Recession Looming?

We've got cratering consumer confidence, slowing corporate earnings growth, a huge rally in bonds, banks disinclined to lend, and a generally bad set of circumstances for financials and retailers. The dollar has hit new lows against most major currencies (causing possible commodities increases and therefore inflation). Many of these issues are already priced in to stocks. The biggest risk could be investors seeing that their balances dropped more than 5% and selling, which would continue the drop in the market that started a month ago (although we are well off our lows).

I recommend stock investors consider sticking with 20-30% international and the remainder in large cap US multinationals. My prior recommendations [WMT (+9.5%), JNJ (+12.4%), BUD (+8.2%), AIG (-11.8%), PEP (+14.0%)] averaged a return of 6.46%, which outperformed the S&P 500 (2.61%) by 3.85%. I recommend at this time WMT, JNJ, BCS, BA, DIS, AA, AIB.

Overall record since I began posting recommendations on this blog on 7/31/07 has been +6.89%, compared to the S&P 500's +0.97%. For long positions in stocks I try to average outperformance of 1.5% per quarter, so I am happy with this return over 4 months.

Send me an email if you’d like at Mark.Hanna79@gmail.com. Many happy returns.

Bear's Woods

Per my previous post (a month ago) we have been in a bear market. As an interesting note on consumer confidence, it came in today at 105 (down from 111.9), and anything over 100 is positive (not to mention that the street's expectation was 104, which was exceeded). I believe that we are not out of the bear's woods yet, however I will be bold and call the bottom (in hindsight) as the intraday low on August 16th of (S&P 500) 1,370.60. At that point the market had sold off a little more than 10% from its high on July 16th. Overall I recommend the philosophy at this point of "when everyone is fearful, it is time to be greedy".

My prior recommendations [WMT (-5%), JNJ (+1.9%), BAC (+4.3%)] averaged a return of plus 0.4%, which beat the S&P 500 (-1.6%) by about 2%. So what? Well if the market averages [insert whatever long run average market return you believe in, most people use 10% to 12%], that average includes these types of markets. Beating by 2% in a month is a huge advantage for low-risk investors.

OK SO WHAT DO YOU LIKE NOW? REITERATE: WMT and JNJ. BAC will do great over the next 60 months, but I am not confident they will outperform over the next month. I still like the same play book 1) Growth at a reasonable price 2) Large Cap 3) With a dividend (or at least some indication management is allocating capital wisely). Think WMT, JNJ, BUD, AIG, PEP.

8 Months

Well it has been 8 months since my last post (math check: 7+12-11=8 whee). The stock market has rallied 4.6% over those 8 months. Doesn't sound like much. In actuality it is not that much, as earnings have increased well over this 5% gain, so stocks are cheaper.

That said, we are now in a bear market. We've just finished two down months for the indices (June and July) and are seeing chicken littleitis regarding financials (who doesn't like BAC - Bank of America at 9.5 times earnings and a 5.4% dividend yield???). I watched a little CNBC (dangerous) tonight and EVERY show featured EVERY person stating to stay away from financials and "don't bottom fish here".

I've been occupying some of my time (outside of moving from West TN to Knoxville, the family, the job, and everything else I do) looking at stocks and, more recently, stock options. To back up my case on a bear market we see 1) Elevated Volatility 2) Huge run up in short sales of stocks on the NYSE and 3) very cheap call options with expensive put options (IE the volatility index's run up has to do with puts becoming more expensive as everyone is buying downside protection). "Sell in May and walk away" is it?

OK SO WHAT DO YOU LIKE? I like 1) Growth at a reasonable price (some call this value some call this growth some blend, bottom line is earnings growth at a good discount to underlying value) 2) Large Caps 3) Those that fit #1 and #2 and pay a nice growing dividend. Think WMT, JNJ, BAC as the most obvious names.

Take care. Drop me a line if you'd like at Mark.Hanna79@gmail.com