Saturday, January 30, 2010

Bought 50 AT & T at 25.45/GDP 4th Quarter/INDIA/GIW/Chicago PMI

1. ADDED 50 AT & T at $25.45 (see Disclaimer): I thought that the earnings report from AT & T was good enough to add 50 shares to my position in the main taxable account on Friday. I intend to eventually sell the shares held in the Roth and to hold the common shares only in a taxable account. It just makes more sense to me to hold common stocks in the taxable account as long as the politicians keep the qualified dividend tax rate, and to hold bonds and other securities that do not pay qualified dividends such as REITs in the retirement account. It is important to the Old Geezer that AT & T raised its dividend last year and currently yields around 6.6% at a total cost of $25.5 per share: T Stock Quote - AT&T Inc Stock I have a more favorable opinion of the AT & T common stock than of Verizon's shares. This opinion is partly based on the fact that AT & T owns 100% of its wireless network, whereas Verizon owns 55% of Verizon Wireless in partnership with Vodafone. Both firms are suffering some from fears over increased competition in the wireless space.

2. Gross National Product: The first preliminary estimate for U.S. 4th quarter GDP was better than expected, with the Commerce Department estimating that GDP increased at a 5.7% annualized rate in the 4th quarter. News Release: Gross Domestic Product The number for the 3rd quarter after revisions was 2.2%. The market has other concerns now other than positive news about GDP growth or earnings. The biggest part of the increase was due to businesses shrinking inventory more slowly than the prior quarter. This contributed 3.39% to the increase: NYT Excluding changes in inventory, final sales increased at only a 2.2% annual rate.

3. India: The central bank in India tightened monetary policy on Friday by draining cash from the banking system. This was done by raising a cash reserve requirement a greater than expected three-quarters of a percent to 5.75%. This follows a similar move earlier in the month by China.

The weakness in the markets in January started with China's tightening, probably based on a belief that China's growth would slow as a result which would contribute to a slower than expected growth elsewhere. The news from India on Friday probably stoked those concerns. Asia is viewed as the growth engine coming out of the Near Depression, and rightfully so. Anything slowing that engine down will reverberate worldwide. The question is how much will growth slow in Asia and elsewhere in response to these tightening moves. This concern is heightened by the belief that consumers in both Europe and the U.S. are in no shape to support growth based on consumer spending, and the impact of governmental stimulus will start to wane in the second half of 2010.

I suspect that the impact of tightening by Asian central banks is being overestimated by institutions who went into their pre-March 2009 trades almost simultaneously with China's announcement. That trade was to buy the U.S. dollar and to sell other currencies, sell commodities and stocks, and buy U.S. treasuries. This will just have to run its course. Eventually, the lemmings will run out of stock that they want to sell. A catalyst may happen, such as a much better than expected jobs report, which will catch them leaning the wrong way, and they will rush back in to buy at higher prices, underperforming the dumb index at great cost to their clients. Although it is best to stay out of their way, I will use the weakness in a few blue chip stocks to pick up a small amount of shares here and there.

However, I am working from some of the same pages in my playbook. I am not concerned now about growth in the first half of 2010. I expect the job numbers to improve in the coming months. My concern is whether consumers in the developed nations will be in a position to pick up when the governments pullback on their massive stimulus efforts. I currently expect a return to small or negative GDP numbers in the U.S. after a withdrawal of the fiscal stimulus. That is one reason why I expect the rally off the March low to be more like the strong rally off the cyclical bear market low in October 1974, when the S & P hit 63. By July 1976 , with the S & P at 106, the rally had petered out, and the market returned to its dominant long term bear market trend until August 1982. In this analysis, the March 2009 lows would be the lows for the current long term bear market, just like the low in October 1974. The ensuing rallies off the catastrophic cycle lows in October 1974 and in March 2009 would not be the start of a long term bull market but merely the market repairing an overreaction when it hit its cyclical low:

On the bright side, I do not think it will take another 6 years for the next long term secular bull market to start which was the case in 1976, more like two or three. This is more of a guess than anything, based on the time it will take for U.S. consumers to repair their balance sheets and to allow for more growth in the middle class in emerging market countries. Item # 2 /Long Term Secular Bull and Bear Markets

For purposes of my asset allocation, I am still holding cash reserves at the same level as in late 2007. I am managing risk primarily by active trading, rather than buy and hold, and in the manner generally described in these posts: Item # 2 /Long Term Secular Bull and Bear Markets Long Term Stock Risks and Situational Risk/Managing Lost Opportunity Risk in a Long Term Secular Bull and Bear Markets/ Static v. Dynamic Asset Allocation

4. Wilber (GIW) (owned-Category 2 Regional Bank Strategy): Wilber reported a 26% increase in net income for the 4th quarter of 2009 compared to the year earlier quarter, earning $.19 a share. ex99-1. The bank also declared its regular 6 cent quarterly dividend. The net interest margin as of 12/31/09 was 4.01%.

5. Chicago PMI Index: The Chicago manufacturing PMI index rose to 61.5% in January from 58.7% in December. The new orders component rose to 63.5% from 62.8%. Readings over 50 indicate expansion.

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