Thursday, December 29, 2011

2011 draws to a close and these are some expectations and predictions for the new year.

The European crises is not over and will continue to rise and fall during the first half of the year leading to appreciation of the dollar over the euro;

The US economy will do surprisingly well despite continued high unemployment and a slow real estate sector;

There will be evidence of manufacturing moving back to the US because of lack of quality controls in Asia and a repriced US labor market;

There will be enough pressure from loan demand to move interest rates up in the middle of the year but not significantly;

Municipalities will continue to get their fiscal house in order, the US government will not;

The Occupy Movement and the Tea Party will realize they are both upset about the same issue;

The US consumer will change their behavior to spend at decent levels but be more selective about what they spend it on.

I expect blue chip stocks with dividends will continue to increase the dividend.

I expect municipal bonds to have another good year in response to improving credit numbers

I expect the first level of below investment grade taxable bonds to perform well as the economy improves

I expect President Obama to be reelected in a close race with Mitt Romney

Happy New Year!!

Monday, December 19, 2011

Over the last few weeks there has been a lot of chatter from the "big" three rating agencies. Moody's, S & P and Fitch have been making pronouncements about the state of Europe and the US; threatening to downgrade every government in the world. These are the same incompetent people who bear a significant responsibility for the financial meltdown of 2008. 25 years ago these companies were rightly regarded as competent and professional. Their view was regarded as an independent evaluation of the financial aspect of various borrowers and issuers of financial instruments. During the late 1990's and the first decade of this century they changed into companies whose primary concern was making money. They did this by selling their former integrity for cash. The history of the 2008 collapse reveals that the rating agencies, in pursuit of money, rated anything that moved a triple A because Wall Street wanted it that way and would pay handsomely for that rating. Today there seems to be no material change at the companies, they assure us they have changed their business model and this time they know what they are doing, etc. The markets are beginning to devalue the ratings and with good reason. The recent behavior of these companies is nothing more than an attempt to preserve their franchise and not any resurgence of competence or insight. Any investor that trusts or relies on the rating of a security by these companies is asking for trouble. It is like asking Newt Gingrich for marriage advice..

Wednesday, December 14, 2011

December 14, 2011 thoughts;

The European financial crisis continues to bubble along. Yesterday there was a weak auction for Italian bonds and a strong one for the US 10 year. The euro has dropped to 129+ vs the USD this morning. The EU seems to think they have time to solve their problems. I do not believe that is true. Bloomberg radio reported this morning that the Italian Government needs to finance something like 350 billion Euros of debt coming due in 2012. If you believe as I do that the Euro is on a march to parity with the USD, who would buy Italian bonds for any reason? As a matter of fact there should be a massive liquidation of all things Euro and a corresponding purchase of all things USD. I think this trend is beginning and will be the single biggest driver of all the markets in 2012.

The January reinvestment is in full swing in the US Municipal bond market. As I have stated before states and municipalities have been working on their financial issues and even though people will argue about the solutions the local politicians at least are doing something. The average Governor or Mayor has to deal with the fiscal realities and must either cut spending, raise revenue or both.  Investors are responding to this by purchasing municipal bonds. Additionally the municipal market is a domestic US enterprise and should not be affected by any international crises.

Tuesday, December 6, 2011

Three thoughts for this week:

The US economy is poised to have a good year in 2012. As I have mentioned before business owners and managers have been working hard to overcome the current economic slump. Over the last few years industries have cut capacity, laid off workers and generally contracted plus we are beginning the fourth year of extraordinarily easy money. It is beginning to pay off. The people who are still in business are there for a reason; they have adapted to the changing economic realities and found a way to continue. Washington and the economic press have not figured this out yet; I believe the markets have, judging by recent behavior.

Everyone expects too much from the announcement at the end of the Euro zone meeting on Friday. There is no way these expectations can be met. The euro zone has serious issues that will take time and effort to solve. The world is looking for some sign that there is a plan or a way forward that can address these issues that is acceptable to the various countries, a very tall order.

Why would anyone put any faith in anything Standard & Poor’s says? S&P was one of the major reasons for the economic meltdown in 2008. They failed at every level. Now in an effort to prove relevance they are firing away at every credit in the world including sovereign debt. They are acting like they have some credibility about financial matters. In the mortgage scandal S&P was motivated by money and nothing else, now they are desperate to stay in the game, the business press is acting like there is a reason to listen to them this time. What’s next Alan Greenspan for head of the FED? Caveat emptor concerning the rating agencies.