Mike Kayes, CFA

Wells Fargo Earnings: First Leak in the Dam?

The real question is what is driving the stock market rally (now in its 7th month) and will it continue? The financial sector represents less than 15% of the S&P 500 so it makes sense to look at the other 85% as well. Corporate earnings have, generally speaking, outpaced expectations in the most recent quarter. Primary driver has been productivity gains, as companies continue to find ways to beat on the bottom-line despite relatively lackluster top-line growth. How long this trend can continue is tough to say, but my sense is companies will continue to find ways to accomplish more with less. And it is hard to see another significant leg down, like the 1929-30 comparison, while corporate earnings are so strong.

The Greatest Depression Is Coming

While it may be challenging at the present time, I have tremendous faith in the resiliency of the American people. While clearly the job market is difficult, people are starting to, and will continue to execute Plan B. Some have found similar positions in the same industry, many have started their own businesses, while others have changed careers altogether. The Great Deleveraging Cycle, we are now experiencing will be painful, but we will get through this.

Banking analyst Dick Bove says he's out of the instant-analysis game - shedding some light on the seeming contradiction between his positive morning CNBC comments on Wells Fargo (WFC) and a downgrade to "sell" that helped spur an end-of-day market selloff yesterday. "I’m not going to do it anymore. I’m going to have to see the numbers before I go on air," he says.

That is the problem with the "CNBC world" we live in. Too many people saying too much without thorough analysis. The process should always be: research, discovery, then report. Our soundbite society has it in reverse - say something, then think of a way to shape the data to back up what you just said. Want to make sound long-term investment decisions? Turn off CNBC.
Mike Kayes, CFA
Willingdon Wealth Management

A Crude 10 Year Perspective: The DJIA, Oil and Gold

This is really old news. Just when it seems like a no-brainer to predict that oil or gold will continue to outpace stocks, based on the relative performance over the last ten years, is the time that the reversion to the mean begins to take hold. How many people predict stocks will out pace gold and oil over the next ten years? Not many, I suspect, which is why it just might be the time to over weight stocks relative to oil and gold.
willingdonwealth.com

My Best Buy Concern

Despite the difficult economy there are still a lot of consumers who have more money than time, so there is a need for some level of in-store expertise to help these people make purchase decisions. While opportunities do exist to find cheaper solutions on-line, the time and potential confusion related to doing on-line research into consumer electronics purchases makes the in-store Best Buy experience much more palatable in many instances. My sense is that customer satisfaction at Best Buy is relatively high.

Investing in Basic Needs: Hedging Your Expenses

The idea that one can hedge against the expenses related to basic needs is idiotic. I am resigned to the fact that I have to buy toothpaste every once in a while. To think I can somehow hedge this expense by buying shares in Procter and Gamble (as I prefer Crest toothpaste) and that somehow if I brush my teeth a lot, then my investment in PG will pay for my expenses makes absolutely no sense. Same applies to buying shares in XOM to hege the fact I have to fill up my car with gasoline once a week. There are many variables which affect stock prices, but my personal consumption is not one of them, nor should it play a meaningful role in any investment decision process. The author's basis for thinking that personal preferences should be correlated to investment decisions is based on his mistaken belief that everyone can become their own financial advisor. Even if I asked my entire home town how much they floss, this does not make me a dentist. A prudent, value-added financial advisor understands that there is a lot more invovled in the investment decision process than intuition and anecdotal evidence. A knowlege of accounting, economics, competitive position analysis, and years of valuation experience, to name a few. If 2008 has taught us anything, it is that investing is a risky business and that relying upon a true professional, one that employs a time-tested disciplined process to make investment decisions, is the most prudent strategy. One last point - the author also seems to believe that if we watch the masses then we can know how to invest. Following the heard is only a good thing to do from an investment perspective when the heard is moving in the right direction. Often it is not. Conversely, being a contrarion doesn't work all the time either. Keep this thought from Ralph Waldo Emerson in mind when you approach investing and you'll at least have a fighting change -"It is easy in the world to live after the world's opinion; it is easy in solitude to live after our own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude."

@VIC: Unprecedented Value

While we have been doing selective buying also, I remain very wary that perhaps prices can still move lower near term. I do agree with the "value buyers" that long term, there are a lot of very inexpensive, yet high quality stocks. The real key is determining which of today's "quality" stocks will maintain that status. These are attributes we look for relative to industry peer groups - low debt, high cash flow, leading market share positions, innovative product flow, top notch and focused management.

Michael Kayes, CFA
President
Willingdon Wealth Management
willingdonwealth.com

Is Best Buy a Value Trap?

The key with regard to Best Buy, during this difficult retrenchment in consumer spending, is how are they doing relative to competition? BBY is gaining share, is investing significantly more than the competition, and this will drive future growth once consumer spending rebounds. The stock is a long-term buy!