Quarter Point Cut October 31, 2007
Posted by Andy Robinson in : News , add a commentAs expected, the Federal Reserve cut federal funds rate by a quarter percent. This should not have any drastic effect on stock prices in the short run due to the fact that this cut was widely expected and priced into the market. It was also the right move given the circumstances. If they’d kept rates firm, investors could have just cause to be concerned that the Fed isn’t being proactive enough in staving off inflation. If we’d cut half a percent, the dollar would have tanked again. Looking a bit further out, there’s enough reason to be confident in equities right now. Earnings have been mostly strong and GDP growth of 3.9% in the fourth quarter was more robust than expected. I am fully invested currently and wish the longs the best of luck in the fourth quarter!
Rally mode begins October 28, 2007
Posted by Andy Robinson in : Market Research , add a commentThe boys from Motley Fool have broken down the stats in their post Now is the Best Time of the Year to Invest. I tend to think that this year’s fourth quarter will stay true to form. We’ve rallied hard and given some of the gains back, so we will likely start the next leg up to new highs soon. The only thing that might throw a spanner in the works is if the Federal Reserve doesn’t kowtow to Wall Street and stands pat on the fed funds rate in it’s meeting on the 31st. I expect that they will cut rates a quarter or half percent which will probably start the rally of financials. I just bought some Bank of America before the closing bell on Friday at $48.03 because I expect them to rebound to about $55 or more by the end of the year.
Buffett interested in South Korea October 25, 2007
Posted by Andy Robinson in : Market Research , add a commentI’ve been leery of emerging markets and warning against the wisdom of owning countries like China since my June post. However, since then, emerging markets (particularly China) have continued to see strong stock market returns and would indicate that my warnings were unjustified. This is a situation, however, where I don’t think the rewards currently justify the risks. It is not always necessary to pay a huge price for terrific growth prospects. Warren Buffett is currently visiting South Korea and has expressed interest in their stocks because the valuations are about equivalent, and probably less, than domestic stocks. And this is with much higher growth prospects based on the dynamic economies in the region.
Will $90 oil kill the market? October 22, 2007
Posted by Andy Robinson in : Market Research , add a commentThe Yahoo Finance article $90 oil won’t kill the bull gives a good look at the differences between the US economy now and back in the late 70’s. In today’s dollars, the price during the 70’s crisis was around $75-80, which we’re well past now. But the biggest difference between then and now is that oil now has a much lower impact on our economy. People spend a much lower percentage of their income on oil, so it won’t take as large a bite out of consumer spending. Also, our economy is much more service and technology based than manufacturing, so it takes less oil to produce the same number of GDP dollars. But one big difference is that now no politicians (knock on wood) will be stupid enough to put in place price controls. When you put a ceiling on prices, it will always lead to supply shortfalls as market forces are not allowed to do their work by decreasing demand.
Where the market’s heading October 19, 2007
Posted by Andy Robinson in : Market Research , 1 comment so farPredicting the economic reality and the market direction is a hazy crystal ball indeed, but here is my opinion for what it’s worth. I cautioned of the possibility of a market top in my July 18th article and took a little cash off the table. We subsequently pulled back roughly 10%, after which I said (Aug 16th) that it was time to start deploying some of that cash. We have since rebounded quickly to the market highs.
Profiling Electronic Data Systems October 17, 2007
Posted by Andy Robinson in : Company Profile , add a commentI’m adding Electronic Data Systems to my list of stock picks today (ticker EDS). EDS is an Information Technology company (founded by Ross Perot) that offers both technology infrastructure services and applications to large multinational companies and government departments. They are nearing the end of a restructuring and cost-cutting period, and earnings should start to benefit soon from the cost-cutting and the investments they made to get into higher-margin niche business lines. This is a terrific value play and any investor with a couple year time horizon should be richly rewarded. Full disclosure, I don’t own any shares at this time. The intraday stock price at the time I’m recommending this company is $22.62.
The Emerging Market’s Bubble October 16, 2007
Posted by Andy Robinson in : Market Research , add a commentI want to highlight the article 5 bubble-proof foreign stocks by Jim Jubak of MSN Money today. I haven’t researched the five that he recommends, so I’m not going to vouch for their safety, but I think Jubak has nicely summed up the situation in most of the developing world. Valuations have soared over the past few years as cash has been chasing returns. Particularly in China and India, investors have been dazzled by the growth prospects of vast populations that are experiencing a transition where a middle class is emerging. But the price of equities is too high considering their historical norms and the reckoning will come. It may be another 12-18 months away, but when it comes many of these markets will get dropped to 30-40% of their current prices. At which point, I’ll probably consider doing some buying.
Retiring with a mortgage October 15, 2007
Posted by Andy Robinson in : Educational , add a commentAlthough it’s preferable to pay off your mortgage before retirement age, by making extra payments if necessary, the fact is that many people have not retired their debts when they enter retirement. This MSN article addresses this issue by suggesting that the retiree should refinance the debt to reduce monthly debt obligations rather than cash out the 401k to eliminate the mortgage. Most people’s instinct is to take retirement money out to get rid of the mortgage, but the problem with that is that the more you withdraw, the higher your marginal tax bracket will be for that year. It works out better to withdraw the money over time at a lower tax rate. Even though you will end up paying more mortgage interest, your money is staying in the 401k longer making tax-deferred returns.