3 stocks for a stock picker's market

3 stocks for a stock picker's market
The recent rally is impressive but historically not surprising. The Fed's money printing continues, and investor risk-taking has resumed. This all calls for caution.

[Related content: stocks, technology, Bill Fleckenstein, software, wireless]
By Bill Fleckenstein
MSN Money
Given the recent market gyrations and the sloppy and weak trading, I thought I'd home in on the action and examine what clues, if any, that action might afford.


How long can the market rally last?
Heading into earnings season, I expressed my belief that most companies were set up to win at "beat the number," which they did. What I was curious to see was how the market would respond, and, in essence, the good news was sold.

Thus I think there's a decent probability that we'll go into some sort of trading range for a while. Whether that turns out to be for a long while or becomes the start of a top, I don't know.

If we do slip into a trading range, I would be somewhat shocked if that resolved itself with a big move to the upside, though given the money printing that continues, I wouldn't rule out that possibility. Consequently, although I am open to the idea of looking for stocks to short, I intend to be extra-cautious.

Right now, I have no reasons to take short positions other than the macroconomic ones, including debt and unemployment, that I've written about before. That backdrop aside, the monetary backdrop is not conducive to shorting stocks because of all the money printing going on.

Even if the market turns out to be rangy or exhibits somewhat of a downward bias, it's possible, in light of the money printing, that some stocks will do OK to well while others will do OK to poorly.

Buying in single packages, not bulk
Thus my long positions in a few non-money-printing-beneficiary companies -- e.g., Microsoft (MSFT, news, msgs), Novatel Wireless (NVTL, news, msgs) and Eli Lilly (LLY, news, msgs) -- as I think we could experience, for the time being, a market of stocks rather than a stock market. (Read "The trouble with techs right now" for more on Lilly and tech stocks in general. I also discussed this outlook in a recent appearance on CNBC; watch the video here.)

In other words, we might witness the evolution of a true stock picker's market for the first time in years, rather than the market's being essentially "all one trade," which has been my view.

We'll see how this plays out, but I thought it was worth introducing some of those ideas as food for thought.


Referring to the market rally of 1930, he points out that if that market could bounce as much as it did, with as little help as it got from the Federal Reserve and the government in terms of large stimulus, then it's no surprise we've seen the rally that we've seen.

His outlook for the market: It's just a guess, but he thinks it might face some tougher going early next year.

"It is hard for me to see what will stop the charge to risk-taking this year," Grantham wrote. "With the near universality of the feeling of being left behind in reinvesting, it is nerve-wracking for us prudent investors to contemplate the odds of the market rushing past my earlier prediction of 1,100. It can certainly happen.


"Conversely, I have some modest hopes for a collective sensible resistance to the current Fed plot to have us all borrow and speculate again. . . . My guess, though, is that the U.S. market will drop below fair value, which is a 22% decline (from the S&P 500 ($INX) level of 1,098 on Oct. 19)."

In summary, Grantham believes there is unfinished business on the downside, though he does not think we need to make a new low. His road map seems to be not terribly different from what my current thoughts are. Perhaps that means some variation of that theme will play out -- unless it doesn't.

Windows' 7th heaven
In Microsoft's earnings report last week, the company did far better than most people expected. Even though I was thinking Microsoft might possibly do a bit better than expected, I was surprised at how much better it did. What it will accomplish over the next year or so is pretty much ordained, though.

When you think about the fact that 40% of revenue is derived from a product that for close to a decade has basically been a dry hole (that being the operating system) and that now the company has a really fine product release (Windows 7), you can see how the future looks bright. (Microsoft is the publisher of MSN Money.)

Video: Bull market or bust? Fleckenstein's view

But when you add in that all of Microsoft's major products will see new versions released in the next year and that the company has some interesting new products as well, coupled with the fact that it has cut expenses, I believe Microsoft can do well regardless of the world economy.

Obviously, if the economy is strong, that will benefit the company, but if it's not particularly strong, the company will still do just fine. So, barring some stupid upside move in Microsoft, my ownership of that stock will probably be on autopilot for the next year, though I might have to change my mind down the road.

It has been amazing to me to watch the "dead fish" trip over themselves to avoid MSFT over the past year. I just wish I'd been even bolder when I first started talking about Microsoft a year ago, when it was half the price it is today. Of course, that's the way investing usually is. You never own enough of the winners, even if they look like reasonably safe layups.

At the time of publication, Bill Fleckenstein owned long positions in Microsoft, Eli Lilly and Novatel Wireless.

A tech stock to own now

A tech stock to own now

You may know this company for its stock that soared, then collapsed. It won't ascend like a rocket again, yet it should hold plenty of appeal for conservative investors.
[Related content: stocks, technology, EMC, earnings, Jon Markman]
By Jon Markman
MSN Money

If you tweet or use Facebook, e-mail or instant messaging, you are to blame for creating the largest pile of permanent waste in the history of mankind. Nice going.

Never mind that your messages are ethereal wisps of digits and electrons and that 99% of them are useless a few seconds after they are created. They are 0s and 1s that will be stored on some disk drive somewhere whether you want them or not, ready to be retrieved by your grandkids, prosecutors and historians for all eternity.

A slew of companies have emerged in recent years to manage all of this digital excess, but one stands head and shoulders above the rest. And, amazingly, it is what investors call a "fallen angel," a once-great outfit that has fallen on hard times and yet has the capacity to rise again.

That company's shares may be the one stock that conservative investors need to own for the next few years, particularly those who are a little shy about the rapid recovery in share prices and the uncertainty of the global economy. Its value is already so bombed-out that everyone who wanted to sell it has fled, and now it's owned mostly by new investors who have taken a shine to its slightly scuffed appearance and are ready to dream again about how great it can be.

The company is data-storage specialist EMC (EMC, news, msgs), and I know it's going to be familiar to a lot of people, for good and for not-so-good reasons. Here's why it's so notorious, and why it is such a good bet now.
'90s nostalgia
During the 1990s, which I believe we are about to repeat, EMC shares put in one of the greatest advances in market history. The stock rose 65,450% from January 1990 to December 1999. Ten thousand dollars invested at the start of the decade was worth $6.5 million at the end, if you'd had the foresight and patience to keep it through booms and busts. Which, let's face it, would have been tough. I don't know about you, but every time I have a 10,000% gain, I feel like taking profits.

What happened next at EMC was not a unique story. Excessive optimism crept into entrepreneurs' animal instincts, so new competitors crowded into its space with lower-cost offerings, and the ensuing price war crushed its profit margins. EMC, which was always known to have one of the best sales forces on the planet to go with its great product offerings, managed to annihilate those latecomers with brusque dispatch, but the damage was done: Once the pricing genie is out of the bottle, it's almost impossible to stuff it back in.

So after that amazing decade, EMC shares began a breathtaking collapse. And now, the once-godlike stock has tripped on leaden feet to fall 80% since the start of this decade. At the stock's peak, expectations got so out of whack with reality that investors were willing to pay more than 100 times earnings -- a superhigh price-earnings multiple of 125. But in the multiyear collapse, those expectations dwindled into a pit of despair, until the P/E multiple hit 10 in February. It's now around 18, based on my estimate of next year's earnings.

That is very cheap for a company of this caliber with potential to grow 20%. You see, companies such as Procter & Gamble (PG, news, msgs) get a forward-looking P/E of 14, and the detergent maker is not going to grow much more than 5% next year, if that much.

EMC may be tarnished, but it has already begun to sparkle a little bit in a few corners. What will make it worth your hard-earned dollars over the next few years?

Expectations are still fairly low, which is always the key to future success in the market. Most analysts expect the company to earn 84 cents a share next year, which would amount to fantastic 32% growth over 2009. But I actually think that's too low coming out of a very low base and that the company has a very good shot at earning $1.10 a share next year.

Growing again, steadily
Here's why EMC will grow: All indications from the marketplace suggest the company enjoyed a very solid September with its elite roster of Fortune 100 customers with stiff data-storage needs, which will allow it to report better-than-expected results Oct. 22. And reports from the field also suggest that the current quarter has already started off with a bang, as customers are finally loosening budgets that were severely tightened during the recession and replacing old equipment with the technology that will permit improved retrieval of every work, play and medical twitch of your increasingly digital lives.

That's the long-term picture. Short-term results will be driven by better gross margins (net income before taxes) due to manufacturing efficiencies and a lower cost structure in the wake of head-count reduction of 7%, around 2,400 EMC workers. Analysts estimate that every 1% reduction in operating expenses results in 2 cents per share to the bottom line.

Both of these elements are important, but the biggest boost will come from better sales, because a company like this needs to keep innovating and creating more reasons for customers to pick up the phone and buy its equipment.

EMC has used the recent fallow period to become the leader in a niche called network-attached storage, which was just a small part of its business five years ago. It has since muscled its way past smaller rivals to become the top vendor, with 36% market share -- about 5 percentage points more than its top competitor, according to calculations from analysts at Broadpoint AmTech.

The majority of its revenue in the storage-area-network space comes from its high-end Symmetrix line, which provides companies with faster access to data because it utilizes solid-state drives with an industry-leading reliability promise of 99.999% -- known as the five nines standard.

And, finally, EMC has retained a large stake in VMware (VMW, news, msgs), a spun-off unit that sells the hottest infrastructure enhancement going for companies trying to save money today: virtualization software. Because most computer servers at companies normally run at a lousy utilization rate of 15%, this software allows them to get more computing power for less money -- the key selling point. VMware is virtually the only company that Fortune 100 companies use for this service, and EMC owns 83% of it.
Become a fan of MSN Money on Facebook

Skeptics will say that EMC has seen its best days and that growth will be modest going forward -- and I don't disagree. This is not going to be one of those stocks that rockets 100% a year over the next couple of years, like some of the recommendations I made earlier in the spring and summer.
Find top-rated stocks

Find top-rated stocks

But we're talking about one tech company that can still grow 15% to 20% a year and has the potential to see its price-earnings multiple expand by 5% a year because the need for storage is the only thing in technology that is truly growing exponentially. And that's thanks to all those tweets, Facebook posts, e-mails and instant messages that I mentioned a moment ago -- not to mention the Obama administration's lust to put all medical records in a digital format in the next half-decade.


Figure that EMC, now trading around $18 a share, can get back to about $35 over the next three years with any kind of tailwind from the improving global economy, back to where it traded in 2001. Its rivals IBM (IBM, news, msgs) and Hewlett-Packard (HPQ, news, msgs) have already made that journey, and as long as you keep creating data, it'll keep creating profits.
Fine print
Check out EMC's products and services here and here. Learn more about Broadpoint AmTech here. Learn about virtualization software here. . . . It's great to see the casinos charge back after their weak spring. On May 14, I recommended Las Vegas Sands (LVS, news, msgs) and Multimedia Games (MGAM, news, msgs) around $8 and $2.75, respectively. (See "In an economic desert, signs of life.") They closed Friday at $18.05 and $5.02. . . . For more ideas like this as the market rally progresses, check out my daily newsletter, Strategic Advantage (membership required).

At the time of publication, Jon Markman owned shares of the following company mentioned in this column: Hewlett-Packard.

Charts Will Save You A Fortune

These Three Charts Will Save You A Fortune
By: Tom Dyson
Contributing Editor
Daily Wealth

Published: October 5, 2009

Russell Napier, a well-known stock market historian, studied market tops and bottoms over the last 100 years and showed corporate bonds tend to lead the stock market by several months at important turning points.

When this bond fund starts falling, you should exit the stock market, but until then, you have a green light to speculate...

LQD has turned lower in the last four trading sessions. Please keep an eye on this chart. If it breaks below 103, immediately exit the stock market. A large decline may be imminent.

LQD isn't the only indicator I follow to track the health of the market. I also watch the British pound...



The British pound is one of the most important financial indicators in the world. Britain was at the epicenter of the credit crisis. It had a huge housing and mortgage bubble... even bigger than the housing bubble in the U.S. Britain also had a huge banking and finance bubble. In this bubble, London became the world's largest financial center. Finance represents almost 10% of Britain's GDP.

In other words, the pound is the perfect symbol for housing and financial excess. When the pound is rising, it means the pain is subsiding and the storm clouds are breaking. When the pound is falling, financial misery is increasing.

Here's the chart of the pound. On Friday, the pound broke down to new four-month lows.

Here's another bearish development. Commodities are falling in terms of gold...

Gold is a safe haven. People turn to gold when they're afraid of financial chaos. But when they're optimistic, people use more energy, eat more food, and live in bigger houses. These activities require industrial commodities like oil, copper, aluminum, and corn.

So the relationship between gold and industrial commodities is an excellent barometer of fear and greed in the stock market. When commodities fall against gold, there's fear in the air. But when they rise against gold, people are growing optimistic.

This chart shows the price of gold set against the CRB Index of commodities. This barometer led the stock market by three weeks in March, when the bull market started.

In September, the commodity-gold ratio broke down to a new four-month low. It hasn't made a new low for three weeks. But watch this one. There may be misery coming in the stock market if it makes a new low...

If you invest in the stock market, you need to follow the performance of these three charts. They're among the best gauges of fear and greed in the market. As their prices go, so goes the stock market.

Right now, these charts are hinting at a new downtrend. My advice, hold off on making new buys, cut your most risky positions, and tighten your stop losses.

-- Tom Dyson
Contributing Editor

Now if only I knew this then Rules to avoid a bear

Rules to avoid a bear
First is the fact that bad things happen in bear markets. The Sept. 11, 2001, attacks happened after a bear market was well under way. The Great Depression happened after a bear market had begun. The collapse of Lehman, Bear Stearns, Washington Mutual, Fannie Mae and Freddie Mac all happened during a bear market. The Nixon impeachment hearings that helped kill the market in 1974 happened during a bear market. So really, the first order of business is to avoid the bear.
This is easily done using one very simple timing rule that I have recommended often in the past, as it has worked for at least the past 60 years: Get out of the market when the Standard & Poor's 500 Index ($INX) ends a month at a level below its 12-month average. Don't return until it closes a month above the one-year average. Using this rule, you were out of the market after December 2007 at 1,468 on the S&P 500, and did not return until after July, at around 987. You're not out at the top or in at the bottom, but you still avoid a 32% collapse. If you want to get out and in sooner, with slightly higher risk, use the 10-month moving average instead; in the present case, you'd be out on Dec. 1, 2007, and back in on June 1, 2009.
Using this simple rule, the Lehman collapse was just a curiosity for you rather than a calamity. As for individual stocks, Clews' cane approach is less straightforward. You cannot buy right away, as panics are seldom over quickly. In most cases, you can wait at least a few weeks after an event that's large enough to break out of the financial news section onto the front page of newspapers, because you must wait for negative psychology to jar the shares of the most-admired companies out of the hands of suddenly frightened longtime holders. As a rule, my research shows that the stocks you buy should be at least 40% off highs immediately prior to the start of the emotional event.
Many famous companies fit this description in the two months after the Lehman collapse, and almost all are much higher now. IBM (IBM, news, msgs) fell to 40% off its pre-Lehman high at $72 in November; it's close to $120 now. Amazon.com (AMZN, news, msgs) was 40% off at $51 in October; it's around $80 now. DuPont (DD, news, msgs) fell 40% to $25.50 in November; it's around $31 now. Cisco Systems (CSCO, news, msgs) fell to $14.40 in November; it's about $21 now. Goldman Sachs (GS, news, msgs) dropped to $53 in October; it's $163 now. The 40% rule works in most cases of severe panics. Buying will feel so wrong at the time, but if you want to get well ahead of the crowd at emotional lows, you must accept the risk when others shun it.
No downturn on the horizon
I'm telling you this not to be a smart aleck, but to help you prepare for next time. And there most definitely will be a next time within our lifetimes. I do not think, though, that it will be as soon as the bears would have you believe. Every time that a 12-month-average buy signal has been given after a bear market of a year or more, the ensuing up move has itself lasted at least a year -- and more often three or four.

The primary reason: The government and central bank response to a calamity like the Lehman Bros. collapse and panic is typically so powerful and over the top that the monetary infusion cycle -- fiscal stimulus and superlow interest rates -- that ensues is much more persistent than anyone expects.

Robert Drach, a veteran analyst who has been researching these cycles for the past 40 years from his base in Florida, believes that the current monetary infusion cycle will exceed the last similar one that extended roughly from 1991-99. He's expecting that the major indexes will ultimately advance at least 450% from their lows, which would put the S&P 500 at 3,000 in the next 10 years. See you then.

The house that Jack built

The house that Jack built
Commentary: Time is on your side, Vanguard's Bogle tells investorsBy Chuck Jaffe, MarketWatch

On whether investors should be upset with fund managers, financial advisers or both:

"Defeat has 1,000 fathers. We really don't have much choice but to trust the investor to make his own asset allocation, with or without the help of a financial adviser. I don't think you can expect the fund manager to do it. ... Letting one fund manager decide for all investors how much to have in stocks or cash doesn't really seem to work for most investors. There are not many managers who can do it, for starters, but it's just impossible to know the needs.

"You have to be prepared to take the bad times with the good. There are a lot of good active managers who failed last year -- Longleaf, Marty Whitman {Third Avenue funds], Dodge & Cox, Weitz -- and if you are going to be with an active manager and have found someone who has the values you believe in and who is in the investment business and not the marketing business, then go with it but be prepared to lose one year out of three. I think most investors can't handle that; they are their own worst enemies.

"But advisers don't help this, I think. They hold a magnifying glass up to the worst of things. You say 'God I have to get out of here,' and they say 'Go now' instead of saying 'Stay the course.'"

an old forbes article on Irwin Yamamoto

Irwin Yamamoto: Maui Wowie Nikhil Hutheesing, 02.18.03, 2:00 PM ET


Irwin Yamamoto

Hawaiian born, Irwin Yamamoto, editor of the Yamamoto Forecast, doesn't like publicity, and he will give little details about the success of his newsletter. We do know that Yamamoto, 47, picks stocks from downtown Kahului on the island of Maui, and, according to Timer Digest, his market-timing signals were up 45% in 2002. His success, he says, comes from being a contrarian. As the threat of war with Iraq increases, many advisers recommend fleeing stocks and investing in gold. Yamamoto says to do the opposite.

Forbes: We are on the verge of going to war with Iraq, yet in your latest newsletter you recommend 100% investment in stocks. Why?

Sign up for Forbes' Free Investment Guru Weekly e-mail.
Yamamoto: Right now, everything is about the war. What do I think will happen? I think that it will either be a quick war or, at the very last moment, Saddam will go into exile. So I'm bullish on stocks because I think the market is overreacting. Look at what happened in the Gulf War. As soon as bombs started falling and the market sensed victory, there was a rally. I think the market is currently oversold--on a short-term basis. On a long-term basis, it is still pricey.

So you aren't a long-term bull, just a short-term bull?

Right. This won't be the start of a bull market, but rather it will be a significant, tradable rally. Current price-earnings ratios and book values are too high for a bull market to start. But because of short-term worries about war, the overhead resistance to stocks will be removed. So there will be a chance for profit taking.

When war isn't the overriding concern, how do you pick stocks?

I follow three indicators: fundamental, technical and market sentiment. In the beginning of January, my long-term indicator was bearish. But by the end of January, I changed it to bullish. I turned out to be right. Stocks were heading up until mid-January, then they began coming down. When we had that initial advance, I thought the rally wouldn't last, so I turned negative. I still think the market is waiting for war. But to take a longer view, the war factor has already been priced in and is largely discounted.

So give me some examples of what you look at before you buy a stock?

I look at technicals. Because of the fast decline in January, on a short-term basis the market is oversold. But even if there is no war, I think there will be a reflex rally, a technical bounce. Throw in the fundamentals. Once problems are removed, there should be a rally. Now consider sentiment. Everyone is saying not to touch stocks now. I go to the Borders bookstore here and check Barron's out on Sundays. It always correlates. During the dot-com bubble, the newspaper was always sold out. Everyone was buying, and you know what happened.

Now, because of the war, no one is interested in stocks, and there are plenty of issues of Barron's on sale at Borders. When I invest, my question is, "Have people heard any favorable news lately about this company?" If the answer is yes, I don't buy the stock because I would be paying a premium for it. So I look companies that are hated. I think brokerage stocks fit in that category.

Continued on next page

You are 100% in stocks right now. Which companies do you like now?

The companies I am buying I like on a short- and long-term basis. A.G. Edwards has a spotless reputation and no debt. It is a big regional brokerage firm and a possible takeover candidate. Also, along the same lines is Raymond James. Even if these two are not taken over, they can stand well on their own. I also like Walt Disney. The stock is close to its lows, and when there is a perception that the economy is recovering, advertising will pick up. I recommend Japan Equity Fund because if there is a recovery in the U.S., that will help Japan in terms of exporting goods to the U.S. Japan is on the verge of a major financial change. Once the news is out about the major restructuring changes in Japan and the cleaning out of bad loans, Japan's market will soar.

Playboy is another great buy. You won't get a free subscription as a dividend, but management has said that the next year will be a profitable one. The stock is worth $30, but you can buy it now for $9.50. Alexander & Baldwin is another company I really like. It has over 90,000 acres of Hawaiian land, so it's a great asset play. The stock yield is 3.5%--a great dividend, especially if it's tax-free. Then, Wall Street will be attracted. On a conservative basis, I think the stock is worth $35 to $40, yet it is selling at just $25. So you get the yield while you wait for the price recognition.

What about investing in oil, bonds and precious metals?

As a contrarian, I was into gold and oil when it was low. Remember, buy low, sell high. Oil is high, so I'm selling it. I think when the war starts, in the first hour or so the price of oil and gold will plunge, especially if it looks like it'll be a quick war. In the Gulf War, American markets were closed when the war began. The gold and oil markets continued to surge, but before the U.S. market opened the next day, oil and gold plunged in price because a quick victory was viewed.

As for bonds, right now, bonds are also used as a safe haven. But by the second half of this year there will be an economic recovery, so the multiyear bull market in bonds is practically over. Good news in the economy is bad for bonds, and soon people will think the economy can recover. Then, bonds will sell off, and people will move into stocks.

But many advisers take a different view. They think that gold shares should continue to do well, especially since the current uncertainties remain.

We are at the top of the gold market now. Uncertainty is favorable to gold, but it will be removed within a matter of weeks.

Yes, but gold was showing strength even before talk of war with Iraq. And there are many other factors that are positive for gold, such as weak currencies, the Fed's monetary policy and inflation pressures.

Before the talk of war, gold was going up because of supply and demand and the weakness of the dollar. But over the last month or so, many of the gains have been directly related to the uncertain situation with Iraq. So if things look good with Iraq, gold investors won't be worried about the recession or soft dollars. That's why I think the best opportunities right now are in stocks.

Thank you.

More Adviser Q&As

Maui tortoise stopped on bear-market rally

Maui tortoise stopped on bear-market rally

By Peter Brimelow, MarketWatch
Last update: 12:04 a.m. EDT May 7, 2009Comments: 10NEW YORK (MarketWatch) -- The Maui Tortoise is further out of his shell. But not far, and he's not coming any further.
I call Hawaii-based Irwin Yamamoto of The Yamamoto Report the "Maui Tortoise" because, in the age of the Internet, he still publishes only monthly, by snail-mail, and appears to have no Web site.
Who does he think he is, Charles Allmon? ( See April 30 column.)
Very few investors or editors can sit still for this length of time, especially with markets as volatile as they have been recently. But long study of the Hulbert Financial Digest market-letter-monitoring data has led us to the conclusion that both infrequent trading and hyperactive trading can be equally successful -- in the right hands. (Equally, virtually every known market method can work -- again, in the right hands.)
Yamamoto appears to have the right hands. He was one of the few services to make money during the Crash of 2008. ( See Oct. 29, 2008, column.)
Over the past 12 months through April, Yamamoto is up 21.32% by Hulbert Financial Digest count, compared to a 34.69% loss for the dividend-reinvested Wilshire 5000 Total Stock Market Index. Over 2009 to date, Yamamoto is up 14.3% versus a negative 1.16% for the total return Wilshire 5000.
Yamamoto says he's been publishing since 1983, but Mark Hulbert only began following him in at the beginning of 2002. Over that time, Yamamoto has achieved a 14% annualized gain, compared to a negative 0.6% annualized for the total return Wilshire.
Significantly, both Yamamoto's stock selection and his pure timing beat the market. A portfolio that switched between the Wilshire 5000 and T-Bills on his short-term signals gained 2.7% annualized from 2002 through April, in contrast to a 0.6% annualized loss for buying and holding. A portfolio that relied on Yamamoto's long-term signals to switch between the DJ Wilshire 5000 and T-Bills gained 5.5% annualized over this same period.
Yamamoto recently began buying stocks for the first time in a considerable period. ( See March 12 column.) He is now 35% invested.
And that's enough, he says in his latest letter. He is solidly in the camp that views the recent rise as a bear-market rally.
He writes: "Today, investors are truly spoiled. Prior to the current bear cycle, people experienced a spectacular bull run from 1982 to 1999, or 18 years. ... Furthermore, in recent years, bear markets have been cyclical in scope. The last four bearish periods were measured in months, not years. The longest one was only 10 months. As we previously stated, market participants are taking things for granted."
Yamamoto's unpleasant conclusion: The last two secular bear cycles were 13 years and 16 years in duration. The average: 14.5 years. If equities topped out back in October 2007, then it would be the year 2021 or 2022 before this bear market is completed. ... Even if the length of the downside is shorter than the most recent secular cycles, it should be a lot longer that the previous cyclical downturns."
Yamamoto doesn't offer much rationale for his bearishness, although he says flatly that Obama's efforts to reflate will end in disaster:
"Do not misunderstand us, inflation is not today's enemy. On the contrary, deflationary forces continue to permeate the business environment. Yet in the effort to escape the grips of deflation, the government seeks to reflate the economy back to health. In a few years, hyperinflation will replace deflation as the threat."
Seemingly not now, however. Yamamoto is bearish on gold, short term.
The Yamamoto Forecast just snailed in, and I don't like to reveal portfolios until subscribers have gotten a look. This case is unusual, however: Yamamoto is basically unchanged since my March 12 column, just slightly more invested. He continues to be 5% exposed to Rydex Juno Fund Inv (RYJUX:RYJUX
reflecting his view that bonds will break.
Yamamoto's address, a service to readers who will otherwise email me saying they can't find him online, is: P.O. Box 573 Kahului, HI 96733

5 Buffett Picks at a Discount

5 Buffett Picks at a Discount
This story is an edited version of the original, which appears in the May issue of SmartMoney Magazine. Berkshire Hathaway has its annual meeting Saturday, and is expected to draw 35,000 attendees.

Warren Buffett usually attracts as much public criticism as, say, puppies or Santa Claus. He filed his first tax return at 13 (bicycle deduction: $35), amassed an investment fortune of more than $60 billion by the end of 2007 and has committed most of his wealth to charity. He lives in the same Omaha house he bought in 1958 and argues that people like himself don’t pay enough in taxes.

But Buffett’s stock picks, like just about everything else, tumbled over the past year, and some on Wall Street are grumbling. U.S. stocks fell another 28% after Oct. 16, when Buffett penned a New York Times op-ed piece titled “Buy American. I Am.” The Oracle bet especially wrong on banks and oil over the past year. And after calling derivatives “time bombs” and “financial weapons of mass destruction” in a 2002 letter to shareholders, Buffett noted earlier this year Berkshire Hathaway (BRK.A: 94900.00, +400.00, +0.42%) had 251 derivatives contracts outstanding. Mostly, it had written insurance against the stock market falling, which, of course, it had.

Some critics say Berkshire is suffering from mission creep. Others say buy-and-hold investing is dead. I’m guessing it’s not. I’m guessing that while Buffett admits he made some bad bets over the past year, he made plenty of good ones, too. Some things he bought are selling for well less than he paid, and some long-standing names are newly cheap. So if you ever wanted to mimic the master without paying a Buffett premium, now seems a fine time.

After all, consider the long-term record. When Buffett took control of Berkshire in 1965, it was a withering textile firm with $19 a share in book value—roughly what accountants figure its assets could raise in a sale. At the end of 2008, book value stood at $70,530 a share. That’s a yearly compounded increase of more than 20%, more than double the broad stock market’s annual return during that stretch. Berkshire’s book value has shrunk in only two years during Buffett’s tenure, by 6.2% in 2001 and by 9.6% last year. Of course, Berkshire’s trading price is based as much on what investors see as its earnings power as it is on what the firm might fetch in a liquidation sale. Generally, the stock trades at a big premium. Over the decade ended 2007, it went for 70% more than book value. Now it sits just 30% above it.

As for derivatives, Buffett has said they’re dangerous but not necessarily evil (comparing them to uranium, which can be used for bombs or electricity). When the put options he wrote come due starting in 2019, he said in a March CNBC interview, even if the stock market is 15% below where it was when he wrote the contracts, he’ll still breakeven and will have enjoyed the use of $5 billion in customer cash in the interim. And while that New York Times headline might have been an early call, writers (readers can never be reminded enough) generally don’t write headlines. While Buffett said he’s buying stocks, he also wrote that he didn’t have the “faintest idea as to whether stocks will be higher or lower a month—or a year—from now.”

Truthfully, though, I’m more interested in exploiting Buffett than defending him. The shortest path to being a great investor is to copy one. Berkshire shares might be a good deal, but the firm has a giant stake in financials. Investors who prefer to avoid that can simply cherry-pick from its holdings, which are reported quarterly. To find the names below, I trolled Berkshire’s statements for purchases and for companies Berkshire was sticking with, but not for ones like Johnson & Johnson (JNJ: 54.21, -0.15, -0.27%) and Procter & Gamble (PG: 50.84, +1.05, +2.10%), which Buffett says he still likes but that Berkshire has trimmed its stake in to make room for new purchases. I also looked for purchases of common shares available to the rest of us, ignoring privately negotiated deals with companies like General Electric (GE: 13.67, +0.57, +4.35%) and Goldman Sachs (GS: 139.22, +4.02, +2.97%), which secured Berkshire fixed returns and upside potential.


Beating Buffett at His Own Game
Company Ticker Industry Avg. Prices Paid (Est.) Current
Price

Burlington Northern BNI Railroad $75 to $80, summer 2007 through early 2009 $67.48
Eaton ETN Industrial Products $44 in late 2008, $71 in fall 2008 43.80
ConocoPhillips COP Oil & Gas $49 in late 2008 41.00
Kraft KFT Packaged Food $30 in early 2008, $33 in late 2007 23.40
NRG Energy* NRG Utility $21 in late 2008, $35 in fall 2008 17.98
* A $5 billion takeover proposed by Excelon (EXC) is under review.


Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."

Stay in May by Jim Lowell

Stay in May
Commentary: Seasonality charts point to continued gains in the broad markets
By Jim Lowell, MarketWatchLast update: 10:22 a.m. EDT May 4, 2009NEWTON, Mass. (MarketWatch) -- With a remarkable April rally, in concert with March's upward march, the major market averages delivered their best returns since the Great Depression.
Investors now feel more confident about the present and future prospects of investing in their own financial future. That is a sea change in outlook which bodes well for a changed sea-state in which to invest -- but is it enough?
It's hard to make the case for a sustained run until economic data, earnings news and forecasts confirm a move toward better times. But our proprietary seasonality charts tell us that May has a longstanding history of blossoming gains.
The cold water?
There is much to be concerned about. For one, the auto industry remains in critical condition, even as rumors of a swine flu pandemic could turn into a more problematic human and economic headwind.
Also, the release of the bank stress-test results could prove to be more controversial than currently priced. Jobless claims won't quit nipping at our heels. The global economy is on the tenterhook of our own recovery. And geopolitical instability seems to be rising.
Our May chart's course for the above landscape is fairly straightforward. It suggests buying the U.S. market and steering clear of international indexes. Investing in a basket like the Vanguard Total Market (VTIVanguard Total Stock Market ETF
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
VTI) is one way to go. But, our charts refine that view to suggest that active traders can unpack that basket into constituent elements in order to set greater profits.

Mid- and small-cap names trended better than their large-cap brethren in May of years past. Vanguard Extended Market (VXFVanguard Extended Market ETF
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
VXF) or the more aggressive PowerShares Dynamic Mid Cap (PJGPowerShares Dynamic Mid Cap Portfolio
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
PJG) both play in those fields. Then again, mid- and small-cap growth trended best of the overall broad-market bunch -- making iShares Mid Cap Growth (IJKiShares S&P MidCap 400 Growth Index ETF
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
IJK) and the PowerShares Dynamic Small Cap Growth (PJMPowerShares Dynamic Small Cap Portfolio
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
PJM) my recommended picks on this bough.
Beyond that broader, extended market pale, our seasonality indicators point to several, sector-specific opportunities. Energy is a green shoot, despite the fact that emerging markets aren't. This month, I prefer to play this patch via the United States Oil Fund (USOUnited State Oil Fund LP
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
USO) in order to closely track the price of light, sweet crude oil.
While crude oil remains a slippery slope, technology has been gaining more than a toehold throughout the year. That, in and of itself, is enough to put technology on any trader's screen. But it's on our May screen, too.
What gives?
For one thing, as domestic and global financial systems stabilize, technology names seem to breathe easier. For another, there's a new buyer in tech town: the U.S. government. Couple those with another key macro factor: legacy systems.
There's a near universal need for an upgrade at a time when businesses large and small are aiming to use more technology to pace the recession and keep pace with the recovery. A nearly 15% year-to-date gain in the MarketWatch ETF Trader's "Aggressive Growth" portfolio reflects this trend, as does a 24% leap in my Technology-Plus Portfolio at Fidelity Sector Investor.
Here, as technology as a whole continues to exhibit signs of a classic recession-recovery trajectory, I like State Street's SPDR Technology (XLKSPDR Technology Select Sector ETF
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
XLK) broadly, and the more chip-focused PowerShares Dynamic Semiconductors (PSIPowerShares Dynamic Semiconductors Portfolio
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
PSI) .
In case the above steps into May encounter "maybe days," our charts tell us to pack inflation-protected bonds. For that, I'll be packing iShares Inflation Protected Bond (TIPiShares Barclays TIPS Bond Fund
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
TIP) . And, while our historical analysis tells us that healthcare is a dim bulb in May's past, PowerShares Dynamic Pharmaceutical (PJPPowerShares Dynamic Pharmaceuticals Portfolio
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
PJP) appears to remain well positioned, pandemic or no, to benefit from a recession mired market in need of a lasting rebound injection.

When to Sell Stock

When to Sell Stock
from buyingvalue.com/2009/04/when-to-sell-stock/
Read any investment book, blog, or magazines and you will see a multitude of recommendations related to buying stocks. Unfortunately, little is written about selling the stocks that you already own.

I use three key principals in deciding when to sell a stock:

Principal 1: Don’t be greedy.
Principal 2: Don’t be afraid to admit you were wrong.
Principal 3: Don’t let your carriage turn into a pumpkin.
Don’t Be Greedy
This one is pretty obvious but I am always surprised by how often investors overlook this rule. Value investing is all about determining the intrinsic value of a company and then purchasing the company below this value. If done right the market eventually realizes its mistake and drives the price of the stock up, or past, your assessed value. It happens all the time though, encouraged by a sudden increase in the stock’s price to our assessed value we hold the stock hoping that it will continue its accent. We have put our brains on the shelf and greed is driving our decision making process.

Always set an exit point and get out there, be it a percent return or a fixed dollar amount. When you decide what a fair price to buy the stock is you should know what a fair price to sell the stock for is also. When emotion and excitement get involved mistakes are going to get made.

Don’t Be Afraid to Admit When You Were Wrong
We all make mistakes. If you have done a good job researching a company you will have read everything you can about it and have made a decision to buy based on the facts available at the time. Unfortunately new facts are always arising, or perhaps you missed something at the time of your initial investment. When these facts present themselves you need to reassess you decision and perhaps get out while you can. This may involve taking a substantial loss, but if the company you thought you invested in turns out not to be the company you actually invested in you had best get out quick.

Don’t Let Your Carriage Turn Into a Pumpkin
Companies don’t stand still, they develop new products, hire and fire senior roles, get contracts, loose contracts etc. If you bought stock in any fortune 500 company ten, or even five years ago, odds have it they are a substantially different company now than they were back then. It is your job as an investor to keep tabs on the company, understand its direction, understand how it makes money, and if it can continue to make money. If the company changes so much that the reasons you bought in aren’t there anymore then you had best get out.

I make an effort to reassess every company I own on a yearly basis. I ask myself, if I was buying this company today is what I paid still a good price? If the answer is no, or I can’t understand the business anymore then I am out and done with it.

Walter Shorenstein: what I've learned

Taken from the Bottom Line blog at SF Gate .com
Walter Shorenstein: what I've learned
The following is a transcript of San Francisco real estate owner Walter Shorenstein's contribution to an oral history project conducted by UC Berkeley's Bancroft Library Regional Oral History Office.

Lessons Learned from 94 Years of Perspective and Success

By Walter H. Shorenstein

After serving in World War II, I arrived in San Francisco with no job, a pregnant wife, and less than $1,000 to my name. Over the next 60 years I built one of the nation's largest privately-owned real estate firms -- San Francisco's largest owner of office properties with distinguished holdings including the iconic Bank of America Building.

I've lived through the Great Depression and several wars, and I've ridden the ups and downs of economic and real estate cycles. Now in my tenth decade, I've seen things and learned lessons that apply to individuals and families, small businesses and multinational corporations, as well as state and federal governments -- especially now, as people struggle to makes sense of the current financial upheaval. I don't mean to be preachy -- I simply want to share some of what I've learned.

It should be clear by now that we can't count on government regulators to protect us. Just because we can sign up for new credit cards or buy things called "credit default swaps," doesn't mean that we should use borrowed money to invest in things we don't understand. Even if our regulatory agencies rediscover their spines, government overseers will never supplant individual responsibility and common sense.

Maybe you should trade credit default swaps if you've spent your entire adult life studying derivative contracts. However, if terms like counter party risk, mark to market accounting, and capital structure arbitrage aren't part of your everyday conversation, then don't risk your future on something you don't understand.

As my company grew steadily larger and more successful, so-called "experts" told me to diversify. I wouldn't. I stuck to what I knew, what I had experience doing. (I have my own personal interests that I've always kept separate from my business, such as the Shorenstein Center for Press, Politics and Public Policy at the Kennedy School, and the Asian Pacific Studies Program at Stanford.)

And don't worry -- you won't be missing out on some magical, get-rich-quick, money-making scheme. Just because a new investment fad sweeps through certain crowds, that doesn't necessarily mean it's a smart place to put your money.

Just look at the recent track record of the so-called "Best and The Brightest" -- the titans of our financial industry and government. While often mistakenly used as a compliment, it's worth remembering the intended irony in David Halberstam's use of the term in his book about the academics and intellectuals responsible for the Vietnam War debacle.

Halberstam used the term to make the point that even educated (and wealthy) people can show extremely bad judgment and make stupid mistakes. He detailed how the "best and brightest" made "brilliant policies that defied common sense" in Vietnam, and ignored the advice of experienced policy experts.

Education is a wonderful thing, (which is why I'm closely involved with both Harvard and Stanford), but it's not everything, and classroom learning can never completely replace real-world experience. Most of the successful real estate folks in my day never went beyond grammar school.

My most valuable education came from serving in the military, and spending the Great Depression helping my dad sell clothes at his store. There's a great Yiddish word, "seykyl" which translates loosely as "street smarts." I always preferred to hire people with street smarts than book smarts.

It's said that if you're chased by a tiger, you don't need to outrun the tiger, you just need to be faster than the person next to you. Similarly, many wealthy people have learned that you don't have to be super smart to succeed, because there are always dumber people out there.

Advanced degrees and computer models too often replace common sense. Financial common sense is not that different from old-fashioned, back to basics, everyday common sense: What goes up usually goes down, and vice versa. If you don't understand it, don't invest in it. If it sounds too good to be true, it probably is. Invest in things you understand -- companies you trust, that make products you use and appreciate. Don't over-think things, trust your gut instincts.

In the military, one of my duties was to assess new recruits and assign them to a service branch. I had 15 minutes to evaluate their character and decide their fate -- I had to trust my gut. And I still trust common sense and gut instincts more than a group of people with PhD's and fancy computer models.

Be careful with credit. Using leverage can be useful and necessary -- but don't overdo it. When I bought the Bank of America building, the most cash I had into the deal was $2 million -- a relatively small portion of the total package, but I did my homework and understood my risks.

Too many families and governments underestimate or simply don't understand the power of compound interest. Just as compound interest can work for you in a good investment, it works against you with lingering debt stuck on a credit card or a mortgage. Warren Buffett says that "borrowed money is the most common way that smart guys go broke." I would emend that adage to include smart countries.

Brokers used to be limited to a 10:1 leverage ratio; however, recent regulatory changes loosened the limits and freed companies like the late Lehman Brothers to gamble recklessly with the house's money. After they crashed and burned, we learned that Bear Stearns and Lehman Brothers were leveraged more than 30:1.

In the midst of the froth and excitement of a bubble economy, there is always a boisterous and delusional group declaring an end to gravity and logic. People claiming that "the old rules don't apply" are simply part of the pattern -- an element of the cycle that repeats itself in every bubble, from Tulip-mania in 1636 to the recent tech bubble. In my line of work, for example, Real Estate Investment Trusts (REITs) were all the rage in the early 70s and late 90s, but what do you think happened to them in the 80s and again now? To paraphrase: "Those who refuse to acknowledge the cycles of the past are condemned to be unprepared for them."

The absurdity of bubbles seems obvious in retrospect, but it's the simple things that get overlooked and forgotten during wildly prosperous times. Deregulation and irresponsibility have combined to give individuals, businesses and governments too much access to capital and not enough understanding of market cycles.

My military experience taught me to be ready -- to have not just a Plan A, but also a Plan B and a Plan C, because things change, and while you can't control everything, you can be prepared for variety of circumstances. These are interesting, but not unprecedented financial times. It's simply time for Plan C and an extra helping of good old-fashioned common sense.

List To Live By from Marc and Angel

List To Live By
http://www.marcandangel.com/2006/11/11/a-list-to-live-by/


Okay, this list isn’ perfect. Some of these bullet points may be a little cheesy, and there are a few too many “God” comments. However, you caught me a little drunk on a friday night, because right now I think this is a fairly decent list to live by.

1. Life isn’t fair, but it’s still good.
2. When in doubt, just take the next small step.
3. Life is too short to waste time hating anyone.
4. Don’t take yourself so seriously. No one else does.
5. Pay off your credit cards every month.
6. You don’t have to win every argument. Agree to disagree.
7. Cry with someone. It’s more healing than crying alone.
8. It’s OK to get angry with God. He can take it.
9. Save for retirement starting with your first paycheck.
10. When it comes to chocolate, resistance is futile.
11. Make peace with your past so it won’t screw up the present.
12. Its OK to let your children see you cry.
13. Don’t compare your life to others’. You have no idea what their journey is all about.
14 If a relationship has to be a secret, you shouldn’t be in it.
15. Everything can change in the blink of an eye. But don’t worry; God never blinks.
16. Life is too short for long pity parties. Get busy living, or get busy dying.
17. You can get through anything if you stay put in today.
18. A writer writes. If you want to be a writer, write.
19. It’s never too late to have a happy childhood. But the second one is up to you and no one else.
20. When it comes to going after what you love in life, don’t take no for an answer.
21. Burn the candles, use the nice sheets, wear the fancy lingerie. Don’t save it for a special occasion. Today is special.
22. Over prepare, then go with the flow.
23. Be eccentric now. Don’t wait for old age to wear purple.
24. The most important sex organ is the brain.
25. No one is in charge of your happiness except you.
26. Frame every so-called disaster with these words: “In five years will it matter?”
27. Always choose life.
28. Forgive everyone for everything.
29. What other people think of you is none of your business.
30. Time heals almost everything. Give time time.
31. However good or bad a situation is, it will change.
32. Your job won’t take care of you when you are sick. Your family will.
33. Believe in miracles.
34. God loves you because of who God is, not because of anything you did or didn’t do.
35. Whatever doesn’t kill you really does make you stronger.
36. Growing old beats the alternative — dying young.
37. Your children get only one childhood. Make it memorable.
38. Read the Psalms. They cover every human emotion.
39. Get outside every day. Miracles are waiting everywhere.
40. If we all threw our problems in a pile and saw everyone else’s, we’d grab ours back.
41. Don’t audit life. Show up and make the most of it now.
42. Get rid of anything that isn’t useful, beautiful or joyful.
43. All that truly matters in the end is that you loved.
44. Envy is a waste of time. You already have all you need.
45. The best is yet to come.
46. No matter how you feel, get up, dress up and show up.
47. Take a deep breath. It calms the mind.
48. If you don’t ask, you don’t get.
49. Yield.
50. Life isn’t tied with a bow, but it’s still a gift.
The author is unknown.

http://www.dumblittleman.com/2009/03/how-to-change-your-life-in-30-seconds.html
I'm sure you can find thirty seconds somewhere in your day, or better still, once every hour to make small, yet frequent positive changes to your life.

Here are some ideas.; take them or leave them. The point is that major change doesn't always have to take major effort or major amounts of time.


Start a 30 second savings habit
All it takes is 30 seconds to grab some cash and deposit a coin or note into your daily savings jar in the kitchen. I have a little pink pig which I feed happily each day in under 30 seconds.


Reduce your electricity bill
30 seconds is all it takes to walk over to the wall, bend down and turn all your electrical appliances off at the wall that are not being used. After one month, my kids are now experts at this new money saving habit.

Lose the frown
All it takes is less than 30 seconds to turn a frown into a smile. A smile literally relaxes hundreds of muscles and releases pockets of stress and tension held in your face. Feel your face now for any unnecessary squinting, frowning, or tight muscles.


Start a 30 second clutter clearing session
Walk to a cluttered draw/cupboard and spend a huge thirty seconds grabbing one thing that you no longer need and throw it out. No fuss and no stress. Allow thirty seconds each day to clear at least one thing from your chosen draw/cupboard. The beauty of 30 seconds is that you haven't got any time to have a discussion or argument with yourself. If in doubt, throw it out.


Take a chill pill
How often do you hold your breath and suck in the stress. Spend longer on your exhale to support your body in releasing built up stress and tension. Ten seconds on the inhale and twenty seconds on the exhale is a good formula for inviting space into your body and creating distance between you and your worries.


Get unstuck
Always keep a copy of your favorite inspirational book close by. Open randomly and read a few paragraphs to bring insight, to your current situation. I often pick up a book when my mind is going around in circles to regroup/refocus an unproductive mind. One of my favorites is The Power of Intention by Wayne Dyer. No matter what page I read, it always seems to put me back on track again.


Repeat a mantra
When confusion hits, step back, take a breather, and spend a valuable thirty seconds calming those erratic thoughts with a sanity saving mantra. My favorite "I trust" allows me to "let go" and relax into the situation.


The 30 second detox
Did you know that 70% of waste is eliminated via your lungs? Improve the efficiency of your lungs by breathing deeply into your lower abdomen. Place your hands on your belly and feel it rise and fall with each breath cycle. A thirty second detox every hour will do wonders for your health.


Stay hydrated
Your brain needs water to think clearly. It's the first place in the body to lose water. Get into the habit of sipping on water for thirty seconds every hour.


Do nothing for 30 seconds
Put some space between you and your hectic schedule. Treat yourself to regular 30 second breaks and give your body an opportunity to re-balance itself. Close your eyes, cup the palm of your hands over your ears and listen to the blissful sounds of the ocean playing inside your head.


Cancel a complaining thought
Each time you catch yourself complaining, spend thirty seconds focusing on the opposite and increase your ratio between helpful and unhelpful thoughts.

Take a 30 second exercise break
Stand up, roll your shoulders, stretch or try some wall push ups. Better still keep two cans of food beside your computer. When reading an article, grab a can in each hand and lift up to your shoulders and back down again, repeat as if lifting weights.

Adjust the speed of your day
Take some time out and notice if your mind is racing, your breathing shallow or your body feels rushed and uptight. Simply by taking thirty seconds to observe your body, you can slow down your thoughts, your breath and the speed of your day.You might even realize that your body is hungry, thirsty or simply needs some fresh air.

Turn off the TV
Value your time. All it takes is 30 seconds to get up off your seat and turn the TV off. Do something meaningful like talk to your family or connect to nature by talking a walk.

Eat mindfully
Take thirty seconds before you eat your meal to make sure you are settled, present and ready to smell, taste, eat and enjoy your food consciously. Breathe in "I am calm" Breathe out "I smile" Repeat five times.
What do you think? Can small decisions make major changes?

Written on 3/19/2009 by Carole Fogarty. Carole is the Editor of the Rejuvenation Lounge, a blog focused on sharing ways of living a relaxed lifestyle.

Top-performing tortoise plays bear-market rally by Peter Brimelow, MarketWatch

Yamamoto is certainly making bearish noises. He writes "the consumer remains on life support" and worries that the presence of Paul Volcker on President Obama's economic team means that interest rates will be raised quickly to snuff out the inflation he expects with any business rebound: "This backdrop looks like Japan's decade of malaise. The nightmare might be revisited on the landscape of America."
Still, in his previous letter, dated Jan. 30, Yamamoto did note that "historically a countertrend rally of 30 to 50 percent is not uncommon in a bear market." He said "a substantial surge might be forthcoming" but from lower levels.
And the market promptly provided the lower levels -- the Dow was then above 8000.
Currently, Yamamoto's 15% equity exposure is divided equally between Alexander & Baldwin Inc. (AXB)Alexander & Baldwin Inc Charles Schwab & Co. Inc. (SCHW)Charles Schwab & Co., Inc (SLB) Schlumberger Ltd. (SLB)
He recommended additional 5% commitments at or below $17.75, $10.50 and $33.75 respectively.
Yamamoto also recommended an additional 10% commitment to iShares:FTSE/Xinhua (FXIiShares:FTSE/Xinhua
FXI) below $24, and 5% each to Helmerich & Payne Inc. (HPHelmerich & Payne, Inc
HP) $21.25 or below, and Rydex:Juno Fund;Inv (RYJUXRydex:Juno Fund;Inv
RYJUX) at $13.25 or below.
Yamamoto warns sternly in every issue: "Don't go chasing after a stock ... If the stock is selling below our recommended price, chances are you are getting a better bargain. If it's above our recommended price, wait for the stock to drop back. If not, look at our other selections."
On his inverse bond play, he wrote in January: "In the foreseeable future, perhaps within months, a top for the bond market could be in the offing. Still, as in every bubble, a final push to the peak takes time to materialize."

PETER BRIMELOW
Top-performing tortoise plays bear-market rally

By Peter Brimelow, MarketWatch
Last update: 12:01 a.m. EDT March 12, 2009NEW YORK (MarketWatch) -- So was that the much-anticipated bear market rally? Two investment letter hares suspect so, but a top-performing tortoise has put out a hopeful claw.
I call Stealth Stock Daily's Dennis Slothower and Dow Theory Letters' Richard Russell hares because they put out commentaries after every market close, making my job much easier.
Slothower is a new star, who actually made money in the Crash of 2008. (See Dec. 4, 2008 column.)
Last night, he stayed 100% in cash, saying "I can't see how the stock market can get a foothold here if the credit markets continue to deteriorate."
Russell is a renowned long-time permabear whose record has been damaged by paradoxically going briefly bullish at the top in 2007. (See Sept. 19, 2008 column.) He didn't think Tuesday's follow-through was strong enough to change his renewed bearish stance. But he said last night that, for younger subscribers with lower blood pressure, "a speculative position in Dow Diamonds ETF (DIADow Diamonds ETF
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:

DIA) with a stop-loss at 64 is an interesting trade."
I call The Yamamoto Forecast's Irwin Yamamoto a tortoise because he only publishes once a month -- and only a few laconic pages at that. Yet Yamamoto too is one of the stars of the Crash of 2008, and his strong record extends much further back. (See Oct. 29, 2008 column.)
For 2008, Yamamoto is up 6.06% by Hulbert Financial Digest count, vs. a 43.42% loss for the dividend-reinvested Dow Jones Wilshire 5000. Over the past three years, the letter has achieved a 5.25% annualized gain, vs. a loss of 15.19% annualized for the total return DJ-Wilshire 5000. Over the past five years, the letter has achieved a. 8.02% annualized gain, vs. a 6.14% annualized loss for the total return DJ-W 5000.
In his most recent letter, dated March 5, Yamamoto was coy about his (relative) bullishness, pointing out that he was only 15% in stocks. But this was partly because price targets on all his recommendations weren't reached. And, in contrast, he's been completely out of the market most of the last year.
Yamamoto is certainly making bearish noises. He writes "the consumer remains on life support" and worries that the presence of Paul Volcker on President Obama's economic team means that interest rates will be raised quickly to snuff out the inflation he expects with any business rebound: "This backdrop looks like Japan's decade of malaise. The nightmare might be revisited on the landscape of America."
Still, in his previous letter, dated Jan. 30, Yamamoto did note that "historically a countertrend rally of 30 to 50 percent is not uncommon in a bear market." He said "a substantial surge might be forthcoming" but from lower levels.
And the market promptly provided the lower levels -- the Dow was then above 8000.
Currently, Yamamoto's 15% equity exposure is divided equally between Alexander & Baldwin Inc. (AXBAlexander & Baldwin Inc
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
AXB) , Charles Schwab & Co. Inc. (SCHWCharles Schwab & Co., Inc
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:

SCHW) and Schlumberger Ltd. (SLBSchlumberger Limited
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
SLB) . He recommended additional 5% commitments at or below $17.75, $10.50 and $33.75 respectively.
Yamamoto also recommended an additional 10% commitment to iShares:FTSE/Xinhua (FXIiShares:FTSE/Xinhua
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
FXI) below $24, and 5% each to Helmerich & Payne Inc. (HPHelmerich & Payne, Inc
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
HP) $21.25 or below, and Rydex:Juno Fund;Inv (RYJUXRydex:Juno Fund;Inv
News , chart , profile , more

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:

RYJUX) at $13.25 or below.
Yamamoto warns sternly in every issue: "Don't go chasing after a stock ... If the stock is selling below our recommended price, chances are you are getting a better bargain. If it's above our recommended price, wait for the stock to drop back. If not, look at our other selections."
On his inverse bond play, he wrote in January: "In the foreseeable future, perhaps within months, a top for the bond market could be in the offing. Still, as in every bubble, a final push to the peak takes time to materialize."

Picking up preferred stocks jim jubak

Picking up preferred stocks
The bond world can be a strange and alien one for anyone who has invested mostly in stocks. That's why so many people buy their bonds through bond funds and bond exchange-traded funds. But since funds and ETFs don't hold their portfolios to maturity -- they're constantly rolling over their holdings -- my strategy won't work with bond funds and ETFs.

Preferred stocks are a good alternative if you find the world of bonds daunting -- and even if you don't. For example, I bought preferred shares of W.R. Berkley (WRB-A, news, msgs) in December and January because I think this very conservative insurer is a survivor. The preferred shares were trading 23% below their high of May 6, 2008, and the shares pay a yield of 8.88%. I'm adding these shares to Jubak's Picks with this column. You'll find more detail on W.R. Berkley, including some comments on its most recent earnings report, in my "buy" on the next page.

Similarly, in the energy sector you could buy the preferred shares of Chesapeake Energy with a 9.56% yield. I sold the common shares of the company out of Jubak's Picks because I wasn't getting paid while I waited for the turn in natural-gas prices, but the preferred stock certainly removes that obstacle.

Coke? Oreos? That's so last year By Jon Markman

Coke? Oreos? That's so last year
In this recession economy, Americans are choosing cheap and generic over brand-name goods. That's bad news for stocks you may believe are solid and safe.

[Related content: stocks, consumer goods, Procter and Gamble, recession, Jon Markman]
By Jon Markman
MSN Money
In prosperous times, with jobs booming and wages rising, shoppers strolling down the aisles of their local supermarkets don't think twice about grabbing a pack of Bounty brand quilted paper napkins at $4.98 for 200. But in the current mess, are you kidding me? Grocers report that customers in record numbers are going for the generic house brand, priced at up to a dollar less.

Multiply this scene by a few hundred million, and you can see why consumer products manufacturers are suffering more in the recent slump than they have at any other time in the past several decades. Procter & Gamble (PG, news, msgs), the maker of dozens of the nation's leading branded goods, such as Bounty, is seeing some of the steepest sales declines in its history, and efforts to stem the tide by boosting advertising and cutting prices are having only limited effect.

The troubles faced by Procter & Gamble, Oreo-maker Kraft (KFT, news, msgs) and others are emblematic of a radical shift in the habits of consumers worldwide, as cheap has become chic. Much of the change is necessary, as many families have less money to spend, but a mood shift has mysteriously taken hold through both the mass media and new social networking, leading even well-off consumers to cut conspicuous consumption of everything from branded paper towels to rockin' cars.

Safe no more
The Puritanical roots of middle America emerge at times like these -- causing us to huff that it's about time -- yet it may be more than a little callous to just brush off the business plans of hundreds of the nations' most prosperous companies. And at any rate, institutional investors are accomplishing that brush-off all by themselves without waiting for the announcement of first-quarter results. That is something private investors need to keep in mind if they plan to hold onto these shares -- many of which have been handed down from generation to generation in middle-class families with strict instructions from grandpa: Never sell.

In the past six months, Procter & Gamble shares, which were largely oblivious to the pain suffered by the rest of the stock market until the autumn, have fallen like a stack of paper towels sideswiped by a 5-year-old, slipping from a peak of $72.50 to just a hair over $46. Much of the decline has come very recently, as the stock -- previously a bomb shelter for cautious investors -- has plunged 24% since New Year's Day.

Many of its fellow consumer goods manufacturers, whose sales are typically so steady that they are known as "staples" to investors, have also tumbled this year in contravention of most conventional wisdom. Paper goods maker Kimberly-Clark (KMB, news, msgs), maker of the Kleenex and Scott brands, has seen shares plunge 28% since October; Coca-Cola (KO, news, msgs) is down 26%, Pepsico (PEP, news, msgs), maker of Frito-Lay snacks as well as its eponymous cola, is down 32%; and Johnson & Johnson (JNJ, news, msgs), maker of Band-Aids, is down 30%, with much of that coming in the past week. Ditto for the branded food makers that were also once believed to be immune to downturns. Cereal kings General Mills (GIS, news, msgs) and Kellogg (K, news, msgs) are down 23% and 30% since October, while HJ Heinz (HNZ, news, msgs) is off 36%.

Collateral damage from this new parade of parsimony is not limited to the manufacturers. Costco Wholesale (COST, news, msgs) reported Wednesday that its fiscal second-quarter profit fell 27%, due in part to a decline in nonfood sales. And Berkshire Hathaway (BRK.A, news, msgs), the investment vehicle of Warren Buffett, reported this week that earnings had been crushed this quarter in part by the decline in the value of its huge investments in brand giants Coca-Cola and General Electric (GE, news, msgs).

Video on MSN Money
Brand names vs. store brands

One family discovers how to save up to $3,000 by buying generic foods over brand names, with, Today show correspondent Janice Lieberman and CNBC's Carmen Wong Ulrich.
Why is this happening so fast?
An important side effect of troubled times occurs when consumers start wondering what truly makes them happy and discover that material things may not be near the top. If the answer doesn't make them suicidal, then consumers typically realize that contentment is not all about spending an extra dollar for the status of branded paper napkins that offer a little extra quilting. In similar eras in the past, it's turned out that consumers downshift into lower consumption modes quite rapidly and with remarkable ease, and even start to pride themselves on developing an upside-down view of luxury.

In this new world, says the Amsterdam research firm Trendwatching in a recent report, luxury becomes more aligned with scarcity than with mere expensiveness, especially when consumers start to look for ways to be unique. A new meme of Bohemianism may emerge too, as the concept of frugality is mixed with rebellion against the previous system of consumption. A longing for all things local, ecologically friendly, empathetic and eccentric may also emerge as people seek opportunities both to make themselves happy without products that were formerly emblematic and to justify their new anti-establishment decision making.

Continued: For Bounty, it's mutiny


For Bounty, it's mutiny
While the likes of P&G and Starbucks (SBUX, news, msgs) may suffer when thrift overtakes ostentation, the new world will have many unexpected winners as well. One will be smaller manufacturers like Bill Molt, who runs the family-owned Pacific Paper in Tacoma, Wash.

Pacific Paper is known in the industry as a "converter"; it buys 3-ton rolls of paper and puts them on a machine that embosses, perforates and plastic-wraps them for use as paper towels or napkins that can be sold to stores as generic national-brand equivalents. In the Pacific Northwest, the largest house brand at groceries is Molt's Western Family, and his napkins sell for as much as 25% less than Bounty or Scott brands.

"Bounty is a great product, but people are getting smarter with their money and they're saying if they can get a product that's just as good but they don't have to pay for all the marketing, then why not," Molt told me in a phone interview. "The big companies can drop prices or do extra advertising for a little while to try to knock us down, but in the long run they can't touch us because of their cost structure." He's looking to expand this year, as business looks strong.

When you read between the lines of the outlooks for Molt, Costco and P&G, you can see the first threads of a new fabric of American life being woven, one day and one purchase at a time. At a time when jobs are being lost in the United States at a clip of around 600,000 per month and the income of even those with jobs is falling half a percent a month, the end game now is about a realignment of the consumer, bank and national balance sheets to levels that will allow families, executives and policymakers to pay off debts, rebuild savings and live within their means on less credit.

Although the shares of Kimberly-Clark, Kraft and Starbucks will stabilize before too much longer, they are very unlikely to recover much of their lost ground as the world finds a new equilibrium next year at around 1.5% annualized GDP growth over the next half-decade, which is less than half the growth rate witnessed from 2002-07.

This environment may be favorable to low-frills retailers such as Family Dollar Stores (FDO, news, msgs) and McDonald's (MCD, news, msgs), and defiant innovators like Apple (AAPL, news, msgs) and Amazon.com (AMZN, news, msgs), but not very many others, as margins are stripped to the bone and marketing costs pare back the value of marketing gains.

As an investor, I'll take one black coffee with a generic napkin in a plain paper box to go. I'll stick with my view that stocks should still be avoided, as the economy will fall over the next nine months at least and share values will follow. But if you must own equities, stick with the companies like McDonald's, Family Dollar, Amazon, Apple and Hershey that have shown the greatest agility in managing the most unpredictable part of the cycle, which is behind us. While they won't rise the most coming out of the bottom -- that'll be the province of the most damaged stocks -- they will be the least aggravating at the many twists and turns that still lie ahead.

At the time of publication, Jon Markman did not own or control shares of companies mentioned in this article.

A Chance to Get Pfizer at a Discount By STEVEN M. SEARS

A Chance to Get Pfizer at a Discount
By STEVEN M. SEARS | MORE ARTICLES BY AUTHOR

Selling puts on the drug maker's shares could be a cost-effective way of easing into the beaten-down stock.


TEXT SIZE PRINT EMAIL DIGG SINGLE PAGE REPRINTS GET RSS Subscribe Now
With these readers:



Or copy the rss link:

NO MATTER HOW BAD THINGS get with the economy, people will still be popping pills to control cholesterol, blood pressure and all matter of genetic and lifestyle ailments.

This thinking has more or less perpetually defined the pharmaceutical sector, and deserves some consideration now that Goldman Sachs has today named Pfizer (ticker: PFE) as one of the firm's best stock ideas.

The battered and bruised stock was added to Goldman's Conviction Buy List.

Even at $12.50 a share, and trading at just 10 times earnings, it's hard to feel good about buying a stock that has lost 67% of its value in the past five years. To put that decline in perspective, consider that Johnson & Johnson (JNJ) is down about 7% during the same period.

But on an absolute basis, $12.50 is not a lot of money to spend on a speculation. Investors who are comfortable with options can potentially buy Pfizer stock at an even lower price. Here's how, courtesy of Goldman derivatives strategists John Marshall and Stuart Kaiser.

The Goldman strategists recommend selling September 11 puts to collect $1.03 in exchange for committing to buy shares at a $9.97 effective entry price that is 20% below the current price of $12.50, they told clients in an early morning note.

If you want to speculate on Pfizer, this is a wise and cost-effective way to do so. Put sellers will benefit from Pfizer's high level of implied volatility. If implied volatility fell seven points to average levels versus the pharmaceutical sector, Marshall and Kaiser estimate the September 11 put would decline by 25%.

To be sure, it is important to recognize that selling puts is not tantamount to buying a stock. When you sell puts, you are committing yourself to buy the stock should the price fall below the put's strike price. If the stock advances, rather than declines, you don't get to buy the stock, but you can keep the money, otherwise known as a "premium," for selling the put.

Goldman pharmaceutical analyst Jami Rubin believes Pfizer's "large valuation discount" will become apparent as investors incorporate Wyeth's (WYE) robust product lineup into earnings estimates.

In January, Pfizer agreed to buy Wyeth, a stock that had hung around $40 a share for a long time on concerns about its ability to monetize its new product pipeline. If Pfizer's management successfully integrates Wyeth, cutting costs and maximizing revenue, while battling against aggressively litigious generic-drug makers like Teva Pharmaceutical Industries (TEVA), the new company could be a dominant force in the pharmaceutical industry.

Of course, if Pfizer makes any significant missteps during the integration, or has any product setbacks, the Wyeth merger could backfire as already nervous investors could start to seriously question the abilities, or lack thereof, of Pfizer's management team.

Goldman believes synergies and removal of deal overhang likely will reduce uncertainty about Pfizer's stock. The deal is scheduled to close in the fall, and cost savings and financing plans will be announced.

"We expect these announcements to reduce uncertainty and ease Pfizer options prices," Marshall and Kaiser said. "Pfizer may announce a bond offering in the second quarter to offset some of the $50 billion in bridge financing, which poses a headline risk for shares."

They are confident about the bond offering since more than $40 billion in debt has been issued year-to-date in the health-care sector, and because Pfizer has a solid balance sheet and free cash flow position.

Nothing is without risk. If Pfizer's risks are acceptable to you, selling puts as a way to buy the stock at a lower price makes an extraordinary amount of sense

5 Stocks Worth Braving (KO INTC MMM KMB EMR) by Jack Hough KO

KO INTC MMM KMB EMR
Screens by Jack Hough (Author Archive)
5 Stocks Worth Braving
Heir to "Jackass" (and I mean that reverently), MTV’s new stunt show "Nitro Circus" treats viewers each Sunday night to a fresh half-hour of daring and idiocy (and I mean that appreciatively). Cast members dangle from helicopter skids, race tricycles at high speeds down winding hills or just put antlers on a chubby, shirtless pal and have at him with paint ball rifles. All this, with hope but no promise that the show will achieve the financial success of its predecessor.

That’s about what it feels like to buy stocks today. Once considered a place for safe money, General Electric (GE: 6.65*, -0.04, -0.59%) shares have lost four-fifths of their value in 17 months. Eastman Kodak (EK: 2.43*, -0.51, -17.35%) has shrunk to a point where it’s arguably free; its stock market value of less than $800 million is less than its last reported surplus of cash. “Buy low” says history, but somehow the antler stunt seems as safe, and as likely to yield a profit.

To boost your bravery (for the shares), improve your odds by shunning companies with heavy exposure to credit losses, especially on mortgages. One in five U.S. homeowners now owes more than their home is worth, and prices are widely expected to fall further. Also, favor companies with minimal debt and sales that, if not growing at the moment, are dipping only modestly.

And above all, look for rich dividends. Those are getting a bad name at the moment because a rash of companies have cut payments in recent weeks. But more have increased them. Among America’s 500 largest companies, 48 have boosted payments this year, nine more than have trimmed or quit them.

The five companies listed below seem like survivors that can keep the payments coming. Their yields top 4%, which is enough to double an investor’s money in 14 years, assuming flat share prices and reinvested payments.

Coca-Cola (KO: 38.17*, -1.56, -3.92%) pays 4%. The Warren Buffett holding is barely growing at the moment, but isn’t shrinking, either — except for its stock price, which has lost a third in a year. As a result, Coke now has a defensive valuation to match its defensive product line. Shares fetch less than 13 times earnings.

Intel (INTC: 12.49*, -0.27, -2.11%) might stay out of favor for a while. The offloading of processing power over the past decade from personal computers onto Internet servers has given consumers less cause for frequent upgrades. Still, Intel dominates its key businesses and invests heavily on research — something studies suggest is a pretty good predictor of earnings growth. The company holds more than 10% of its stock market value in spare cash and pays a 4.4% dividend.

Emerson Electric (EMR: 24.43*, -2.04, -7.70%) has aggressively lowered costs as world-wide demand for things like compressors, thermostats, motors and switches has slowed. As a result, the company remains solidly profitable and earns a handsome return on the capital it invests. Emerson is only modestly indebted and its dividend works out to about half this year’s forecast profits. Current yield: 4%.

Screen Survivors Ticker Company Industry Share
Price Market
Value
($mil.) Forward
P/E Yield
(%)
KO Coca-Cola Soft Drinks $38.83 89,835 12 4.2
INTC Intel Computer Chips 12.28 68,301 31 4.6
MMM 3M Conglomerate 43.12 29,916 10 4.7
KMB Kimberly-Clark Personal Products 46.10 19,074 11 5.2
EMR Emerson Electric Industrial Equipment 25.25 19,065 10 5.2


Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."

SELECTIVE BUYING AT BARGAIN PRICES

SELECTIVE BUYING AT BARGAIN PRICES
As fear spread recently, yields on some of Citigroup's (C) preferreds rose to more than 26%, while those of Wells Fargo (WFC) reached 14%. But many preferreds are being tarred by association, some money managers say, as the market awaits clarity from Treasury Secretary Timothy Geithner on what the government might do if a major bank were nationalized.

John Maloney, chief executive officer of New York-based M&R Capital Management, points to Royal Bank of Scotland Group (RBS)—now 70%-owned by the British government—rather than Fannie and Freddie as a model for how the current anxiety over preferreds might play out. Royal Bank of Scotland announced in late February that it would continue to make some preferred payments. While banks have been cutting common dividends, Maloney says, they are "likely to continue to pay" their preferreds, citing the possibility of financial contagion if they did not. Insurance companies are big holders of preferreds, he notes, and if they have to mark down holdings, the financial crisis could worsen. On the other hand, "even if Geithner comes out and clarifies everything and there's a rally, these things are still going to have tremendous yields," he says. "You can selectively buy at dramatically knocked-down prices."

The $400 billion preferred market isn't limited to deeply distressed financial institutions, of course. Investors willing to take the risk, Maloney argues, might buy issues of less troubled institutions, such as JPMorgan Chase (JPM) or Wells Fargo. Issuers among the top holdings in Flaherty & Crumrine's closed-end funds include Liberty Mutual Group, Banco Santander (STD), and Sovereign Bancorp—companies that aren't at the center of nationalization concerns.

Most investors would do best to buy a diversified portfolio of preferreds. One strategy: Invest in an exchange-traded fund such as PowerShares Preferred Portfolio (PGX) ETF or PowerShares Financial Preferred Portfolio(PGF) ETF. Ed McRedmond, senior vice-president for portfolio strategies at Invesco PowerShares (IVZ), says fat yields are one reason for strong investor interest recently. Despite abysmal returns, the ETFs have drawn $222 million in net cash inflows this year.


An Historic Value in Financial Preferred Stock?
The economic crisis has pushed yields on financial preferred shares to record highs. How to enjoy diversified dividends in exchange-traded funds

By Amy Feldman

From column Buy and Hope Investing - John Mauldin's

And let me also suggest that when we do get the problems worked out, and we will, the recovery that ensues may be breathtaking in its scope, as the technological changes that will be coming down the pike in the next 5-10 years are simply going to dwarf what we have seen in the past 30. Ray Kurzweil predicts that we will see twice as much change in the next 20 years as we saw all of last century. Think about the implications of that.

Just as we cannot let past performance and wishful thinking blind us to the reality that we confront today, we must not let 3-4 years of a slow Muddle Through world after this recession ends blind us to future opportunity. Projecting the current trends into the long future is nearly always a mistake. And the longer the trend goes, the more complacent (or negative) we get. But trends change. Remember that.

Just because a stock is down by 50% does not mean it cannot go down further. Think back to all the people who said Citi was a screaming buy at $20 or ... (pick a stock!). I want to see earnings start to settle down and maybe even rise. Given the nature of what could be the negative environment for earnings in the second quarter, there could be one more leg to this bear market. Though I must admit that I am surprised we haven't seen some type of tradable rally. I thought the money coming back into the market from hedge fund redemptions might have been a boost, but evidently it has not been. Caution is the word today.




My good friend Peter Bernstein (who at 89 is still one of the most insightful and important analysts in the world) wrote a very insightful essay in the Financial Times called "The Flight of the Long Run." Let me quote a few selected paragraphs:

"The cold statistics have hardly been encouraging for the traditional [buy and hold] view. On a total return basis, the Ibbotson data show that the S&P 500 has underperformed long-term Treasury bonds for the last five-year, 10-year, and 25-year periods, and by substantial amounts.

"These data are not to be taken lightly. If the long-run expected return on bonds in the future were higher than the expected return on equities, the capitalist system would grind to a halt, because the reward system would be completely out of whack with the risks involved. After all, from the end of 1949 to the end of 2000, the S&P 500 provided a total annual return of 13.1 per cent, while long Treasuries could grind out only 5.8 per cent a year.

"But does this history really tell us anything about what lies ahead? Neither the awesome historical track record of equities nor the theoretical case is a promise of a realized equity risk premium. John Maynard Keynes, in an immortal observation about the future, expressed the matter in simple but obvious terms: "We simply do not know."

"Relying on the long run for investment decisions is essentially relying on trend lines. But how certain can we be that trends are destiny? Trends bend. Trends break. Today, in fact, we have no idea where any trend lines might begin or end, or even whether any trend lines still exist. (Emphasis mine)

Gentle Reader, pay special attention to this next paragraph: "... There is an even deeper reason to reject the long run as a guide to future investment policy. The long-run results we can discern in the data of stock market history are not a random set of numbers: each event was the result of a preceding event rather than an independent observation. This is a statement of the highest importance. Any starting conditions we select in the historical data cannot replicate the starting conditions at any other moment because the preceding events in the two cases are never identical. There is no predestined rate of return. There is only an expected return that may not be realized."

For those of you who invested in 1997, with expectations of 15% forever, you can sadly confirm that last sentence.

Caveat emptor cash dividends, and interest is king.

Last year the Lehman Aggregate bond ETF (AGG:iShares:Lehm Aggreg BdNews , chart , profile , more
Last: 100.15-0.55-0.55%
AGG 100.15, -0.55, -0.5%) turned in a fantastic 5% vs. a negative 38% for most risky assets, running the gamut from commodities, domestic equities and junk to emerging market equities. A similar level of stability and performance can be expected this year.

Higher risk
On the higher-risk side of the spectrum, Cal-Maine Foods (CALM:Cal-Maine Foods IncNews , chart , profile , more
Last: 20.51+0.04+0.20%
CALM 20.51, +0.04, +0.2%)
and
National Presto Industries, (NPK:National Presto Industries, Inc
News , chart , profile , more
Last: 57.47-2.61-4.35%

NPK 57.47, -2.61, -4.3%) , two small-caps yielding 6-9% should do well. They're defensive businesses with strong balance sheets and attractive ROA's.
National Presto -- which my fund owns -- operates in two segments, defense and housewares. It should benefit from consumer cocooning during the recession. It's one of the most no-nonsense companies I have ever reviewed. They don't make busy with superfluous mergers and acquisitions to retain profits. If they can't use it they send out promptly to investors. This year they have announced $5.55 in dividends for shareholders.
Cal-Maine is the largest producer and marketer of shell eggs in the U.S. Although egg prices do have a high degree of volatility, Cal-Maine has ample room to grow via acquisition and pays an attractive 6% cash dividend from it's pristine balance sheet, which should provide good support in this bear market.
Both are under Wall Street's radar and have the ability to grow from internal financing. Caveat emptor cash dividends, and interest is king.

GE slashes quarterly dividend by two-thirds

Bought GE at around $10 holding for the dividend and little appreciation in the stockwhoops!!!!!!!!!!!!!!!!!!!!!!!GE slashes quarterly dividend by two-thirds
Move should save about $9 billion a year; cash to weather the storm
By Christopher Hinton, MarketWatch
Last update: 4:20 p.m. EST Feb. 27, 2009Comments: 73NEW YORK (MarketWatch) -- Economic bellwether General Electric Co. slashed its quarterly dividend by nearly 68% Friday in a move to save its investment-grade credit rating, reversing a 31-year trend of annual increases to its payout.
The Fairfield, Conn., conglomerate said reducing its dividend to 10 cents a share from 31 cents will save the company $9 billion annually. The company has been paying a regular dividend for more than 100 years. In recent months, however, it faced persistent speculation that it would have to slash its payout to preserve cash.
"We recognize the importance of the dividend to our shareholders and the significance of this decision, but we believe it is the right precautionary action at this time to further strengthen our company for the long term, while still providing an attractive dividend," GE Chairman and Chief Executive Jeff Immelt said.
General Electric (GE:General Electric Company
News , chart , profile , more
Last: 8.51-0.59-6.48%

4:00pm 02/27/2009

Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
GE 8.51, -0.59, -6.5%) , along with many of the other 30 members of the Dow Jones Industrial Average (INDU:INDU
News , chart , profile , more
Last:


Delayed quote dataAdd to portfolio
Analyst
Create alert Insider
Discuss
Financials
Sponsored by:
INDU, , ) , has been under pressure to raise capital to bulk up its balance sheets. The company has also been determined to maintain its coveted triple-A credit rating to help keep its financial costs down.
Since the recession took grip in mid-September, GE shares have plunged nearly 70% over concerns about its dividend, under-funding in its retirement program and deterioration at its financial arm. The company has been hit hard by the tighter restrictions on credit and declining asset values.
On Friday, the stock fell 6.5% to $8.51.
Analysts at one research firm said they suspected the cut isn't enough, noting the rapid decline of its assets and a need to refinance its expensive, short-term debt over the next 12 months.
"With the tsunami sweeping over the financial sector, it is unrealistic to expect that GE will not get wet," said credit-ratings company Egan-Jones in a research note.
Standard & Poor's said it would leave GE's credit rating unchanged for now at AAA with a negative outlook.
"We estimate that the reduction in the dividend payment will allow cash balances at GE to reach at least $5 billion by the end of 2009 and to grow further in 2010," the credit-rating agency said in a report. "We would view a portion of such balances as a partial offset to GE's now net under funded post-retirement obligations, which we view as a debt-like obligation."
Furthermore, the agency said it doesn't expect GE Capital to make its current 2009 net income guidance of $5 billion.
Moody's Investor Service said it is continuing its review for possible downgrade of GE and GE Capital's long-term ratings.
The decision to cut the dividend follows General Electric's bruising fourth-quarter results on Jan. 23, showing a 44% drop in its net earnings on declines in its financial and consumer-product businesses. That trend is expected to continue through 2009, and the company said it would bulk up its cash reserve to weather the challenge. See full story.
Christopher Hinton is a reporter for MarketWatch based