Search results matching tag 'Value View'

America's Path Forward

RichardSchwartz — Wed, 09 Jul 2008 14:31:00 GMT

A Recap of: THE WORLD IN 2020: POWER, CULTURE AND PROSPERITY

By Hamish McRae (1994)

Before my memory fades, let me recap a bit of the fact and opinion filled book I read on my vacation. Essentially Mr. McRae, an acclaimed commentator with a 25-year career writing for two British national newspapers interpreting the international and economic scenes and previously already a best selling author, portrays how the world will develop by 2020. Basically he briefs us about where the world stood in 1994, then discusses the major forces for change, including demographics, natural resources, trade, tech and government, and then concludes by describing the world as he sees it in 2020. (Mr. McRae's book offers great perspective. I recommend getting and reading it yourself.)

Let me begin at the very end. I was absolutely delighted to find in the final chapter this McRae conclusion: “If the US does reimpose majority values, it will do so in a spirit of decency and humanity. The United States has to come to terms with an inability to increase living standards for the majority of its people until and unless its citizens behave in a more ordered way. But it will do so.” Schwartz View: Yay! That’s my belief too. America must start living in a more orderly, civilized way to really regain our leadership role and again improve our living standards which have been stagnating for far too long.. Thus I’m relieved and delighted to come upon some other observer of life and the times noting the same thing I have.

This morning I’ll just describe America in 2020. But in forthcoming letters, say in my regular GLOBAL VIEW section, and elsewhere when and where appropriate, I’ll fill you in on Mr. McRae’s views on other countries’ progress and their standing in 2020 as well.

The United States In 2020. The US will continue to get multicultural, much more so than any other country. Thus it will feel much different than the past and different also from the rest of the world which discourages immigration. We’ll feel “big and vibrant” but not “particularly rich.” There will continue to be large pockets of poverty. [Schwartz: Unfortunately, that’s just how capitalism works.] The incoming immigrant population will keep the ideas flowing and innovation happening and the US growing faster than Europe or Japan but will cost us more as running a multicultural society is expensive. By 2020 we will be well on our way to de-industrialization, having less then 10% of America employed in manufacturing. We will be depending more and more on the service sector and will be the global leader in services by far. [Schwartz: This is debate about whether abandoning manufacturing is a good thing or not.] We will see a decline in the old city centers and further growth in edge cities which will also be different than the rest of the world. Edge cities just being semi-urban agglomerations inhabited mostly by professionals. Better communications will make large cities redundant as more workers will telecommute. More work and social life will be done by phone, videoconferencing, email and fax. Our neighbors, Canada and Mexico, will become even further integrated into the US economy as migration continues. Cultural and economic borders, if not political ones, will disappear. Although likely losing our richest nation role, the intellectual leadership of the US will remain and we will continue to export our culture, ideas and language.

We have three big issues facing us domestically; bureaucracy, security and lifestyle. Bureaucracy-wise, we are running an inefficient society now, for one example, too much litigation is a big drag on the economy. Security-wise, we have too much crime, as another example. And lifestyle-wise, we have too much divorce, too many single moms, low savings and low education standards. Schwartz View: Any and all ways of running our economy, political system and lifestyles inefficiently hurts our economic growth, no question about that. But Mr. McRae feels the US will break this negative cycle. And get back on track, living in a more orderly way, rebuilding the family unit, etc. McRae speculates on how this change will happen: “At some stage, most probably in the second decade of the next century, there will be one of those great radical shifts in US political attitude which take place from time to time, a shift akin to the New Deal …” Hey, it can’t come too soon for me as I rail under the monkey-see, monkey-do atmosphere of Hollywood, the New York Post and Mike & the Mad Dog, crude and rude, using whatever sells, taking no responsibility, gaming the freedeom of free speech, just living off other people. I see this shift beginning no matter who becomes our next president, although I see it really accelerating if presumptive Democratic nominee Barack Obama wins.

Energy Savers New Theme: More Buys

RichardSchwartz — Wed, 18 Jun 2008 13:51:00 GMT

MORE ON MY NEW Energy Savings Theme. To review, just last Friday I introduced my latest theme. An investment theme is more than recommending you buy this stock or that. It’s about finding a trend, generally an economic trend based on changing economic fundamentals, which should support business for some time in a whole industry sector, whereby most all companies doing business in that sector are buoyed and pushed forward by some bullish tide. Like today’s increase in wealth in many developing countries translating into a larger global middle class and thus increased demand for energy, metals, foodstuffs and most all commodities. Thus leading to a long term commodity bull market whereby most any commodity and companies involved rises over time.

Well, my newest theme is that the recent high and higher costs of energy, metals and other industrial manufacturing inputs is going to drive businesses into finding and employing most any/all energy savings devices, products and services. Since most companies are becoming believers that energy is going to stay high priced for a long, long time to come. Thus last Friday’s recommendation of those five stocks from the Energy Controls sub-category of my Alternative, Clean Green shopping list. Again, those symbols are CPST, BCON, WGOV, MXWL and CHP. And again, please check into these carefully before you buy. Three are low priced stocks and normally I don’t even track stocks that low priced but in this case of looking for new breakthroughs to come in clean energy, I’m looking for and buying possible up and comers. Disclaimer! I own tiny amounts of two of these five and am interested in buying the others.

Today, let me add to my recommended list of Energy Savers. First off, these energy saving stocks can come from far and wide places, sectors and industries. Since the common thread is that they all have some product, service, etc. which can save businesses energy & thus big money in today’s new high energy cost world. Down the line I plan on applying the same concept to the public as well. Also finding companies that offer products and/or services which can save us as individuals energy and thus money but for now with businesses flush and consumers squeezed, I’ll concentrate on energy savers for business. So, again, below are four more companies going on my Energy Savers shopping list today for you all to consider.

ENERGY SAVERS

Price Mkt Cap Business Line

COMV Comverge Inc. $12.73 278m Environmentally responsible peak electric demand reduction

ENOC EnerNOC, Inc. $15.65 309m Manages electricity consumption across networks

ITRI Itron, Inc. $94.75 3191m Computerized electric, gas & water meter reading

BMI Badger Meter $50.04 730m Measures & controls flow of liquid & gas, like water meters

Disclaimer! I own a tiny amount of COMV and may buy some of the other two as well.

Chart Views: Comverge & EnerNOC are basically in the same industry niche, energy management, and have similar histories. Both were new IPOs last spring, Comverge in April 2007 at $18 and EnerNOC in May 2007 at $26. Both rose nicely until late last year, COMV hitting $38.78 and ENOC hitting $50.50, both peaking on October 18^th. Then late last year, early this year, while the general market sank, both companies experienced lots of insider selling, possibly after lock-up periods ended, which knocked them both down. Then on February 27^th EnerNOC plunged on worse than expected earnings and COMV fell in sympathy, both falling on analysts’ realizations that there were no real metrics on how to value them. After falling further, both have been building bases every since. You can see their current prices above. So neither are in uptrends but patient investors start nibbling on both now, buying them on weakness.

Schwartz View: Itron & Badger Meter are both meter readers but have different charts. BMI is in an uptrend like my first five recommendations from last Friday and is a recent entrant on the IBD 100 list of leading companies so you know the fundamentals are good. ITRI in trading in a sideways pattern. Net, net, I would buy small amounts of all four stocks above and add them to the five buys from last Friday in a new Energy Savers portfolio. Buying small portions of a lot of stocks is like building your own little mutual fund. In this case a sector specific mutual fund so don’t go overboard, especially right now while the stock market is still in bear market mode.

Oil Near a Peak? Yes.

RichardSchwartz — Thu, 29 May 2008 18:56:00 GMT

OIL VIEW. I’ve been reading a lot about oil, the current state and the history of oil as we see prices keep rising and we all wonder where a top is. So below are some interesting tidbits which I’ve unearthed from the Internet (a great modern day development!) for you to ponder, some obvious, some insightful (I hope):

· OPEC has used oil as a weapon against western countries in the past. Schwartz View: A bad precedent. The October 1973 embargo effectively raised prices quickly and sharply to a new plateau (from $3 a barrel in 1972 to $12 a barrel) which lasted for the rest of the 1970s.

· The Iran revolution (getting rid of the Shah) in 1978 and the following war between Iraq and Iran in September 1980 again raised the price of oil quickly, doubling oil prices from $14 to $35 a barrel by 1981. Schwartz View: So both times oil rose sharply in price and stayed there.

· Oil is notoriously price inelastic according to some researchers. Another reports says: “The supply and demand for oil are both inelastic in the short run …” Which is what commodity guru Jim Rogers sees, that it takes many years for oil supplies to increase when demand increases which is his basis for the whole commodity complex to keep rising. Schwartz View: I’ve been waiting a year or so now for “higher prices to resolve higher prices.” Now I understand this is a too simplistic argument and why it hasn’t happened that way just yet. Another reason is because we are much less dependent on oil today. “Energy costs;’ share of GDP has fallen from 8% in 1973 to 2% today.” (From an Internet article written in 2005).

· Over time though, the supply and demand for oil is more elastic. Schwartz View: Thus the past history of oil prices rising sharply, then slowly sliding lower over time as more supply comes on board. Probably the price pattern we’ll follow again although we’ve likely raised the base price level or floor such as transpired in the past.

· Commodity (and China) guru Jim Rogers says his research shows commodity bull markets last roughly 17 years. Schwartz View: I see the price of oil slid from 1981 to November 1998 when it bottomed out about $13 a barrel. Just about when Rogers called a new commodity bull market.

· From the last bear market bottom in oil in 1998, we’ve had the first bull market leg up from the bottom in November 1998 to June 2000 as oil rose from $11 to $35 a barrel. Then after a price correction downward and a breather, we put in a 2^nd bull leg up from November 2001 at $20 to a peak around Hurricane Katrina at about $75. After that blow off peak, prices fell for five months coming back to $50. Since it’s been straight up in a third bull market leg. Schwartz View: Since we’ve now put in the normal three legs up which compose a full bull market we could easily be due for a sharp and severe pullback in oil.. Especially so since I see a guest on CNBC talking up $200 oil, bullish predictions being a normal sign of bulls getting carried away just before a top.

· The US placed price controls on domestically produced oil during the first energy shock in the early 1970s. This caused US consumers to pay less for gasoline than they otherwise would have. Longer term, price controls kept America from reducing our oil consumption in the middle 1970s and thus our dependence on foreign oil producers. Thus when the 2^nd oil shock hit in the late 1970s we were much more negatively impacted by prices jumping sharply. Schwartz View: This is why I advocate keeping oil prices high now, let America take the pain now, so money keeps flowing into developing alternate energy sources. Let’s not repeat the mistakes of the 1970s!

· History shows higher oil prices in the early 1970s, the late 1970s and then in 1990 after Iraq invaded Kuwait all led to recessions. Schwartz View: Maybe it will be different this time around but we all know predicting “this time it’s different” usually proves disastrously wrong.

· Here’s the rationale behind higher oil prices leading to recession: “Higher oil prices have historically led to recessions because they act as a tax on spending by absorbing consumer dollars that would be spent elsewhere, by reducing corporate profits through increased costs and lower demand, and by causing higher inflation which in turn causes higher interest rates.” Schwartz View: All of which seem to be developing today except, so far, higher interest rates because the Fed has been lowering shot term rates to free up the frozen-up financial system. These lower rates which ultimately should lead to even higher inflation.

· The 1970s were characterized by “stagflation” after sharply higher oil prices raised inflation levels while simultaneously reducing economic growth. Schwartz View: Isn’t the same economic ripple effect happening right now? I’d say yes.

· The 10-year US Treasury bond yield rose from 6% to 15% during the oil shocks in the early and late 1970s. Schwartz View: This time the 10-year, benchmark Treasury bond yield has stayed low because of the credit crunch and the “flight to safety” trade by investors. Doesn’t it seem logical that when the Fed stops lowering rates and/or says the credit markets are back to normal, long term interest rates will once again rise? Does to me. In fact, higher long term rates may be happening now. That’s one big reason why I’m not recommending bonds and haven’t been.

SCHWARTZ SUMMING UP. Actually I could go on and on researching and commenting on oil. And I’m interested in continuing my research so I may add a few more comments/insights in coming days. But for now the history & current spike higher in oil makes me predict that soon we’ll see some type of peak in oil very soon!

Seeing the Other Side: The Bull's Case

RichardSchwartz — Tue, 20 May 2008 18:17:00 GMT

THE BIG PICTURE: Written Monday, May 19th, 2008

Let’s make the three-pronged bullish Big Picture case this morning. About time, right?

1. The bullish argument starts with the assumption that the “worse financial crisis since the Great Depression” is behind us. Many Wall Street CEOs say this is the case but since they have so much skin in the game we have to look askance at what they say. Sort of taking a large dose of salt with what the Federal Reserve Banks says, we know they won’t outright lie but spin, jawboning and moral suasion is the name of that game. Still common sense tells us the flash point for the credit crisis was the run on Bear Stearns back in mid-March. Before that another critical juncture was when MBIA and Ambac Financial were on the verge of losing their AAA ratings and the negative ripples that would cause and before that the danger was were Fannie Mae and Freddie Mac were under severe pressure. And before that came Washington Mutual and Countrywide. You get my point. We’ve been through a heck of a lot, through multiple quarterly billion dollar bank write-offs, the commercial market paper seizing up, Libor rates heading higher, the auction-rate market collapsing, losses from banks all over the globe, a run on an English bank and one on an American investment bank. The troubles have gone on and on, starting last July and continuing for the last nine months. So from an extent and duration perspective, it does look like we could be past the worst of it. Of course, there will be additional write-offs and bearish surprises but still will it get worse than it was? Maybe not. So there is a case to be made that the worst is over.

2. Next we have an US recession to handle. But this is quite a slow-motion, economic slowdown. The “R” word continues to loom out there on the horizon but hasn’t hit us full force. This is probably because of the balming effects of globalization having gained much traction in the world economy over the last couple of decades. As a result, today, the United States is just one part of a much larger one global economy or marketplace. Thus our economic weakness and financial problems here in America isn’t putting the kibosh on the whole world like has been the happenstance in decades past. While America’s housing market has gone bust and while our financial firms have lost billions and while the US consumer is getting severely squeezed, things are different, much better elsewhere. Chinese, Russians, Brazilians, Middle Easterners, Eastern Europeans all have more, not less money, in their pockets today and are thus feeling and indeed are wealthier than just a couple decades past. Indians are seeing their incomes rise 10% to 15% to more each year as are others in today’s more shared wealth. Yep, the wealth on this planet gets, and has been, redistributed when trade barriers come down, when communication is instantaneous and when transportation is positively effected by miniaturization and other new breakthroughs like “just-in-time” inventories. Bottom line, as former Federal Reserve Chairman Alan Greenspan remarked, America’s economy is much more resilient, flexible, open, deeper and stronger than ever before. So why wouldn’t it also be logical that big layoffs, suddenly bloated inventories and other signs of past recessions don’t happen this time? Couldn’t we just skirt along the fringes of a recession this time around? I suppose that could unfold and end up being the case today.

3. Finally we have the value proposition. Many value investors and others see stocks as representing solid, even great value today. Big time, long term, value players like the richest man in the world Warren Buffett, mainly look past the economy’s ups and downs, they forget what’s going on in the economy today, and thus see stocks are cheap. Mr. Buffett, the “Oracle of Omaha,” in point of fact increased his holdings in a number of stocks in the first quarter and says he’s now on the lookout to buy more. Another value guy this morning, on CNBC, says many financials, I assume not the banks, have been pounded down for no discernable reason, and are incredibly cheap. Net, net, if we put current concerns aside, forget where we stand on the business cycle time line, etc. stocks can be looked upon as undervalued and a great opportunity.

Schwartz View: The bulls argue that stocks are now going to resume their upward movement. That what we’ve just gone through was just another financial crisis, the latest in a long line of crises, like the S&L problem in the late 1980s, the Asian Contagion, the 1987 worst one-day-crash in history, even for you market historians out there, the Eisenhower heart attack, Kennedy versus Big Steel, etc. And that because of much market and economic strengthening evolvement over the years, the stock market and economy can handle this hiccup as well. The argument goes that even that looking back in a few years, the credit crisis of 2007-08 will just be a faint memory. And that stocks will be much higher in price. Maybe, maybe not.

"Are Emerging Markets Overpriced?"

RichardSchwartz — Wed, 23 Apr 2008 13:57:00 GMT

I was just asked: “Are emerging markets overpriced?” Let me answer that question for all of us. Emerging markets are fairly valued. Not overvalued, considering their substantial going forward growth prospects but not undervalued either considering they will be hurt if the US paper economy slow down eventually ripples outward and slows the real economy as well. Looking past any near and intermediate term economic slowdowns, emerging markets will probably outperform developed markets going forward. These countries – China, India, parts of Asia, Eastern Europe, Brazil and parts of South America, South Africa and some other parts of Africa, the Middle East and more are growing rapidly. So their higher than in the past valuations are probably fair now, not under priced, not over priced. And this is emerging markets/developing countries’ time to shine, to grow rapidly now that they are benefiting wonderfully from globalization (sort of like the early days of Microsoft, Genentech, Apple, Ben & Jerry’s, AOL, Google, etc. These formerly, newly emerging corporations all had their time in the spotlight and these times were before the companies really matured.) Today, millions of emerging market peoples are rapidly moving up the economic ladder (of course, starting way down low). They are first getting cars, appliances, better food, a reliable roof over their head, home mortgages, other loans like microcap loans, and more. And thus their countries’ Gross Domestic Product growth rates are far outstripping those of developed countries. Most are experiencing GDP growth rates of +6% to +10% and higher. THIS IS THEIR TIME! Also many emerging markets should benefit from the ongoing commodity bull market which should last another five or ten years. Again, my theory is that commodities will stay stronger longer this year than most believe. Of course, sometime down the road, say next year, if the US economic slowdown spreads out, as I expect, commodities will have a very big correction and thus so will emerging markets. Still, after that correction is over, I expect emerging markets to take up their leadership role once again. Recently, I’ve liked emerging markets in Latin America more than those is Asia. (Disclaimer! I hold some UBPIX, ProFunds Ultra Latin America.) What with China’s stock market down about 50% and China worried about overheating and inflation and all. So, near term, I’ve been staying away from China and India and others in Asia. But watching China closely for a bear market bottom, today I’m changing. Thus this morning’s recommendation to start to dip our toes back into the Chinese region, looking to take this advantage of this downdraft as an opportunity to get into China.

Visa IPO: The Rest of the Story

RichardSchwartz — Tue, 18 Mar 2008 14:02:00 GMT

THE VISA IPO. Aha! The Real Story Comes To Light! When I heard of the upcoming initial public offering (IPO) of Visa a couple weeks back, I was shocked and wrote about it (Feb. 27^th) wondering out loud why anyone would buy it. I did find the argument underpinning this “largest US IPO ever” of 16 million shares (right in the face of a bear market). Besides the fees being juicy and few other IPOs to work on, the investment rationale is US consumers are using credit for more of their purchases, over time anyway, while MasterCard’s IPO was a big past winner. Still I warned against buying V (nice symbol). Then I read another article on www.MarketWatch.com last Friday which clarified the picture further. Seems like banks own a ton of Visa and with their financial travails they can obviously use the proceeds. JP Morgan will get over a $1 billion, Bank of America a half a billion, Citigroup, National City, etc., all together the banks get over $10 billion of the roughly $16 billion deal. After putting some money aside in escrow for litigation settlements, Visa itself gets about $3 billion. No wonder the deal is so big. Schwartz View: Summing up I see MAD MONEY’s Cramer recommending getting some saying the pricing is good. I have to agree, only IF you can buy some at the offering price (which most investors can’t). To market this deal, the underwriters JP Morgan and Goldman Sachs must be under pricing it so as to give buyers on the offering a chance to flip it. Otherwise who would buy it in today’s market?

Catching A Falling Knife?

RichardSchwartz — Thu, 13 Mar 2008 14:11:00 GMT

THROWING GOOD MONEY AFTER BAD. Let’s think back some so as not to lose perspective. Where to start? Yep, right at the top of the five year bull market and the top of the private equity boom.

June 21^st, 2007: CHINA backed Blackstone Group’s IPO at $31 back with $3 billion last June. Yesterday BX closed at $16.47 so China’s stake is now worth about half. Joe Lewis, some self made billionaire, bought shares of Bear Stearns back last September at over $100; yesterday BSC closed at $61.58. Others saw Citigroup at a bargain below $35 and as “too big to fail” and jumped on board; C closed yesterday at $21.21. This buying of the banks “temporarily depressed” banks continued with who knows how many banks raising cash from new investors. UBS in Switzerland, Deutsche Bank in Germany, banks in Australia, France, England, Japan and elsewhere all found new investors to help them improve their balance sheets. Sovereign Wealth Funds (SWF) from Singapore, the Middle East, etc. have all piled in to grab depressed stock prices in financials and are now under water. Ambac Financial just raised big money selling shares at $6.75, way below the going market price of $9.50 last Friday and in spite Tuesday’s gigundo general stock market rally, has already given back most of that premium with ABK closing yesterday at $6.86. All of these bulging-with-riches governments have miscalculated badly, at least so far. Seems like the rest of us should learn some lessons from these guys. Hey, it’s in all the stock market history books, this nutso strategy of trying to “catching a falling knife”. And we all know this common sense rule, be we investors or not. What’s it called? Yep, something like: “Fools rush in where wise men dare not tread.” Schwartz View: So I ask you, isn’t our Federal Reserve Bank now doing exactly the same thing? I know, they do have some dual mandate (impossible; probably imposed by Congress, back in 1977 I believe) to help where they can but they are THE BANK after all so their first mandate should always be to keep our currency strong whether it means putting us into a recession or not. I mean former Fed Chairman Paul Volker put us into recession for the longer term good of the country, right? He raised interest rates dramatically. And now he’s looked back upon 25 years later as the man who vanquished runaway inflation. I just think this Fed trying to backstop the economy and thus letting inflation rage is pursuing exactly the wrong strategy. As some others have been saying as well. This chorus may grow louder if things keep getting worse. With the US dollar’s awful reaction and now the global stock market’s reaction to Tuesday’s Fed move, it sure seems like everyone has lost confidence in “Helicopter Ben” and our central bank. Thus, let me propose …

Monday Weekly Letter: Full Sample

RichardSchwartz — Mon, 03 Mar 2008 14:20:00 GMT

PRINCIPLES OF THE STOCK MARKETA learning, teaching, always evolving stock market letter and advisory serviceSeventeenth Consecutive Year of Publication; Letter #1; Sept 18, 1990

Monday, March 3^rd, 2008: Three people yesterday told me they were sick of winter. They weren’t angry, just tired of fighting Mother Nature. Today we’re supposed to get a touch of spring, high about 50º. Yay!

THE ECONOMY

Boy, I feel bad for President Bush! I like him but he sure has had bad karma and has made some poor decisions. I won’t go through his whole record but his recent decision to push ethanol is sure backfiring! First, ethanol doesn’t reduce our overall energy use, we use energy to produce ethanol, and it isn’t clean which starting early last year became my first/biggest concern, finding clean, green energy alternatives. And look at what’s happened to food prices and thus global inflation. It’s surely not all President Bush’s fault, but the sharply increased demand for corn to produce ethanol has sparked off food inflation, here and worldwide. That’s all I see on CNBC now, how higher prices for all foodstuffs are starting to work their way through to consumer prices. Tortillas in Mexico, bagels and Hershey Bars in the US, etc., etc., etc. with lots more to come. According to long term value investor Jim Rogers, whose investment perspective was formed and weaned during the previous commodity bull market of the 1970s, agricultural commodities would have risen anyway, even if the sharp demand for corn hadn’t led to smaller plantings of other crops, since supply has dwindled for many years. Add sharply rising inflation to the Fed’s other two big issues, battling the suddenly-emerged, global financial and credit breakdown, along with the slow motion US economic slowdown which seems to be accelerating and spreading worldwide now and the Fed, the economy and the stock market all have big problems.

Bottom line, an unusual, if not classic, credit crunch now prevails with FEAR of further losses, call it a “growing risk aversion” dominating institutional investor’s thinking. Banks are thus reducing lines of credit, adding new charges and fees, tightening lending standards and terms, thus causing secondary financing markets to dry up. Even interest rates on consumer loans for cars and mortgages are refusing to follow the Fed’s rate cuts down point for point, moving grudgingly downward, more like one down for every five (basis points) the Fed cuts. So net, net, the Fed is effectively now “pushing on a string” validating my long held theory that the stock market would only be in trouble when the Fed starting cutting rates. The Fed not getting very far with its rate cuts is scary! Jeepers, creepers!

Schwartz View: I just can’t see things getting better any time soon. Worse more likely as we haven’t even seen all the problems emerge yet, although each week, something new crawls out of this now opened can of worms. Last week, while we got some capital injection for the muni bond insurers struggling to keep their all-important AAA ratings so as not to spark a further muni meltdown – munis just had their worst month in memory! -- the muni market got blindsided by the suddenly inoperable auction-rate bond market. Now that this credit vehicle has become unworkable, muni dealers are now bracing for an overwhelming flood of new supply as municipalities all over America need to find a new way to finance. Bottom line, I don’t think we’re even close to having all the problematic issues out on the table yet.

THE STOCK MARKET

Well, Friday was one of the worse days since January’s first two weeks of day-after-day big drops, with stocks down big right from the get go. Wasn’t a major surprise although the last five weeks of sideways to slightly up action may have lulled some investors into believing the worst was over. You know that old complacency which naturally builds after a big market drop and when stocks stop going down and we can all breathe once more. I commented last week that if the stock market couldn’t rally now, what with: (1) multiple Fed rate cuts, and (2) the emergency government fiscal stimulus plan, and (3) multiple Depression-style homeowner bail out plans, and now (4) Federal Reserve Chairman Ben Bernanke’s reassurance last week that the Fed would continue its rate cuts, we’d be set up for big, big trouble and coming sooner rather than later. If all this monetary and fiscal help can’t support the market along with whatever rigging the government’s “Plunge Protection Team” is implementing as well, the stock market may indeed be ready for another leg down. And remember to go along with the “head feint” sideway triangle patterns which first broke upwards, then reversed downwards, it’s always something fundamental popping up during a bear market. Some quotes about the opaque-to-most-of-us muni market written about in THE ECONOMY above were: “The municipal market in the last week and a half or so has been in a free fall” by one muni bond manager and “The damage has been unbelievable” by another.

Schwartz View: Slammed by this difficult nexus of negatives, even the time-tested Wall Street adage of “Don’t Fight the Fed!” isn’t working. With the major indices having held up somewhat, if you want to call losses of -10% to -15% holding up, many, many stocks have already undergone big bear markets since the Fed starting cutting rates. Bottom line, I expect further losses ahead, coming sooner rather than later after both the Nasdaq Composite and Dow Utilities closed below their previous late January bear market lows last Friday. Though there’s still a chance we hold at January’s lows, the odds against have risen.

PORTFOLIO STRATEGY

Is there ‘blood in the streets’ yet? No, I don’t think so. Although what’s been going on in the stock market and economy is no fun. Because of years of globalization, our economy is much more diverse, varied, deep and resilient today than in decades past. If we had today’s housing crash and auto problems a couple decades past, employment and the US economy would have dropped precipitously by now and the stock market would have followed suit being down some -30% or -40%. But today we are benefiting from the free world economy having become much larger and more integrated. Still I have to figure the old January lows will eventually fall as well; they started breaking last Friday. So for now, I still can’t take a ton of risk. My strategy has been, and remains, to hold much less overall market exposure than normal, stay in those sectors which remain in uptrends like commodities, and where I can find ways to hedge, say in the ProFunds funds family, use some inverse (short) funds and keep closely on top of portfolio values and fight tooth and nail to keep them up. First Rule; don’t lose money! Sure there may be some bargains out there. For example, PIMCO’s Bill Gross, who manages the largest bond fund in existence, says he’s looking to scoop up some fire sale muni bonds which stressed financial companies, hoping to stave of bankruptcy, have to sell. But I don’t have that capability. Or the time necessary to allow these depressed assets to regain fair value. Buy the Pimco Total Return Fund for that. I’m still in protect our assets mode.

Down the line some I’ll be delighted to look for capital gains on the upside. But as long as I keep hearing positive reports from guest after guest on CNBC, I have to remain skeptical. And watch for and take advantage of head fakes upward. Lat week I read where we had five rallies during the 2000-2002 Mama Bear market of 10% or more and none was ultimately proven correct. As I figure it, and history shows, bear markets don’t bottom until everyone turns bearish. Not the case today.

My current buy recommendations are listed below:

SCHWARTZ BUY RECOMMENDATIONS: Disclaimer: I hold small positions in a number of my recommendations. Buy Current Price Price Hedge your betsDecember 13, 2007: BUY MYY ProShares Short MidCap 400 59.91 64.83BUY SBB ProShares Short SmallCap 600 70.87 76.64BUY SH ProShares Short S&P 500 60.28 66.60BUY MZZ ProShares UltraShort MidCap 53.20 62.71BUY SDD ProShares UltraShort SmallCap 69.70 80.68BUY SDS ProShares UltraShort S&P 500 52.92 64.47BUY SHPIX ProFunds Short Small Cap 16.58 17.53BUY UCPIX ProFunds UltraShort Small Cap 13.65 16.16BUY BRPIX ProFunds Bear Fund 25.94 28.10 Schwartz View: Well, we got that market strength I wrote about last Monday as a good time to buy some of these “short” or inverse funds, last Monday thru Wednesday. In a bear market a good time to short is late in the trading day, after two or three days up if the market isn’t following through. Thus last Wednesday late would have been ideal as Thursday’s modest drop and Friday’s debacle decline left all the above inverse funds ahead on the week. Looking at their charts this morning, I must say we could easily see further and steeper declines ahead. Again, I’d have a couple shorts to hedge your long portfolios if you’re not into selling. “Soft” Agricultural CommoditiesOctober 31,2007 BUY RJA Elements -Agricultural Total Return 10.13 12.94August 31, 2007 BUY DBA PowerShares DB Agriculture Fund 26.63 41.56 Schwartz View: Somehow the commodities sector is holding up and RJA and DBA rose again last week. I would recommend buying on weakness. Sure, they will top out at some point as the US and global economy weakens further but my theory remains it may be later than most now believe. One of the unique characteristics of this business cycle is that for the first time we’re really, truly in a global economy. Thus it’s only natural for late cycle sectors like materials and industrials to hold up. And with today’s new global competition by countries to secure for their long term futures enough minerals, foodstuffs, energy and all commodities, it makes sense. I’d hold a couple soft commodity positions. Foreign CurrenciesSeptember 27, 2007 BUY FXY CurrencyShares Japanese Yen Trust 86.50 96.13BUY FXF CurrencyShares Swiss Franc Trust 85.50 96.25 Schwartz View: Major upside week for foreign currencies, especially the two carry-trade currencies recommended above. Continue to hedge against a falling US dollar. Same as for the general stock market, if the dollar can’t rally here with all the gloom and doom surrounding it, we could be on the precipice of an even worse decline. SCHWARTZ SUMMING UP. Correct strategy is to hold much less market exposure than normal in any bear market, such as the one we’ve been in going on five months now. Also go short with today’s new-fangled inverse ETFs and mutual funds, hold some inversely correlated commodities, the commodity positions themselves not the underlying companies where you can, and finally bet against the dollar. All these strategies have been performing well as you can note above, while we wait out this grizzly bear. The problem is I expect this bear market to be a Papa Bear and thus last for at least a couple of years and cause the key averages to give back half of the previous bull market’s gains. Those approximate minimum downside targets are Dow Industrials 10,600 and S&P 500 1172. Those would be total losses off last October’s five year bull market highs of about 25% for both, thus meaning we need to stay hunkered down. Have a great week! Hang tough! SCHWARTZ SUMMING UP. Correct strategy is to hold much less market exposure than normal in any bear market, such as the one we’ve been in going on five months now. Also go short with today’s new-fangled inverse ETFs and mutual funds, hold some inversely correlated commodities, the commodity positions themselves not the underlying companies where you can, and finally bet against the dollar. All these strategies have been performing well as you can note above, while we wait out this grizzly bear. The problem is I expect this bear market to be a Papa Bear and thus last for at least a couple of years and cause the key averages to give back half of the previous bull market’s gains. Those approximate minimum downside targets are Dow Industrials 10,600 and S&P 500 1172. Those would be total losses off last October’s five year bull market highs of about 25% for both, thus meaning we need to stay hunkered down. Have a great week! Hang tough!

IPO VIEW

RichardSchwartz — Wed, 27 Feb 2008 15:00:00 GMT

VISA Wants to do the Largest US IPO of all time? Right now?

Well, I guess if the fees are juicy enough Visa will pull it off as there is little other business around for investment banks to work on. But still, with consumers cutting back use of their credit cards after maxing out what they could and with debt experts predicting trouble ahead, who can think buying Visa (V) at $37 to $42 a share is a grand idea? Two examples: The Blackstone Group (BX) went public at what NYSE traders thought was the top of the private equity market and still, got their price. Looking back, June 2007 at $31 did turn out to be the top as that stock and private equity in general has fallen into a steady slide. BX closed yesterday at $17, almost 50% lower than the IPO price . Then we had renowned value investor Sam Zell selling his REIT, Equity Office Properties at what proved to be the top of the REITs market, as many said at the time, and with hindsight that forecast has also proved correct. Seems that these two still fresh experiences would prevent Visa from going public or at least not being received very welcomingly by investors.

The Visa Rationale. Still, there’s gotta be a rationale for this offering, something to back up a dog and pony road show. So let me go read about Visa’s IPO a bit, BRB (be right back). Ok, there it is. Three selling points: First, the trend is Visa’s supposed friend. Americans are using more credit and debit cards, I mean using them more over the last few years, not recently. The second argument is that MasterCard is trading up since it went public back in May 2006 at a P/E of 11, and is now trading at a P/E of 27 times, above the general market’s P/E ratio or valuation. And that investors who missed out when MA went public won’t want to miss this one. And finally, three, the clincher, is that both MasterCard and Visa are supposedly insulated from credit risk by cardholders. That the banks issuing these cards take that risk.

Schwartz View: I see people in line in supermarkets and buying Wendy’s lunch using credit cards. To me that’s a sign of a real bubble in consumer spending. People have lost all concept of budgeting and using credit only for large purchases or necessities. And this overspending, anyway possible is a long standing bad habit that has to be changed before America can get back on the right track again, fiscal and other wise. It’s a bubble which is already deflating as American consumers are being squeezed by a nexus of $100 oil, $3.00 gas, soaring food prices, upward reassessed real estate taxes after the housing boom, too high to buy house prices, higher and higher drug and other medical costs, higher prices for eight straight months from Chinese imports, many years of stagnant wages and with more higher prices to come as today’s jumping producer prices work their way through the system ultimately producing much higher consumer prices. I disagree with the Fed’s mantra that “inflation expectations are well anchored.” Not any more. In fact, I’m buying cheap end of season winter clothes at throw away prices right now to stockpile presents for next Christmas as my inflation expectations have taken a major shift upward in recent months.

Bottom line I would stay far away from this Visa deal as one facet of the American consumer being overly stressed is going to be much less use of credit cards, rather than more. Thus Visa and MasterCard will see the transaction fees they take their cut from decline. I would think Visa’s IPO is signaling the peak in credit card use similar to the aforementioned Blackstone Group IPO and the sale of Equity Office Partners.

Political Big Picture

RichardSchwartz — Wed, 27 Feb 2008 14:33:00 GMT

Anyone who is into politics, please skip this section as it might just really irritate you!

Today’s longer range perspective or The Big Picture as I call it revolves around American politics. Although I detest politics here goes. It starts with the assumption that Senator Barack Obama from Illinois continues to garner a groundswell of American support and sweeps into office with a big winning margin. With such a lopsided win he’d really hold a mandate to change America. He would start by changing politics and Washington, D.C. By first off bringing all sides together, Republicans, Democrats and independents same as how he got such wide support in the election. The only way to get decisions made and made in the best interests of America is to get all sides into the negotiations. Sort of like how former Federal Reserve Chairman Alan Greenspan (temporarily) fixed social security back in the 1980s. He had to bring the most vociferous critics from both the Democrats and Republicans and essentially lock them in a negotiating room until they all would sign off on identifying the problem and the proper, fair solution. Senator Obama tries not to disparage anyone, Democrats or Republicans or anyone. Instead he charms them, all of us. For example, recently on CNBC I saw Obama charm “Neutron Jack” Welch, the former head of General Electric who got rid of 100,000 employers during his term. (And who left GE with a retirement perk package you just wouldn’t believe; planes, box seats, etc.) Anyway Obama told Welch that America needs to learn from corporate leaders like him and Welch’s eyes brightened. So with Obama’s unique position and great timing he could become a very important American president. A president who actually institutes change in America for the better. Seems to me like the man with a plan, the right plan at the exact right time. Another example, he’d first off try to reduce corporate America’s outsized influence on Congressmen, by showing all votes on TV. So Americans could watch and judge their representative’s decisions, supposedly in our best interests. This would grease the way toward more participatory democracy rather than the failed representative democracy we now follow, as long range forecaster John Naisbitt predicted in his 1982 best seller book Megatrends, one of his only forecasts which so far has failed to come true. Even American business is now fed up with the current system, having to carry a major budget for lobbying efforts since their competitors have such. And after the recent US housing boom went bust, rippling outward over time into the subprime mortgage implosion, and billions of losses, more regulation of capitalism is the natural end result. The total deregulation trend of American business which began with President Reagan is winding up with the “bidness is bidness” president, President Bush II. This natural swing, just like in the stock market, is now reversing toward the opposite direction. Whom better than to lead American away from “unfettered capitalism” than Mr. Political Historian, nice guy and get along with everyone Obama who yearns for the politics of old, when cigars and dinner led to deals between the opposing parties. Yep, there was a time not too long ago when politicians were friendly, got along, not hating each other like today, and made deals in the best interest of America. Obama would bring a better balance to sharing America’s wealth instead of just letting the nature of the jungle rule. He would spend money on getting Americans educated, focusing on the job skills needed in today’s newly globalized world, encourage more kids to go into science and math, to acquire tech and computer skills, essentially to keep up with the rest of the world. And point America towards energy independence so as to win the war on terror, become fiscally sound, maintain the ecological integrity of the earth and respect the planet, leaving it at least how we found it. Plus he would lead America towards better relations with our historical allies. Obama with his charm, oratory, minority background, people skills and refusal to say bad things about others is exactly the sort of person to start a meaningful dialog once again. Over the last 30 to 40 years America has transitioned from a $65k middle class GM America to a $17k lower income working class Wal-Mart America and it’s time to swing the other way for the country’s good. Disillusioned Americans are now hearing and seeing Obama’s vision and are now coming out to vote in record number for big change. All we really need is to find some way to have the little guy be fairly represented once more. The way things have evolved, letting capitalism run unchecked while suffocating democracy, has eliminated all corporate statesmen, union power and regulatory authorities. Under Obama I see the years ahead as tough years but ones with much more satisfaction as more and more individuals and groups start believing the country is back moving on the right track again.

Under this scenario eventually the US dollar would strengthen. A strengthening dollar would be an indication that America was making a comeback. Using our underlying, fundamentally sound economic and social system correctly-- capitalism and democracy balanced and performing well together -- would strengthen the United State’s position in the new one global marketplace we now live in. We’d have a sounder America helping us establish a stronger position in the new Asian Century that’s already begun. Maybe we’d even surprise the historians who figure Asia taking over leadership is an accomplished fact!

Schwartz View: Of course, a zillion things can go wrong in the above scenario. I’m one for generally seeing the glass half full; don’t know what’s come over me making me. Guess its’ the olive branch being extended. But the above scenario does offers hope. Let’s just hope Obama doesn’t become the next Elliott Spitzer! Our new governor of New York swept into office with a record vote margin with the promise to change politics in New York and clean out the corruption but immediately got caught pushing the limits of the law and is now frozen into impotent inaction. By the very political entrenched corruption he set out to to eliminate! So Obama’s task ahead is huge. That’s why his laid-back, get-along personality is so important. He’s not going to try to be a “steamroller” like Spitzer. Much good luck to you Obama. It’s a long road ahead yet I see you as the perfect man coming along just at the right time for this important job.