The book is divided into a number of sections: a discussion of what is happening(markets around the world), what caused the mess, and finally what we can do about it.
Chapter One details many massive events and functional problems we face. Chapter Two reviews extensively similar market histories, and what they portend. Chapter Three maps out possible scenarios of can occur and a description of a new era.
Chapters Four, Five and Six lay out job finding, cost cutting. money placement, and stock market selection and timing for three different groups: working people, near retirement workers, and retirees. A table of worthy stocks to invest in (122) based on the best company analysis criteria ( earnings growth rate), when the time is appropriate ( when to enter the markets), along with four model portfolios (growth, value, conservative, and new era), are presented. A very important capital survival formula is also presented.
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Bad Times, Great MarketsHow To Get, Keep and Grow Money In The New Bull Market
By Robert M. Barnes
AuthorHouseCopyright © 2011 Robert M. Barnes
All right reserved.
Chapter OneThe Mess We're In
Humpty Dumpty sat on a wall, Humpty Dumpty had a great fall, All the king's horses And all the king's men Couldn't put Humpty Dumpty together again -Humpty Dumpty; a nursery rhyme
Out going President George Bush in his last press conference was asked to reflect on his terms in office, his accomplishments, disappointments, wishes. Finally, a reporter asked him his thoughts on the economic drop and where the economy was headed. He replied that he didn't think anyone knew what had happened or where it was headed, nor did he know. He was right on the first, and clueless on the second.
President Barack Obama has said he plans a trillion dollar stimulus package. We'll need it, and it probably won't be enough. The grand total (for his first term) will probably be closer to 2 trillions.
Where are we, what got us into this mess, and where are we headed?
It is, without doubt, the biggest and broadest economic calamity any of us has ever seen. It may even dwarf The Great Depression (See Chapter Three).
But we should not be overly horrified: great economic booms and busts have occurred often and almost regularly in the past. Bottom line: it's all due to human emotion: greed and fear. Greed pulls them in the markets, and fear drives 'em out! (Read Kindleberger(7) for an exhaustive insight into literally hundreds of disasters throughout the past four hundred years, and especially his boom-bust table that goes on and on). We've had many bubbles, and more are to come.
We can easily blame the Bush administration (for lax regulations and enforcement, laissez fair attitudes, and inept administration officials, the costs of both wars, and weak-willy attitudes to get the economy going again, and other things too numerous to mention): but many others are also complicit: congress, with its quarreling, inefficient and unimaginative processing of ideas; companies and individuals overreaching investments and expansions; governments and institutions continuously on track to overspend and expand at unsustainable rates, all leading to the inevitable Boom and Bust!
But, most of all, we, the consumer, rich people, and average citizenry, have overspent, overly lusted for more and more. We have only ourselves to blame, ultimately. It's in our nature to want more, compete with the Jones, and create unsustainable prices and levels of production.
Before delving into this mess in greater detail, let's diverge to a typical day in the economic world, represented by a daily scene on CNBC.
It is 8:30 a.m., and the consumer confidence number has just come out. Mark Haynes' face drops, he emits a sorrowful grunt, and comments that, at 38%, it's the lowest in recorded history, versus 63%, itself low, for September. Not a good start for the day, especially since yesterday had been a great one, bringing cheers and hope from the investment multitudes: The Dow Industrials had been up nearly 900 points to almost 9100, the S & P 500 had spiked up an enormous 90 points, and the struggling NASDAQ soared 143 points, sending recovery joys to many traders.
Yet Mark, the perennial "Dour One" remarked that this was the 79th anniversary of Black Tuesday of the Crash of 1929. He also remarked that two weeks ago the Dow was up 900 points, then hit new recession lows of 8160. Also, the Nikkei ( Japanese stock index) hit a new low(7200) since 1992. It is not an auspicious start for the day, nor for recovery hopes. But we must trudge on, in hopes that the day and the nascent recovery will continue upwards.
A governor and senator were just on, laughing. What in the world were they happy about? Their own cozy, blustery, safe positions, not the investors' or consumers, presumably.
Joe Kernan, David Faber and Becky Quick were still on commenting about a few companies. The Libor(London Interbank) rate stood at 1.14%, reflecting a low short term rate, the FTSE was up 227 to 4150, the CAC40 +225 to 3340, the DAX stood at 4803, down 30, the Shanghei Index was down 52 at 1719, but the Nikkei was up 599 at 8212.
The short term rate on Treasury bills is very close to zero, meaning people are paying the government to just hold their funds for safety's sake, they're so scared of all market holdings (stocks, bonds, real estate).
Oil is up $3.13, but still in a wicked downtrend from a historic high of over $140 earlier in the year, standing now at around $67 per barrel. How much lower can it go, before the inevitable bull market starts up again? T. Boone Pickens assures us that it will go to $200 soon, and he has put billions of his own money into oil. Oh, the sorrows of misfortune! If only we could but glimpse one day into the future!
Gold stands at $750.8 per ounce, up $10.2 from yesterday's close. The gold bugs still insist it will go to $2000 as more panic sets in. Little do they know all assets will be flattened ( Bill Gross, PIMCO, predicts earlier in the summer).
But one bright spot is on the horizon: the dollar is faring decently against several currencies: the Euro, Pound, and some other European currencies; but not well against the Japanese Yen, which has been pummeled, along with its economy and assets, since 1990.
Governor Bill Ritter of Colorado is being interviewed. His is from one of a few states that is showing some uptrends in its economy and employment – versus others like Nevada and California, which are especially on the ropes in almost every category, and really hard hit in real estate. There are rumors that it(California) might have to declare bankruptcy (A state? What on earth for? It can always taxersize the living daylight out of everyone and everything that walks or crawls in that God forsaken state [natural calamities, to mention one area]).
A Fed decision is coming today, at 2:15 p.m., when observers expect a &fra12; point lowering of the funds rate. Little does anyone know it will eventually touch virtually zero. They want to give money away, so desperate are authorities to jump-start the economy. In anticipation of that move, two former Fed governors, Meyer and McTeer, are interviewed. They echo current members' feelings that the liquidity crisis must be broken, to give more money at cheaper rates to banks who in turn lend out to credit worthy firms. The trouble is, the banks will continue their reluctance and refuse to lend out, because they're afraid of more defaults by many ( they don't trust anyone yet).
Charlie Gasparino comes on for a special on financial firms "urge to merge". On the agenda today are Morgan Stanley (disclosure: I worked for them in two capacities, as researcher in alternative investments, pairs trading, and as a broker) and Goldman Sachs, both looking for partners and a way out of the financial loss syndrome ( they are both highly leveraged in some debt and other areas, to the tune of as much as 40-to 1). The investment bank community has collapsed, with only these two surviving. They eventually seek protection in commercial bank charters, which further clips their wings are far as investment banking. Morgan Stanley is currently at 15, and will drop further to 8, when some relief comes from Mitsui Bank($10 billions) and a like amount from the Administration's TARP
(Troubled Assets Relief Program). Goldman Sachs stands currently at 93, goes down into the 60's before recovering some. It doesn't seek outside funds.
Art Cashin, a UBS floor trader, sees the Dow below 7800 next year. Too much carnage, too long before meaningful recovery.
9:15 a.m. Dow Jones Industrial futures show an opening projecting up 15 from yesterday's close. As with every day this fall, opening, midpoint, even 3 p.m. numbers mean almost nothing to forecast the close, as volatility has soared in the past three months, and stands around 60 on the VIX. It normally has fluttered in the midteens. Nonetheless, Bill McSherry, an advisor, foresees a rally at the end of the day. By 9:25 the Dow futures have slipped to +7 over yesterday's close.
The curse of volatility shows on the opening, with the Dow down 60
Points, oil holding steady at up $3.40, gold moving up more at +$20, and the Yen progressing against the dollar at 96.89, now down $1.59
Bill Nygren of Oakmark says stocks are oversold, with their price to earnings ratio currently at 15:1. He claims there is much room to rebound, even for stocks to double. Hope springs eternal, and nascent rallies give more fuel to the bear fire later on.
Michelle Obama shows off a J.Crew ensemble on Monday's Tonight show. That will start a fashion trend for the ladies.
Louis Hsieh has featured English courses to 4.5 million Chinese: language and custom studies have been the rage in China, helping to increase communication and of course export sales to the U.S. and Europe.
Some ads come on: Servpro cleans up any industry mess (physical only: no money messes); AT&T reminds you to keep rollover minutes-don't spill milk on them ( maybe we should more assiduously pursue other cost cutting; more on that in the last three chapters); CITI never sleeps( it loses money constantly); and Intuit has great business software( maybe an automatic downsizing/cost cutting program?).
JNJ, one of the most solid businesses in the U.S., has been downgraded by J.P. Morgan. It looks like everyone is headed for the crapper. David Faber has a follow up on Kirk Kerkorian: he is divesting himself of Ford shares, taking a big hit. Even the big, smart stockholders are taking it on the chin.
By 10 a.m. The Dow has slipped a little more, to off 72 points, but this is tame compared to a number of days with 600 point swings. Morgan Stanley has slipped some, to $13.65, Ford is dirt cheap at $2.17, and AIG, the huge insurance conglomerate with several hundred billions in assets, having been stung by its London derivatives division and subsequently getting over $100 billions in relief from the Feds, sits at $1.73, almost out of business. The government owns most of it now. What a wonderful world: so many penny stocks available for the taking!
It's 11:00 a.m., and time for The Call, with Melissa Francis and Trish Regan. General Electric, that most solid of American companies, has broken below $20, lower than at the bottom of the 2001-2002 recession. By press time here( Jan 13, 2009) it has fallen into the 12's, even lower. A real bargain( red hot, don't touch it!). Fannie Mae is below $1 per share, blasted out by sub prime mortgages.
Matt Nesto, at Earnings Central, is reporting on a few anomalies: stocks up for the day, and fighting downtrends: some new areas, Legg Mason is up 20%, to 12.45, but Solarworld an entrant in the green world, is down from a year ago. Jane Wells reports on a steady demand for physical gold. The gold bugs won't give up even though it's been almost thirty years since gold saw (less than) current high prices.
Noontime, and its time for Powerlunch, with old time veterans Bill Griffith and Sue Huerrara(sp?). The Dow is now up on the day, plus 40, but many of the stocks are still down.
1 p.m. The Yen is still hammering the dollar, but the Dow is now up 60 points. The trend in lower stock prices curiously continues, however, as AIG steadily loses more, now off 16 cents at $1.68, GE continues to lose at $19.32, and Nortel, the electronics firm is almost a penny stock, at $1.03.
Michael Thana estimates Owens Corning quarterly loss at $810 millions, due to roofing/asphalt losses, but anticipates a $265 million dollar gain for the year. The stock is at $16.45, up 7%.
At 2 p.m. Andrew Cuomo, N.Y. Attorney General demands comprehensive information from banks receiving TARP funds. Good luck. Will it matter anyway?
The Dow stands at +86 points, traders hoping for a real solid rally to the close. Gold begins to lose steam, at 755, up 15 dollars.
It's 2:15 and the Fed announces a rate cut of &fra12; %, to 1.0%. The vote is unanimous. The Dow reacts violently – first down 32 points, then up 79, finally downwards again by 20, then 50, 70, 90, and ending down 110 points as Bill Gross from PIMCO, the bond fund, speaks about global deleveraging, mortgage relief, and fairness in allocating funds. He has spoken prophetically earlier this summer about the worldwide process of 'pancaking assets'.
It's nearly 2:30 p.m. when some stock pickers/fund managers come on and rhapsodize about buying opportunities. Ken Heebner of CGM Focus Fund claims it's a perfect storm – the market is ready for growth, financials are the best bet ( in 2010) and emerging markets are the long term growth area. Frank Holmes of U.S. Global Investors opines there will be a big rally in the dollar but with some big corrections, gold will rebound to $1000, and the best bets are to buy China stocks, oil, and gold. Certainly optimistic forecasts which have not worked out so far by early 2009!
It's 3 p.m., the wild hour, the time of plenty and most volatility in the trading day. The Dow stands at 9047, up 34 points on the day, oil is up $5.15 ( it will trade below $40 by January 2009), and gold has drifted lower to 751.6, still up $11 on the day.
By 3:20 p.m. the Dow has strongly continued up and is now +200 on the day. At 3:25 it reaches its high for the day at +280 points, drifting a little down to up 250 at 3:50 p.m. But then the fit hits the shan just minutes before closing – and sinks to off 104 points, eventually settling at 8977, off 87 points on the day. A swing of nearly 400 points, or 5%, in minutes!
Ironies abound – and demonstrate the power and wreckage of volatility. October was the worst market since 1987, yet the last week saw the best Dow performance since 1974. Gold also continued to vascillate mightily: October saw the worst drop since 1980, its last and only big move (to $800).
In October I learned that AIG was rapidly deteriorating in price (from the 30's to eventually under $1). I didn't own stock in AIG, but did have an annuity. Like others, I didn't know if was insured (not by the FDIC, it's not a CD or savings, but it may be by the insurance commission). I had bought from Wachovia, but they didn't know its insurable status. So I panicked, like any good American saver, and requested a return. It was in both my and my wife's name, so we both signed the withdrawl request and put my wife's social security. We waited over a month, got ansty and had the Wachovia specialist research the matter. At first AIG wouldn't respond, as the voice recording said they were swamped and we must write an inquiry. Well, this made us more upset, and we put pressure on higher ups at Wachovia. Eventually they got through, and relayed that AIG said they were waiting for my social security, not my wife's – they only honored the husband's. We had another conniption, submitted my SS, and eventually, two weeks later, got our check. Only by arm twisting and perseverance wilt thou succeed!
Next, we got nervous about Wachovia: they reported huge mortgage losses of thirty billions, and their price plummeted to under $5 per share. We moved the annuity proceeds to BankAmerica, and some IRA accounts from Morgan Stanley, which dipped to $8 per share, to Citibank/Smith Barney. Finally, we were thinking of moving my wife's IRA to MerrilLynch/ Bank America. The thinking was to seek out the largest banks with brokerages.
To make a long story short, the merry-go-round continued: Wachovia merged with Wells Fargo, making a stronger commercial bank, Citi sold off off its Smith Barney brokerage to Morgan, and Bank America was still not out of the woods, saddled with CountryWide and some other absorption, which I forget. Around and around, my head is spinning.
I also got into a cost cutting binge over that year, and have drastically reduced major and minor costs (see Chapters Four and Six). On one occasion I even harassed my unfortunate local grocery store manager about lowering food prices: I screamed about why a lousy box of cereal should cost $4! Rational or not, everybody is relating to the upwards spiral of prices. Which brings us to the main inquiries....
Excerpted from Bad Times, Great Markets by Robert M. Barnes Copyright © 2011 by Robert M. Barnes. Excerpted by permission of AuthorHouse. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
Chapter One The Mess We're In....................1
Chapter Two The History Of The Dow And What It Portends....................18
Chapter Three The Long Road Ahead....................35
Chapter Four Workers: Getting and Growing Money Viable Stocks And Four Portfolios....................47
Chapter Five Near Retirees: Keeping And Growing Money....................98
Chapter Six Retirees: Keeping Money....................104