Yield Curve Inverted today

The yield curve for today, March 22, 2019 was inverted, or at least partially inverted.  This means short term rates were higher than long-term rates.  This is bearish, and one of the more important indicators.

The Dow closed at 25,502 today. We'll see how it holds up.

Bloomberg: Fed to Shrink Assets Next Month, Boost Rates by Year End

What does this imply for investors?  Raising rates mean raising mortgage rates, too.  Homeowners with fixed rate mortgages will be OK, but those with variable rate mortgages, and new home buyers, will not be OK.  The only reason people of ordinary means can afford to buy a home now is because of the very low interest rates.  There will be fewer home buyers and some of the variable raters will have to sell.  So I foresee an end to the real estate boom currently going on.

Florida Real Estate

Why do people still buy homes in Florida, esp. southern Florida?  The danger from hurricanes is obvious, and then there's global warming.  Florida is only a few feet above sea level.  If you deny the existence of climate change, then, sure, buy Florida.  It's scary to think that there are so many who believe the seas won't rise.  My prediction, and I'm not alone in this, is that Florida real estate values will collapse completely within 30 years.

Time to sell oil/gas companies?

Looks like it might be time to get out of the energy sector, because electric cars are going to replace gasoline cars.  The EVs will soon be cheaper to buy, maintain and fuel.  Watch this persuasive video from Canada:
The Rise of Electric Vehicles

The Summer 2016 Outlook

Let's review the current situation.

• The stock market indices are at, or near, all-time highs.
• Interest rates are near zero.  They've never been this low.
• Housing prices have recovered from the 2008 slump and are making new highs.
• Unemployment is low and GDP is growing, albeit slowly.

It hardly makes sense to buy bonds, except maybe short-term bonds.  They pay little interest.  The market doesn't think interest rates will rise anytime soon, but if rates rise, bonds will drop.  Interest rates can hardly go lower, so the risk is all one-way. Keynes showed, in his General Theory, that interest rates do not have a natural rate that they return to.  Instead, interest rates can stay low (or high) indefinitely.

As to stocks, they're not cheap.  The S&P 500 price to earnings ratio is about 25, on the high end historically.  So one would tend to think the top is near and that it's not a good time to buy.

As to housing, it's high-priced, as I'm sure you know.  The very low interest rates of recent years have allowed buyers to pay more, as their mortgage payments are lower than they would be if interest rates were higher.  I also think housing prices have gone up because there is so much immigration - these folks have to live somewhere.

Scenario One:  Interest rates stay low.  Bonds hold steady, stock market ditto, maybe grows a little.  Housing must surely be reaching a top.  If immigration is curbed, it could go down.

Scenario Two: Interest rates rise.  Bonds crash, stock market crashes, housing slumps. Banks need rescuing.

So not a good outlook.  Be cautious.  On the plus side, technology is changing the world.  Today, the top five stocks by market cap were Alphabet (Google), Amazon, Apple, Facebook and Microsoft.  You need to have positions in these or risk getting left behind.

Debt Crisis: Here We Are Again

Once again we have the crisis of raising the US government debt ceiling, or defaulting on the national debt.  The last time this happened, I sold my regular Treasuries ETF and glad that I did.  I still own a TIPS (Treasury Inflation-Protected Securities) ETF, however.  It's down quite a bit this year, but still above what I paid for it.  So I'm wondering if I should sell it ahead of Thursday's possible default by the federal government.  I'm inclined to think so, for two reasons: (1) the default, if it happens, will surely hit the prices of all government bonds, including TIPS, and (2) TIPS, or at least my TIPS fund, are mostly long-term bonds.  Interest rates have nowhere to go but up from today's near-zero levels, and that will hit all long bonds.

Orders to buy

I should mention that the rules for selling apply also to buying.  If the next earnings announcement is a week away or less, use a market order, else a limit order.

The one thing that's different is that there should be less urgency to act to initiate a position than to close one out.  You know what they say, the best way to double your money is to fold it in half and put it back in your pocket.

The best order form for selling a stock

So you've decided to sell, for whatever reason.  What form of order should you use?

Normally, I like to put in a limit order a little bit above the latest trade price.  There is a certain amount of natural fluctuation from day to day, or within a day.  If you put in a market order, you'll probably get the current price or maybe a little lower.  The limit order will in most cases get you more.

How much is more?  I'm thinking a little bit above the most recent day's high.

BUT if there is an earnings announcement due soon, then this misfires.  Stocks will go up if it's a good report and down if it's bad.  If a bad report, your limit order then won't be filled and you'll own the stock at a lower price.  If it's a good report, you'll get your price alright, but then it will trade higher and you'll miss out on that.

If there's an earnings report due within the next week, then use a market order to sell.  Yahoo! Finance will show the next earnings date and it's free.  I'm sure there are other sites as well.

Some folks advocate using a trailing stop order, so that if the stock continues to rise, they'll get in on that.  This has never worked well for me.  There are too many flash crashes these days.  Just yesterday a hacked AP tweet caused one.  So no more stop orders for me.

SharePost - Private Stocks

I found another place to buy and sell private stock - SharesPost. They also have the nice feature of listing the stocks they deal in, without you needing to register or log in.

S&P Highest Yields

Like a nice dividend?  These stocks have the highest yields of the S&P 500.  (EPS1 is this year's estimated earnings, EPS2 is next year.) Not that they are necessarily a good investment, just saying.

Ticker Price EPS1 EPS2 Div Name Yield PBI $13.87 $2.08 $1.95 $1.49 Pitney Bowes Inc. 10.74% RRD $10.82 $1.81 $1.84 $1.04 R.R. Donnelley & 9.61% DO $59.12 $4.22 $5.20 $3.50 Diamond Offshore 5.92% AVP $16.12 $1.02 $1.19 $0.92 Avon Products, In 5.71% POM $19.43 $1.24 $1.31 $1.08 PEPCO Holdings In 5.56% PBCT $11.43 $0.77 $0.90 $0.63 People's United F 5.55% LEG $20.43 $1.31 $1.57 $1.11 Leggett & Platt, 5.43% HCBK $5.98 $0.57 $0.54 $0.32 Hudson City Banco 5.35% RAI $41.12 $2.95 $3.17 $2.18 Reynolds American 5.30% HCN $55.18 $3.61 $3.93 $2.91 Health Care REIT, 5.27%

Downloading Yahoo! data

One of the things I like best about Yahoo! Finance is the ability to download data from it to a spreadsheet.  Here's a page of tips on downloading Yahoo! data. As an example, I prepared this table of data from today, showing the lowest Price/Earnings ratio among S&P 500 stocks, based on estimated earnings for this year and the latest quoted price.

Ticker  Price      EPS    Name                 P/E
FSLR   $12.28    $4.08    First Solar, Inc.    3.0
HIG    $16.10    $3.63    Hartford Financia    4.4
LNC    $19.34    $4.11    Lincoln National     4.7
GT      $9.44    $1.96    Goodyear Tire & R    4.8
BBY    $18.22    $3.62    Best Buy Co., Inc    5.0
HPQ    $21.06    $4.07    Hewlett-Packard C    5.2
MET    $27.82    $5.22    MetLife, Inc. Com    5.3
CLF    $45.74    $8.40    Cliffs Natural Re    5.4
TSO    $22.17    $4.06    Tesoro Corporatio    5.5
VLO    $20.37    $3.72    Valero Energy Cor    5.5

Yahoo! Finance

My favorite site for (free) stock market data is Yahoo! Finance.  It's really complete and well organized, one of Yahoo's best services.  Type in a ticket symbol to get a quote and the quote page has a menu on the left of all sorts of information. The reports I find most useful are Summary, Profile, Key Statistics and Analyst Estimates.

Name change

I've decided to rename this blog.  The word "Fundamentalist" is most often associated with religion and not the stock market, so it was confusing.  I hope the new title better reflects what I'm writing about.

SecondMarket.com

All this Facebook publicity that I've been reading included a mention of secondmarket.com.  This website lets you buy and sell stock in companies before they go public.  You do have to be fairly wealthy and knowledgeable about the stock market to participate.  I happen to have some private stock in a company that I worked for in the 1980s, still private, so this may be a way to cash out.  Other folks used it to buy Facebook before it went public.  Interesting resource, in any case.

Out of curiosity, I ran my models to see at what price I would be a buyer of Facebook.  Works out to about $2 a share - ha!

Stop Loss Orders

The flash crash of 2010 was bad for me. I had a stock with a large profit, that I was losing enthusiasm for, but felt it still might go up.  So instead of selling, I put in a stop loss order about 20% below the market, thinking that if there were further appreciation, I would get it, and if it started drifting downward I would at least get out before all my profits were lost.  A trailing stop strategy like this is good for high flyers - just keep bumping up your stop order as the stock goes higher and higher.

But what happened on May 6 undid all that.  Like many other stocks, mine plunged way down for a while, stopping me out, and then closed near where it opened.  My feeling is that the stop no longer worked because the specialists and market makers who used to not let things like this happen, are no longer there.  There's just the order book and it may be thin. On the flip side, a far off the market G.T.C. limit order starts to look attractive.

Now the S.E.C. is on the job and they have insisted on "circuit breakers" that halt trading in these situations.  A little too late for my trade.

Facebook IPO

The much-hyped Facebook IPO is the sort of thing I hope I have learned to avoid.  Sure it may go up and sure it may be a fad like MySpace and Friendster.  It's a gamble, a speculation.  So easy to get burned.  Revenues last year were $1 billion and "they" are talking about a $100 billion valuation, i.e. a P/E of 100.  Yikes!

Going with the crowd is often a good strategy in life, but not in the stock market. Not what I would call an investment.

That little-known stock AAPL

Apple (AAPL) is the largest stock by market capitalization, and probably the most talked about common stock these days.  Quarterly earnings were announced last week and they were very good.  It's had a few days to settle down now, time to see how it looks as a value stock.

AAPL $584
Est. earnings 2012 $46.87
Est, earnings 2013 $53.93
Book value: $109.63
Dividend: currently 0 but have announced a $10.60 annual dividend for later this year

Looks good to me!  A price/earnings ratio of 12, expected growth, and a return on investment of 45%.  My five year projection shows a price of $2,100 while collecting $112 in dividends.

Colgate-Palmolive: Another good one

Here's a blast from the past: Colgate-Palmolive (ticker: CL).  My stocks are starting to look like the Nifty Fifty from half a century ago.  Here are the stats:

Price: $99
Dividend: $2.48
Est. EPS this year: $5.40
Est. EPS next year: $5.90
Book value: $4.95

Not so much a growth story, more of a blue chip that pays out nearly half of income in dividends.  But look at the return on equity: they make more each year than is invested in the company.  What a fine business!

My projections show a future (5-year) price of $486 while collecting $35 in dividends.  And you use their products every day.

IBM

IBM, trading at about $200 a share lately, is one of the stocks I have liked for some time and still like today.  Their earnings report came out a couple of days ago, showing earnings up 7% and flat revenues. The story is that IBM is transitioning from a hardware company to a business services company, the latter being more profitable.  IBM continues to be successful managing big data and providing IT services to big companies.  It's a fine business and only getting bigger.

Look at the numbers:  IBM has a book value of $17.31 a share, according to Yahoo! Finance, and 2012 earnings are estimated to be $14.92.  That's a fine profit engine, a return on equity of 71%.  The stock pays a $3 dividend and reinvests the rest back in the company, where it will get that nice return.  When I project out the growth for five years, I find an estimated future price of over $1,200 a share, while collecting fifty bucks or so in dividends.  So yeah, I like it: salute to Big Blue.

Retirement: WWII Generation Doing OK

My parents' generation seems to be doing OK financially in retirement. Mostly widows in their 80s and 90s now, their expenditures are pretty modest: no house payments (mortgage long ago paid off), drive maybe 3000 miles a year, if at all, property taxes $1500 a year or so. Of course, they have to pay for electricity, telephone and heat like everyone else, and a gardener to do the yard, but it doesn't add up to that much - nor do they eat all that much! They don't travel often, and then it's just to visit the grandkids. Medicare covers the doctor bills.

Social security more than covers their expenses, and they have investment income as well. The question I get most often is: where should I invest my money - it's piling up in the checking account. Of course, the sage advice is to put it in something super secure, because you're not going to earn it back if you lose it at your age. But they like to take a flyer in the stock market - better odds than gambling, that's for sure, and it's interesting tracking the stock prices day to day. Seems like the biggest risk is having to move to a nursing home, esp. in case of Alzheimer's. Some have insurance for that, as Medicare doesn't cover it.