of six million gallons of sulfur-free diesel fuel annually from nonfood-based, timber and agricultural waste materials. Additionally, the bio-refinery is expected to generate at least one trillion BTUs of process heat annually, which will be sold directly to the paper mill. That exchange is expected to make Flambeau River Papers the first integrated pulp and paper mill in North America essentially free of fossil fuel usage.
The project is expected to reach operational status by 2010, and is also expected to garner the close attention of substitute energy investors and governments world wide. The project is, in part, a response to the current presidential administration’s nationwide call for increased energy independence without additional pressure being put upon the food supply. It is widely hoped that these types of refinery operations shall soon be considered for development in other suitable locations across the country.
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Posted by: in Money News
Filed under: Other issues, Market matters, Money and Finance Today, Headline news, Federal Reserve, Recession
 During the recent testimony by Fed Chairman Ben Bernanke, Treasury Secretary Hank Paulson and SEC Chairman Christopher Cox, it has become increasingly clear that the Federal Reserve will be forced at least in the near term to extend a financial lifeline to any and all U.S. financial entities that are too big to fail. This refers to entities whose failure cold endanger the U.S. economy and in some cases the global financial markets.
I’ve learned during my investment career to watch what the Fed does much more than what it states. This has been demonstrated by Chairman Bernanke’s extension of the discount window to Fannie Mae and Freddie Mac in current days despite initial indications by Secretary Paulson to the contrary. Hawkish speak remains just that, not action.
The discount window was initially intended only for regulated banks to prevent a meltdown of the financial system from bank failures. In return for this financial insurance, banks are regulated, including the charging of fees. One can debate the alternatives to such an arrangement. However, this regulatory framework will probably be with us for the foreseeable future.
Therefore, we now have a situation in which certain entities — such as investment banks which are primary dealers, Fannie, and Freddie — are getting a “free lunch.” They get the benefits of being a bank without the burden of regulation. This “moral hazard” can result in inordinate risk-taking by these organizations.
I’m reminded of the old saying, “If it looks and acts like a duck, treat it like a duck.” In this case, ” If it acts like a bank (with the associated risks of a meltdown to our financial system), regulate it like a bank.”
Since there’s no “free lunch” even on Wall Street, the government has no viable substitute at the moment. I know that this is an election year, and no one really wants to deal with this until after November. However, since Wall Street detests uncertainty even more than regulation, the executive and legislative branches must address this issue before the credit crisis will begin to resolve itself.
Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, an independent research firm focusing on investment strategies using the Federal Reserve’s impact on stock prices, and the author of Follow the Fed(R) to Investment Success: The Effortless Strategy for Beating Wall Street. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.
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Posted by: in Money News
Filed under: Bad news, Economic data, Politics, Headline news, Federal Reserve
The Wall Street Journal [subscription required] reports that Ben Bernanke’s congressional testimony is full of uncertainty. The interesting part is that he’s suddenly coming to realize that there is inflation in the economy. With oil prices up five-fold from $24 in January 2001, the dollar down 72% and food prices triple where they were a few years ago, Bernanke’s statement advocates that he his suddenly becoming aware that core inflation — which excludes energy and food prices — is not real inflation. His statement suggests he only now comes to realize that energy and food prices part of our economy too.
Investors are spooked by Bernanke’s uncertainty. I would support an effort by Bernanke to halt the fall in the dollar, but in order to make that work, the White Home will need to direct a change in policy. This would mean raising interest rates, reducing the budget deficit — including ending tax breaks for the rich and pulling the plug on high-priced wars, as well as paying down the $9.5 trillion federal debt.
Guess what? That policy will not happen under the current president. And if Paulson is serious about raising the national debt to bail out the mortgage industry, the dollar will grow even weaker. The administration’s policy of waiting until a disaster strikes to wake up and do something is costing this country trillions. I think we’re getting to the point where we need to ask whether there’s a limit to how much bailing out the U.S. can afford.
Meanwhile, if Bernanke raises rates to combat inflation, it will be interesting to see what that does to the flow of credit.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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