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Keith Springer
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Keith Springer is the author of "Facing Goliath: How to Triumph in the Dangerous Market Ahead," radio host of "Smart Money with Keith Springer" on 1530 KFBK, editor of the Smart Money Newsletter, a market technician, a financial writer, multinational philanthropist, and... More
My company:
Springer Financial Advisors
My blog:
Keith Springer's Financial Blog
My book:
Facing Goliath: How to Triumph in the Dangerous Market Ahead
  • The Great Shakeout
    Can Stocks Rise in a Horrible Economy?…..You Bet!

    The Great Shakeout could make both sides right.

    The economy gets worse yet the market hardly budges. What gives? We’re taught that a bad economy has to be bad for stocks. However, most of us fail to look under the hood, and in this case ask two simple questions:

    Question #1: Is the economy bad?

    Answer: Without a doubt yes. Unemployment is on the rise, housing is in the dumps and local governments are insolvent.

    Question #2: Are stocks bad?

    Answer: Without a doubt, no. Earnings have been great and are expected to reach record levels this year.

    What is most interesting is that, if you look at it simply, it makes perfect sense. We are going through “The Great Shakeout”, as my good friend Tom likes to say or put slightly differently a “Zero-sum economy”. (That one’s mine but I like his better)

    The natural demographic cycle of an aging population who spends less combined with a severely over indebted population desperately in need of balance sheet repairs, cleanly creates less demand in the economy. Less demand leads to less supply needed, so fewer people are required to produce those reduced goods.

    However, what companies are doing is simply fighting for survival. They hoard cash and strengthen their balance sheets by cutting costs and laying people off. Naturally, it is survival of the fittest, making the larger corporations better able to survive an economy like this, at the expense of smaller less efficient companies. Some will be bought out, some will merge and some will go by the wayside. The great shakeout. Anyway you look at it, it leads to fewer jobs and a slower overall economy but with very selectively efficient corporations left standing.

    That’s the nature of the efficient capitalist system and there’s nothing the government can do about it. The sooner they get out of the way, the faster the real recovery can begin.

    What this does is make individual companies very attractive even though the economy “Slogs through the mud” (that one’s mine). It is these large companies that largely represent the major indexes like the S&P 500 which has only 500 stocks or the Dow Jones which has only 30 stocks. And because we focus on these indexes, it looks like the market is rising. Eventually, the bad economy will trickle up to the larger more efficient companies, which will be evidenced with poor earnings. That day is not today.

    Disclosure: "No Positions"
    Nov 16 3:48 PM | Link | Comment!
  • What QEII Means to Your Portfolio

    The Fed has analyzed the economy, and they have spoken…and coughed and choked and has set us forth upon a path once again lined with money. Mine, yours, and all they could borrow from our children. Six hundred billion more this time around, but this time will be different they say, and this time its going to work, until it doesn’t, and then we’ll print more.  

    The stock and bond markets love the idea of more new free money, as speculators and traders are clamoring over the news like an addict in need of his next fix. Never mind the fact that the Fed is not pumping more money into the economy because things are rosy. In every previous post-recession cycle, GDP growth would typically be over 5% by now, but this is not a typical business-cycle recession; it’s a deleveraging, credit-crisis recession, which take a lot longer to get through. That said, stocks can still go higher even though the economy stinks, as discussed in “Seeing the forest for the trees” .

    This new QEII is designed to put additional liquidity into the financial system through open market bond purchases, thereby driving down interest rates and “hopefully” inducing banks to lend more. Certainly, a lower interest rate environment is more conducive to recovery; however, unless banks lend more and businesses use these new loans to expand output and hire more workers, nothing will change other than we get another day older and deeper in debt.

    Clearly they are trying to buy time for the consumer to come back to their old frivolous ways of spending. Unfortunately the massively over leveraged consumer is tapped out. Add that to the natural demographic cycle of the aging baby boomer who is well past their peak spending years, and you’ve got a long wait ahead. They could make money absolutely free to borrow, and people are not going to buy houses and borrow to buy other things they don’t need. In addition, businesses are not going to borrow more simply because it’s cheap. They don’t need more debt, they need more customers!  

    Sure, this new QEII will help push the markets to new heights over the short term, and for that we should all be thankful. However, this new round of stimulus will also devalue the dollar, further lower returns for retirees to live on, and raises basic expenses for the average family struggling through this recession. However, more importantly as I have warned in issues past, it just creates another bubble just like we saw in 2000, early 2007…and we all know what happens to bubbles…they burst. Therefore investors should focus on the “Sweet Spot” in the market, but have their exit strategy ready.

    Disclosure: "No Positions"
    Nov 16 1:19 PM | Link | Comment!
  • The Great Viagra Market Thumps On!
    Whether you like QEII, QEI, or any of the stimulus measures our beloved government has bestowed upon us, it is making the here and now enjoyable. The flow of cheap/free money is definitely preventing (albeit temporarily) deflation, keeping the economy from falling back into recession and buoying stocks.

    If the economy picks up like they “hope” and the consumer comes back to their irresponsible spending ways: then all of this borrowing will be worth it. If, on the other hand, the over-indebted consumer miraculously acts responsible and continues to pay down their debts, saves even a few pennies and actually buys only what they can afford (imagine that!), then this will also fail, just as in Japan, and there is going to be hell to pay.

    Right now though, everything is just rosy (or should I say baby blue), because we are in the Great Viagra Market. Can stocks continue to rise in a horrible economy? Absolutely, but not forever. The cheap money that the Fed thrusts in will have the same effect as Viagra. Keep pumping it into the patient, and he’ll continue to smile (if there is enough blood to go around). Stop the cheap money flowing, and the economy will limp along at best. However, there is a cost, a great cost, in both dollars and heath. These pills are expensive and there’s only so much room on the credit card. Of course it all depends on how long your heart can hold out.

    Short term: The market uptrend is still intact.  

    • Investors are still too bearish. Even as stocks rose 17% over the past ten weeks, individual investors yanked more than $39 billion from U.S. stock funds and plowed $83 billion toward bond funds. Bull markets implode when investor optimism is peaking, not when investors remain so bearish.
    • Stocks are undervalued when comparing Treasury Bill Yields / S&P 500 dividend yields. Ned Davis Research (NDR) has data going back to 1930, historically when the ratio is 1.45 and below stocks have gained +12% annually (data from 1968). The current ratio is .07, you would have to go back to 1932, the market bottom during the Great Depression, to find a similar reading.
    • Corporate earnings are booming. The S&P 500 is on track to earn $85 in 2010, with analysts projecting a 13% growth rate in earnings to $96. That would be a new record high. This leaves these leaner and meaner companies being valued at just 12.7 times future profits. Only once in the past two decades has the S&P ended a year with a P/E multiple of less than 14. And that was 1994 when the Fed was hiking rates (+8% on the 10 year Treasury). Today, just the opposite, rates are low and expected to stay that way.

    Investors must look to take advantage of what the market gives you when it gives it to you. Finding the Sweet Spot is critical. The real key to market success is observing and measuring the current trends. It has guided me for over 25+ years during wars, double digit inflation, double digit interest rates, etc. By watching trends and seeing where market strength lies, it will keep us on the right side of the major trends and in the areas of most opportunity.

    Although the risks remain high for the long term, all of this cheap money has created tremendous opportunities. After all, you don’t “fight the Fed!” Low rates are here to stay, so take advantage of it. We continue to focus on bonds, preferreds and high dividend paying stocks, many still yielding 8-10%. In addition, our TDT™ Protected Dividend Strategy is tailor made for just this type of market. This will provide great returns with downside protection when the market starts to slide.

    Disclosure: "no positions"
    Nov 15 3:59 PM | Link | Comment!
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