Financial Advice

Right-Wing con-artist Grover Norquist

Sometimes I mention something I got from "my financial advisor." If he sounds like a conflicted mess, it's because "he's" half a dozen different people from 4 different institutions. Yesterday, the sanest one, who left her career as the finance director for a big Wall Street firm in 1997 to start her own boutique firm (which is not attached to any banksters) sent me a note responding to a post we ran Thursday about the reaction in England to the Conservative Consensus/Austerity movement there. She had just been watching Ron Paul on TV when she read it. Paul, a darling of the paranoid and deranged militia types, was saying how he felt violence was an imminent threat here in America. My financial advisor wrote:

I do find it amazing how no one has rallied the populace regarding the fact that no one has gone to jail for anything to do with the prior collapse let alone this one. They get people who have no chance of ever having to worry about the estate tax to fight against it. That’s why we particularly need you to keep pushing for progressives.
 
The 24 hour media cycle is being exploited to scare the %^& out of people. People’s perceptions are that things are as bad now as they were in 2008. I’m not saying this is a barn burner, but things are more stable. Hopefully the crazy right won’t take over everything.
 
Investment wise, this is an interesting time as the macro issues are the bear cause. The corporations themselves are earning and flush with cash. Even if we do double dip (which I don’t think is going to happen), corporate earnings should hang on due to global pull. 
 
We’ve had twelve years of this!

Another one of my advisors-- who I've worked with for decades, is Lisa Detanna at Wedbush, a mid-sized firm based in L.A. that seems to keep a healthy distance from Wall Street groupthink. She's been all over TV lately and this was her on CNBC this week:



She and I have steered my investments in a much more conservative direction ever since Bush started playing fast and loose with the economy. Obama being elected president didn't make me any less cautious; his policies are basically an extension of Bush's in (too) many ways.

Lisa-- and most people I've spoken to in the financial services industry-- seem to think that when push comes to shove the Republicans will do the right thing and compromise. I think they don't watch the day to day escapades, don't understand the hold of the teabaggers over Boehner and don't know who or what Grover Norquist is. Lisa says the "S & P downgrade is forcing government to react and not be so political." Lisa and others in her industry know more about investments than about politics. I'm nervous that the Republican intransigence the S&P blamed for their downgrade will tank the economy. It's beyond the comprehension of most serious people that members of Congress could be nihilists who want to tank the economy and want to burn down the whole house so "we can start over again" (as in start in 1950 and stop the clock right there). People in that industry are just starting to come to grips with it. After Bachmann's insane rantings in the Iowa debate Thursday night S & P tried to make it clear enough for even someone as congenitally stupid and willfully ignorant as she is to understand. Greg Sargent:

A Standard & Poor’s director said for the first time Thursday that one reason the United States lost its triple-A credit rating was that several lawmakers expressed skepticism about the serious consequences of a credit default-- a position put forth by some Republicans.

Without specifically mentioning Republicans, S&P senior director Joydeep Mukherji said the stability and effectiveness of American political institutions were undermined by the fact that “people in the political arena were even talking about a potential default,” Mukherji said.

“That a country even has such voices, albeit a minority, is something notable,” he added. “This kind of rhetoric is not common amongst AAA sovereigns.”

Let’s try to wrap our heads around this. Bachmann’s opposition to raising the debt ceiling is one of the most important planks in her presidential platform. She has touted it in two ads, presenting it as a sign of her courage. She repeated it again last night at the debate, asserting that opposing the hike is “the right thing to do,” and even cited Standard and Poors’s downgrade as proof of her superior grasp of our fiscal dilemma.

Less than 24 hours later, S & P confirmed that it was precisely this opposition to raising the debt ceiling, and the cavalier attitude towards default exhibited by the likes of Bachmann, that led to our downgrade.

The question of what led S & P to downgrade our credit rating is a matter of verifiable fact. And S & P has now confirmed that one of the central rationales of her candidacy is a key reason for their downgrade. What will she say when confronted with this fact? How will she explain it away? Will anyone even ask her to try to explain it?

In a rational universe, this would be devastating to her candidacy. Of course, the world of GOP primary politics is anything but a rational universe.

Mukherji, by the way, was referring to Paul Ryan (R-WI). So here are some notes for an outline Lisa sent me of what she's going to be sending to her clients Monday:

Although we have reduced our expectations of GDP growth globally and in the US we
are not anticipating at this point a double dip recession to the magnitude of 2008 – 2009.

Interest rates are at historic lows

Corporate profits are high
75% of corporations have reported positive or 10% better than expected numbers
Companies are lean and have deleveraged ahead of people and governments and continue to exceed expectations

Stocks are trading at historic low level PE’s not only from price decline but growing earnings as well

Balance sheets of banks are better now then they were in 2008
Capital ratios are better then they were at US banks in 2008 2009 Interest rates per the fed will remain low for two years

Oil prices lower

Commodity prices taken pull back but expected to climb as economy stabilizes and EU and US finalize and agree and have plan-- global demand strong

EU needs to address
Bail out of banks
Bail out of weaker EU countries

US
Pass budget that reduces deficient spending

And then to close the week-- as the stock market closed above 11,000 again-- one overall bit of advice from still another financial advisor:

What a week!

I had to wait until the market closed today (Friday) as it isn’t over until it’s over these days. In the first four days of this week, the Dow Jones Industrial Average moved at least 400 points each day. That has never happened before. We had two big ups and two big downs. On a percentage basis, the index moved at least 3.9% in each of the four days, a phenomenon we saw just once in 2008 and once in 1987, and before that 1933. So no doubt our heads are spinning.

As I read in one commentary on recent events, the media doesn’t like it when planes land safely. So while this last week has been incredibly harrowing, I would like to provide a little perspective on where the markets stand. While this correction has been unusual in its swiftness as I mention above, we have been through gyrations before. Just last year as a matter of fact. Last May the S&P 500 dropped 8.2% followed by a 5.4% drop in June. That wiped out all the years gain. The market had Greece, the BP oil disaster, the flash crash and China slowing down to deal with then. The market is dealing with many of the same issues in this year’s downswing as well as the debt ceiling drama in Washington and the S&P credit downgrade and a current flood of rumors surrounding European banks.

But corporate profits and balance sheets were strong in 2010, the financial system was working and the economy was stabilized. So 2010 ended with the S&P up 12.8%. It was not smooth getting there however.

Though it probably doesn’t feel like it, the market is well ahead of where it was one year ago. Versus August 31, 2010 the S&P is up 12.4%. That is despite the 8.9% drop of this August. So most portfolios are still ahead of where they were one year ago.

There are an awful lot of variables at work in the market today. On a very practical note, this turmoil is occurring when many people in the US and even more in Europe are on vacation. The lack of a full complement of market players can exacerbate volatility and allow program computer trading to impact short term results.

Despite the headlines, there is truly a good bit of debate out there about the state of the US economy. Japan (the third largest economy in the world) was largely offline after the tsunami. This created huge supply chain disruptions in the US which led to layoffs and shutdowns. As things return to normal, there may be upside in the coming quarters. Also the consumer sentiment numbers get a lot of play. Personally, I can’t imagine consumers being confident after the display of ineptitude from our esteemed politicians. What doesn’t get reported often is that US consumers report one thing but often do another. Consumer spending as evidenced by retail sales continues to surprise on the upside.

Another paradox, despite the US downgrade, someone out there still thinks the US is the safest place to invest as evidenced by the flight to US Treasuries during the height of the panic. The 10 years note was paying 2.09%, an incredibly low rate absolutely and relative even to the other countries still triple A.