jstratt

Constructing a Cautious Portfolio for 2010

I enjoyed the perspective. Some thoughts

Japan in 80s was hugely overvalued with many stocks at 100 PE. I couldnt understand how they could be so high at the time.

Higher quality stocks that can increase earnings in tough times such as KFT, HPQ, EMR, MMM, IBM, T, VZ, PG, UTX seem good to me. A 10% return seems like a reasonable expectation.

If you look at historic PEs many stocks are trading near low decade PEs based on forward earnings. Based on valuation to expected earnings it may be a time to let things ride with quality managements in quality companies. My emphasis is on quality rather than increasing sideline cash.

Matt Taibbi: Obama's Big Sellout

I do like Matt Taibbi's writing. He has a way of crystalizing his message that is refreshing.

Hank Paulson proposing to give huge Tarp money as a gift without strings ended my years as a Republican. For the most part it will take years of voting out of office people who accept money from the investment bankers. Out! Out! Out! The government is sold out and will not change easily. Perhaps Obama is next!

People dont have much to be angry about... let s see

1) Citigroup scoring a coup that will earn them perhaps up to 1 Trillion from taxpayers

2) Goldman getting bailed out and proving it owns the government by telling them when they would pay back Tarp, at what price and that they would pay bonuses regardless.

3) We learned about flash trading and how your retirement funds can be stolen by banksters who created a system that allows them to trade based on seeing other investors information before they can trade. It is so bad and devoid of investing that a large investment bank makes money trading every day of the year ( at individual investor expense ) By the way you would be in jail if you stole money like that.

4) Dark Pools! Lets see they are dark because they work for honest taxpayers? ... right!

5) The SEC is just a regulatory braintrust... right! Did you like their agreement to make shareholders pay a 33 Million fine for BAC leaders to be absolved. The SEC should not only not be a regulator its leaders should be tried for treason.

6) The ratings agencies... Is there a chance they didnt accept money to issue fraudulent ratings which would steal from taxpayers?Funny I havent seen any atonement?

7) Matt Taibbi is much better at describing how a major investment bank is like a giant squid and detail their many misdeeds.

8) Huge Bonuses from taxpayer bailouts. The parties involved dont even understand it as theft... they think it is an entitlement for their political contributions.

9) It may just be me but Banks charging huge fees to steal from the poor offends my since of integrity. A poor little guy or gal who doesnt earn much may have 10% or 20% of their earnings conficated by the bank in fees.

10) You will likely see huge funds go to Commercial RE investors at taxpayer expense before long.

11) Did you like watching an Investment bank CEO play at a bridge tournament while his company imploded? They really hire the best and the brightest!

Merry Christmas to all (except investment Banksters and politicians accepting their bribes), and to everyone else a good night.

Richard Russell: Downturn Will Be 'Vicious'

Interesting article! When Richard Russell speaks I listen. The rally looks tired.

That said, I will offer some different points. That is to remain fully invested in quality non financial equities. Here is why

Values in my estimation are reasonable. As an example JNJ at a 14 PE is trading at a lower PE than at any time in the last 10 years prior to 2008 according to S&P. When looking at individual companies I see low valuations in many industries.

Stocks were expensive in 2000 when PEs from 35-90 were prevalent. Before Japans lost decade as I was in college it was hard to understand how PEs on the Nikkei could be 100s and DJI PEs were in the 20 range. We would later see how that worked out.

My own investing conclusions

- Expect volatility in both directions
- Long term we are closer to valuation lows than highs
- Profits are improving and that is a good sign
- Inventory drawdowns will raise production and incomes in 2010

After a crash it is always much easier to see problems and a downside. Personally I have never found a time not to invest. The opportunities are just greater now than at many times in the past. I remain a cautious bull

Chart of the Day: Leading Indicator Waves the Caution Flag

Sorry I am a bull until I see a real sign of problems.

The graphs show a line reaching toward the sky. After getting my magnifying glass out I was able to see a small drop. It is worth noting but not worth acting on at this point.

After all nothing goes straight up!

10 Reasons the Equity Rally Is Over

Excellent point by the author!

I will give David Rosenberg credit in that he sticks to his guns long after those who cared for his advise have stopped listening. Month after month after month one of the biggest rallies in history occurs just like they normally do after a free fall. If I were David I would probably keep the same outlook until I could withdraw in honor.

I also have a funny feeling that we have more pain to come in the next decade. However it is time to recognize that quality stocks still have reasonable PEs in a time of rising earnings. We will have jobs programs in an election year and rising GDP.

World leaders will balance withdrawal of support with rising economic news as they always do. The way you know when a rally is over will be when the Rosenbergs of the world capitulate.

The Destruction of the Dollar: It's Nearly Inevitable

I am confused!

We have had a growing capitalist world economy for many centuries.

Some thought things were over when the Dutch Tulip bulb crash hit in the early 1700s. People investing life savings in tulips, now that is speculation.

Some thought things were over after the Revolutionary war or the French revolution.

The US Civil war surely was going to end it all.
Then WW1
The great depression was bad
Then WW2
In my lifetime 1982 with 18% inflation and 13% unemployment seemed like the end of the world as I got out of college.

Through it all the triumph of unleashed human spirit prevailed. Some day things may end. However I doubt Paco's call in late 2009 will be when it happens. But thats just me!

Datamining Some Market Crashes

Thank you for an excellent analysis.

After a crash comes a sharp recovery and then a leveling off ( which may include a significant drop and rise). This market could rise another 20% or drop 20% and trade lateral for a year overall.

My guess is that it will
- rise into 2010
- fall on Comm RE worries
- rise on increasing profits
- fall on increasing interest rates

When all is said and done, good companies are getting stronger and more profitable. That will show up in 2010 or 2011. When it does another bull market run will commence.

Consumer Credit: The Crunch Goes On

Great article!

I do take a different view however. I view 9 months of declines as great progress. In another 6 months things may stabilize and begin to grow.

It is hard not to see all the gloom and doom. However investing based on a gloom and doom scenario after the crisis has always been a money loser for me.

If you have some stocks you want to own long term it is a great time to invest. I enjoy all the gloom and doom articles because it is one of the most bullish signals around.

What I hope some will learn is that they should alway invest in stocks.

Perhaps pull back some after peaks but never sell after a major bottom. We had stocks in March cheaper than at any time in my lifetime.

Quality stocks are still reasonably valued. Pull a Standard and Poors report and look at average 10 year PE's for a stock you are considering.

The worst thing you can do as an investor is listen to the gloom and doomers after a crash. I think a farmer would use the analogy that it is a little late to close the barn door after the Horses have run away.

2010 a Difficult Year for Equities - Credit Suisse

CS always has an interesting perspective.

Quality stocks still seem to be reasonably valued. Suggesting 20% earnings growth is rather bullish.

I think I will stay fully invested except in financials and lower rated equities.

The US is probably a better investment than Continental Europe. The returns this year from Europe have been excellent but could swing back to favor the US in the year ahead.

Our Current Economic Illusions

I appreciated the authors perspective.

I am not an expert but suspect rising stock prices are padding GDP.

Elizabeth Warren: The End of the Middle Class

So sad!

Most people that enter this world will never know freedom. We live in a small window of time where freedom is prevalent.

Unfortunately people choose to squander. The result is they lived in a time where they had the opportunity to choose freedom and chose poverty.

Let them sell their farms and businesses. Let them borrow heavily. Let them raise children without a college education. Let them buy huge homes and vehicles and motorcycles and boats and RVs and spend to their hearts content. It is a confession of ignorance!

Unlike most in history they had an opportunity. They just didnt have the moxi. Fortunately people still have a chance. They can choose to move ahead. They will just have to choose to do so.

Perhaps 20% dont have the ability, 20% can get by, 20% have an opportunity but squander it, 30% will live a reasonable existence, 5% will live well but still worry and 5% will live well.

The best news is that the end is not near. It will come soon enough! China has not evolved to choose freedom. India has a cast system which attacks those who try to rise above their class, the islamic world does not believe in freedom.

The result is the free world reigns when it is strong. However it likely squanders its inheritance as it softens and loses its edge. It has returned historically but perhaps after 1000 years. Lessons of the crusades!

Perhaps we are more evolved! When I see squander, drugs, school dropouts and lack of interest I begin to wonder!

My advise is to save at least 10% of your salary or wage. You will need it. It may sound outrageous but saving 20% is not out of the question. Either one will force choices over pure squander. If I am right you will one day be happy you chose to do so.

Consumer-Driven Deflation? Not Even Close

Excellent article!

I do question whether money is being created faster today than 4 years ago. With structured finance at its peak I think we may have had such velocity that we had a more rapidly expanding money supply.

I would like to see an article on the topic. It is my suspicion that we need more physical money to make up for an environment of lower lending and lower velocity. When a loan is created, the money supply increases is my point. We cant complain about a lack of loans and an increasing money supply at the same time.

Fixing TBTF: William Poole's Ideas

Poole has some interesting ideas worthy of consideration.

At a time when we can't even stop banks from giving huge bonuses to themselves from taxpayer money, I am finding it hard to believe in politicians ability to handle this issue.

he probably proposed these ideas and got replaced.

Goldman's Gary Cohn Rewrites History

It is hard to stand up for GS but the truth is in a banking crisis even a well run institution can get decimated. Preventing that is a proper role of government.

That said GS owns the government and feeds at the trough of taxpayers funds for political donations. Your retirement funds are at risk and any politician taking a political bribe (donation) from GS or any its employees has to be voted out of office.

Accounting Fraud and the Big Banks: Worse than Enron?

The author makes an interesting point regarding banks which may be true.

Perhaps the banks are in good shape and will not face a crisis in the next year. However it is hard to believe that with the mother of all lending fiascos being a good description of the past 7 years, we dont have more pain coming.

We will get through this and a time to invest in banks will come, it is not now. As an example Bank of America announced a funky capital raise today supposedly to get out of TARP. Here's my take.

- Bank of America needed the 45 billion reportedly taken from TARP.
- BAC has also survived due to huge govt guarantees of their securities (possibly 100s of billions)
- BAC still needs more capital thus the stock offering
- BAC will survive

Great company that greedily bought boat anchors in CFC and ML. My strategy and practice has been and will be as follows

Sept 2007 sold holdings at $52 sh
Mar 2009 bought at $3.83 sh sold in a couple weeks doubling my money
Will wait for sub $8 to buy perhaps a long term stake.

Financials are like a party... it is ok to be fashionably late

We have more pain ahead is the only reasonable conclusion to make even for an optimist such as myself.