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Category: Richard De Graff

  • Poor Richard’s Report

    Poor Richard’s Report

    Poor Richard’s Report

    Over 300,000 readers
    My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth, while providing needful income, is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the global financial markets. This gift allows me to meet the needs of individual and institution clients. I first evaluate situations on a fundamental basis and then I confirm them on a technical basis. In the past this has been reasonably successful.

    A History Lesson to Be Relearned?
    In the darkest days of the great depression Socialism first started to creep into our form of government. It seemed that Capitalism had failed and the educated elite were experimenting with Communism. They were called “pinkos” and Senator Eugene McCarthy would go on a boozed-up onslaught of slander against them 20 years later.
    The point I am trying to make is that socialism does not work. It stifles creativity and tries to create a classless society to be governed by fat and nasty bureaucrats who consider the rest of the population as meager.
    Capitalism is not dead. What our leaders failed to do was to properly supervise the so-called “new debt instruments”. The robber barons of the 19th century are the hedge fund operators of today. A bail out is a way of covering up for one’s mistakes. (I thought bail out meant getting out of jail.) All we are doing is supporting a bunch of losers. When giant corporations sink, it stings like a nest of hornets, but some of the strong always resurface. A couple of great bankruptcies will be remembered for decades if not centuries. We have been conscious of wealth creation, but not how we have fashioned it.
    In my last letter I noted that the market had turned up. I did not expect the voracious rally that ensued. I did have cold feet and urged caution because with no “uptick rule” the shorts were caught in a massive squeeze, which sent prices soaring into outer space. I now believe that the market has bottomed, but the popular average may not have.
    I wrote in my November 25, 2007 letter that markets top out stock by stock. Now the reverse is happening. The small and mid-capitalized stocks are bottoming and firming up. The large capitalized stocks are the last to surrender their gains. This is because the sellers of smaller stocks seek safety in larger companies. It is the greed factor and they just can’t wait patiently on the sidelines.
    As I recently looked back over my previous letters I was impressed, and yes, even proud of my stock and market calls. I was equally surprised at most of my political comments. Some were so bad they were downright funny. Jay Leno would have a ball reading them. So, I want to apologize for being a bad politician, but I suspect that some of my regular readers don’t take my political comments too seriously. I hope.
    FDR called economists “economic royalists” but Spiro Agnew (remember him?) had a few choice phrases that could be applied today. (Spiro, you were 40 years too early.) Try “netering nabobs of negativism” or better yet an “effete corps of impudent snobs”.
    This is a brand new ball game, with new players, new managers, and new owners. The new game is how to avoid paying taxes legally. We are going to be taxed from hither to yon. Some old stand-bys might go bye-bye. Home mortgage deductions? Many charities will probably have to prove they really provide a service.
    If you belong to a major denominational church with a solid history of service I can not think of better place to contribute. You get to watch your money while earning a deduction.
    Preferred stocks with a qualified dividend selling below its call price will provide you with an 85% TAX DEDUCTION. A preferred yielding 10% means an 8.5% tax-free return to you. A municipal bond yielding that much is heading for the sewer. I would only buy municipal bonds if you plan to hold on to them for at least two years. Muni traders do not like to buy back what they have dumped on you.
    Don’t do any business that depends upon the government of a country that is a dictatorship. Dictators run it for themselves, not for you. In the United States, the House has the real power. They vote on the budget. Your local congressman might be in favor, but the other 400 odd members can be against it. If the house does not pass it, forget the senate even considering it. Remember that the public believes the Congress is really “the pits”, EXCEPT their own Congressperson.
    I tend to favor Canadian Stocks right now. The Canadians stand proud and tall and have not wallowed in the same mud we have. They have companies that are well managed, with extremely low valuations and healthy dividends. I believe the Newalta Corp (Nasdaq NWLTF), which I have mentioned at a higher price, has now bottomed.
    One of the many truisms in this business is that most past performers do not participate in the next bull market; they become a source of funds for buys of smaller companies. One of the reasons for this is that large corporations find it more difficult to change direction, just as it takes a giant super-tanker 20 miles to change course.
    Mutual funds are really in a tough bind. They mostly all own the same stocks and, since they have chased the individual investors to the sidelines, they have no one to sell to. If they have too much redemption they can legally distribute stock instead of cash. This is another reason why the popular averages might be making new lows, while the general market has bottomed.
    In March of 2000 the NASDAQ Index was 5132 and today it is around 1652. In the same time period the S & P 500 Index was at 1553.11 and today it is in the 856 area. This is a graphic example of when governments fail to supervise the financial markets. Much damage has been done, but no one has stepped forward with concrete proposals to stop the slaughter.
    Our guilt is not going unpunished. At the G-20 just completed in London, President Obama agreed on international “high standards” for the regulation of “Systemically Important” companies to be sponsored by a new global Financial Stability Board (FSB). The United States will be just one of the 20 chairs on the FSB board. Whatever the consensus is with the other central bankers from the G-20 nations in respect to any regulations put forth, our Federal Reserve and the Securities Exchange Commission (SEC) will then impose them on our economy. (Does the US Senate have to ratify this? I think not.) What our Congress has to do is re-introduce the safeguards put in place in the 1930’s and modernize them so that we will never have to suffer this ignominious affrontage again. To regain our regal throne we must set out standards once again higher than others, so that all nations will again trust us.
    We must adapt to new philosophies. We buy a home to live in and enjoy our surroundings. We must buy a home that we can afford – not on a wing and a prayer.
    We must learn to save. Cash is king.
    Any corporation that has accepted funds from the Government is dead meat – at least for 5 years- maybe 8.
    We buy stocks because they have a useful product, provide a useful service, and pay a handsome dividend with the expectation of further increases.
    The stock market has bottomed, but all that means right now is that the slide is basically over with.
    The President has taken a big political and economic gamble. For this to work he must have the backing of the Democrats in Congress. He could get BUSH-WHACKED!
    Gillian Tett, an award-winning reporter for the Financial Times writes about the Gold Standard Debate Roars linked here: Gillian.tett@ft.com. Many responsible investors believe that this is the way to solve our financial crisis. The four-decade experiment with a fiat currency based upon governments being credible is being pushed to its limits. The US reserve of gold is so small, relative to its monetary base, that a price of $6,000 an ounce would be needed to reintroduce a gold standard. To implement that standard in Japan, China and the US, the price would be more than $9,000.
    “But what this debate does show is just how much cognitive dissonance-and utter uncertainty- continues to stalk the markets. It might seem almost unthinkable to propose a return to a gold standard, in other words. However, the key point is that the last 18 months have already produced a stream of unimaginable events,” she writes.
    So while we have this crisis, I do not see gold collapsing far from these levels of $900- unless we find a viable cheap energy substitute.

    Cheerio !!! Monday, April 13, 2009

    Richard C De Graff
    256 Ashford Road
    RER Eastford Ct 06242
    860-522-7171 Main Office
    800-821-6665 Watts
    860-315-7413 Home/Office
    rdegraff@coburnfinancial.com

    This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

  • Poor Richard’s Report

    Poor Richard’s Report

    Turkey: Assurances For Azerbaijan Over Armenia Thaw
    April 9, 2009Turkish Prime Minister Recep Tayyip Erdogan said the diplomatic thaw with Armenia will be difficult without addressing Azerbaijan’s concerns on Nagorno-Karabakh, Hurriyet reported April 9. Armenia has occupied the disputed region of Nagorno-Karabakh since 1994, and
    Turkey: Assurances For Azerbaijan Over Armenia Thaw
    April 9, 2009Turkish Prime Minister Recep Tayyip Erdogan said the diplomatic thaw with Armenia will be difficult without addressing Azerbaijan’s concerns on Nagorno-Karabakh, Hurriyet reported April 9. Armenia has occupied the disputed region of Nagorno-Karabakh since 1994, and

  • Poor Richard’s Report

    Poor Richard’s Report

    NATO: Turkey Given Concessions Over Rasmussen
    April 4, 2009Turkey accepted Denmark’s Anders Fogh Ramumssen’s appointment as NATO secretary-general after U.S. President Barack Obama promised that one of Rasmussen’s deputies would be a Turk, Reuters reported April 4. Turkish Prime Minister Recep Tayyip Erdogan said Obama also guaranteed that Turkish commanders would be in the NATO command. Turkey was promised at least two NATO posts, including a deputy to the deputy secretary-general, and progress on two blocked chapters of its European Union accession agreement, The New York Times reported. Also, Rasmussen allegedly will publicly address the Muslim world’s concerns about his response to cartoons depicting the Prophet Mohammed.

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  • Poor Richard’s Report

    Poor Richard’s Report

    WARNING !

    THE SELLERS  HAVE NOT STOPPED SELLINGS SO ONCE DEMAND DRIES UP MOST FINANCIAL MARKETS COULD SEE A SUDDEN DOWN DRAFT. BE VERY CAREFUL

    CHEERIO !

  • POOR RICHARD’S REPORT

    POOR RICHARD’S REPORT

    Poor Richard’s Report                                                                        

     

                                                                                                    Over 300,000 readers

    My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have been given the ability to evaluate, study, and interpret world and national events and their influence on the future of the financial markets. This gift allows me to meet the needs of individual and institution clients. 

    March 10, 2000 the stock market topped out.

    March 10, 2009 the stock market bottomed. 

    This does not mean it is going to run back up. The leaders of past bull markets do not lead the charge in new bull markets. This bear market has been the second worst in our history and probably the worst ever in other countries. It will be 5, 10, maybe 15 years before the averages make new highs- that is, if they do not change the components too much. Stocks bottom when the future looks the bleakest. So I believe we are near or at the bottom of a major cycle. It is a market of stocks not a stock market.

                 I have written that the market has bottomed, but the recovery is going to be long and painful for some. We have to institute new global regulations and retrain ourselves to be more frugal. We buy a home because we love it and want to live in it, not to turn a quick profit. We buy a stock because the company has a good product, provides a necessary function for the good of the community, and over a period of time will grow.

                Countries and consumers are tapped out. The ratio of household debt to Gross Domestic Product (GDP) rose from 66% in 1997 to 100% in 2007. We are not alone. In the United Kingdom it was an even bigger jump.

                In the US the overall debt reached 350% of GDP. Only 85% is private. This figure was 180% in 1980. The next bubble to burst will be credit cards and then, if we are unlucky, we will have a debt implosion. Individuals and corporations will do their best to reduce debt. They will be shut out from borrowing because of the massive borrowing the US Government will have to do. This will be true for many other countries also.

                Today there is a debate between Socialists and their foes that want less government intervention in their daily lives. I believe the truth lies in the middle. We can not be all things to all people. In the past we have borrowed on the future and it is now pay back time. We have to downsize our dreams and expectations or we could find ourselves in the same straight jacket that the Germans found themselves in 1930’s. The American spirit is that of a “can do will try for it” attitude. Today, while you are reading this letter, there is someone trying to figure out a cheaper source of energy. Until the discovery is achieved we will have a slow recovery. I believe that day will come from an area we least expect. Have faith.

                    With a slow recovery major corporations will wallow in the mud. Medium size companies that can move and change quickly and do not have a built in bureaucracy will become the new leaders. It has been my observation that the pinnacle of leadership lasts about 10 years. That leadership is attained because the new hires believe in the company. Later hires join because of the name and it’s safety. Competitors multiply and the growth rate slows down. As Andrew Carnegie was fond of saying “shirt sleeves to shirtsleeves in three generations” can apply to this corporate sequence.

                If you want to participate in this new bull market you must change your thinking. The averages mean nothing today. The market is made up of individual securities. You will want to know how your stock is doing. Not the market. Some stocks are going to drift lower because they are still over priced or because they have had a good run in the past and accounts are now overloaded with a past leader. These stocks should be sold. Taking a loss is really a good deal. First you limit your loss and you have given yourself liquidity. Liquidity means you have constant funds for your next purchase. The losses you accumulate can be used to reduce your taxes by $3,000 per year. This applies, as of 3/10/2009, before Obama changes the system. 

                Now lets say you have taken $25,000 in losses. Smile! You have just set yourself for the future. I am not referring to the next 8 years of  $3,000 worth of deductions. Let’s say two years from now that you have taken $20,000 gains in various trades and you face a monster tax bite. You can now use the remainder of your tax loss carried forward, which could be $19,000. Now your tax bite is only $1,000. This is why taking a loss is smart. More money has been lost by investors not doing a trade because of “taxes”.

                Now initially in this new market preferred stocks that have the 85% tax credit should do well, especially if it is selling below its call price. If they call it from you, you stand to make a gain. Corporate debt that is selling below par of strong companies will represent good value. Companies that hired a key person for the future while others have been downsizing is a big tip off.

                Gold is an investment for caution. The President’s strategy is to have a little inflation to support the housing market. Incidentally, the European Union and world leaders are debating over what should happen.  Some of the foreign politicians that carry a big stick are as follows: Wen Jiabao, 66, the Chinese prime minister who is under fire at home because he “put the brakes on too fast”. Angela Merkel, 54, the Chancellor of Germany who favors a “new global constitution” for financial markets. Nicolas Sarkozy, 54, President of France who regards himself as de facto leader of Europe given Gordon Brown’s domestic, political, and economic woes and Angela Merkel’s cumbersome coalition.  Gordon Brown, 58, UK prime minister who was the former Chancellor of the Exchequer and believes he is ideally equipped to tackle the crisis. He will host the Group of 20 summit of industrial and developing nations in London on April 2.

                Central bankers include the following: Jean-Claude Trichet, 66, President, European Central Bank who believes politicians and central bankers must do their utmost to shore up economic confidence. Zhou Xiaochuan, 61, Governor, Peoples Bank of China who has held that position since 2002 and is considered a principal supporter of faster market reforms. Fluent in English he can hold his own among economists. A sleeper is Mario Draghi, 61, Chairman, Financial Stability Forum and governor, Bank of Italy who is a US educated economist, former Goldman Sachs executive, and a respected transatlanticist.

                Regulators of note are: Adair Turner, 53 of the UK. Sheila Blair, 54 Chairman of the FDIC. Mary Shapiro, 53, Chairman of the SEC.

                Economists include: Robert Shiller of Yale. Montek Singh Ahuwalia, 65, Deputy Chairman, Indian Planning Commission. Robert Zoellick, 55, President, World Bank. Pascal Lamy, 61, who is Director General of the WTO. Paul Volcker, 81, Chairman, Economic Advisory Board. Fed Chairman in 1979-1987. He warned early and powerfully about subprime mortgages. Paul Krugman, Professor at Princeton University and columnist, NY Times. He has carved out a niche as the democrats’ liberal conscience. Then we have Leszek Balcerowicxz, 62, Professor of economics, Warsaw School of Economics.  

                Bankers to watch are: Lloyd Blankfein, 54, Goldman Sachs chief executive. Jamie Dimon, 52, Chairman of JP Morgan. Stephen Green, 60, Chairman of HSBC since 1962. He has voiced strong views about the need for reform of banking.  A lay preacher and author of a book about reconciling religion with free markets, he has criticized the industry’s excesses during the boom along with Peyton Patterson, Chairman, President, and Chief Financial Officer of NewAlliance Bank.  

                At the top of the list is President Barack Obama, 47, the revues on his economic rescue plan are mixed, but much detail is awaited.  In the meantime, the president is pressing ahead with radical domestic reform agenda encompassing healthcare, the environment, and education. As promised, it has a strong whiff of both audacity and hope. Then we have Ben Bernanke, 55, Chairman of the US Federal Reserve who is a scholar of the Great Depression. He has knowledge of measures that the central banks can use at times of great crisis and he has had ample opportunity to put his theories into effect, using an expanding range of tools too try to arrest the slide.”

                With this list of partial names one can see that this is a global problem; global problems need global answers. This will take time and patience. This is why I recommend the sales mentioned above and a hefty cash position. Sure, the market is trying to bottom, but the prudent way in the 21st century is to wade in step by step. One should also check in with a professional – like me.

     Cheerio !!!

    Richard C De Graff

    256 Ashford Road

    RER       Eastford Ct 06242     

    860-522-7171 Main Office  

    800-821-6665 Watts

    860-315-7413 Home/Office

    rdegraff@coburnfinancial.com

     

    This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.

     

     

    This analysis is courtesy of the Financial Times and this assessment is by Lionel Barber, editor.  March 11,2009 page 7

  • Poor Richard’s Report

    Poor Richard’s Report

    Poor Richard’s Report

    Over 300,000 readers
    My Mission: God has uniquely designed me to seek, write, and speak the truth as I see it. Preservation of one’s wealth while providing needful income is my primary goal in these unsettled times. I have given the ability to evaluate study, and interpret world and national events and their influence on future of the financial markets. This gift allows me to meet the needs of individual and institution clients. .

    LET’S HAVE FUN !!!
    Recall Congress !!!!

    The stock market gave its first internal sell signal sometime in 1998 when the Lowery Reports selling pressure line crossed above the buying pressure line. This meant the sellers were in control. Since Price to earnings ratio’s were at an all time high and about 24 years since the start of the last major bear market my internal clock set off all kinds of alarms. The external sell signal came on March 10, 2000 when the Clinton Administration went after Microsoft as a red herring to forget Al Gore’s problem of money laundering with the Chinese in his bid for the presidency. Microsoft’s did not contribute to either party so they were a prime candidate. That act was the pin that burst to dot.com bubble and the real start of the major bear market that we are in today. This is when I started selling all big cap stocks for the next 6 years.
    I have now been in this business one way or another for over 50 years. During that time I have read, heard and experienced many challenges. My noggin is a mishmash of facts, figures and clouded forms that only take shape when the right message enters my pea pod brain.
    I have been try to write this letter for a week now, but the write words escaped me because inside I knew I was wrong even though I hated to admit it. That is why I am keeping the title of this letter that you see above.
    The fact is that we are in serious trouble. I spend more time than most reading about the Federal Reserve. I have written in the past that the Chairman and his board can do anything they want to protect or improve our economy.
    Dr Bernanke has a habit of foreshadowing possible future events. One should always take note of his speeches. His most famous one was when he spoke about combating a possible deflating economy. He said that he would fly over the country in a helicopter dropping dollar bills. The press mocking him gave him the nickname “Helicopter Ben”.
    The first clue we were I trouble was when the Congress passed the rebates early in 2008 without much of a debate. Our representatives had been fighting, clawing, spitting and chewing each other to tiny bits. Now they were pals? Then came TARF and BARF for the banks, we had to bail out the big guys. With type of news the dollar should sink and gold go to 2000.
    So President Obama wanted a bailout bill real fast, 800 pages of pork and long term goodies that will cost us about $100 trillion dollars before we are through. I personally felt an outrage that our leaders did even to bother to read it. Seven democratic Congressmen voted against it and 3 Republican Senators voted for it.
    Then I saw a picture of Tim Geithner, our new Secretary of the Treasury. He was being groomed to be the next Chairman of the Federal Reserve. While others got squashed for not paying their taxes , he slid through that political barrier. Why I asked myself. Maybe because we are really in deep trouble and our politicians are scared? They know something we don’t? THEN HIS PICTURES CAME BACK TO HAUNT ME. He never smiles. He has sharp eyes like a falcon seem the pierce the air. The grey squirrels on the ground know the feeling when they spot the silhouette coming at them. His eyes are of fear, incomprehensive astonishment of how bad are system is. As a former President of the all powerful Federal Reserve Bank of NY and the only permanent member of the FOMC (Federal Open Market Committee) as Vice Chairman, his ivory tower office could not see the little bits and pieces crumbling around him. His full blown ideas of how to save our banking system deflated along with our economy. We are in a world wide debt crisis. European banks were leverage more than ours. Each bubble bursting is deflationary because all those excess inventories have to be worked off. The credit cards are the next one- Senator Dodd where are you with an new Usury law? Supported by Lobbyist (Bribers)?
    So in the Panic of 1907 when JP Morgan was the unquestioned leader and closed several banks and merged several others with out a peep from Washington or in New York City, today we face the same from DR Ben. This time we are finding out a little bit at a time. Chinese water torture. That is why President Obama has been bad mouthing the economy instead of trying to prop it up. Is he preparing us for something even worse?
    We won’t have a depression because Dr Bernanke did his doctorate on the great depression and how to avoid making the same mistake. Believe me, every central banker his worth had read it and underlined it. But we all have to change our habits and thinking. Stocks are dead meat. They are a source of cash. Need money? Sell some stock. Debt instruments are now the game. Corporate bonds have first call on a company’s assets. Then preferred stockholders come next. If anything is left over the common stock holders get the crumbs off the table. By the way – there all kinds of studies being promoted that T Bills have outperformed the market over a 20 year period, timing your stock purchase in very important.
    Now my friend; do not despair. Losses in stocks can be carried forward (so far at the printing) so that gains can be offset by losses
    Let me show you. Corporations that are solvent and viable will want to demonstrate this by reducing their debt. They can buy some back in the open market, or they can call the entire debt issue in and retire it. This is an excellent option in a deflationary economy. For us as investors finding those bonds or preferred’s selling below the call price could put us in what Obama calls the rich class. I mean if you are going over $250,000 you might as well go big time.
    Now is the time for all our politicians to back up the President. When the President presents his list of programs to be canned because they are outdated and pure pork and do not really contribute to the economy the Congress must back him up. Those that refuse to cut wasteful projects must be recalled. There might have been better ways, but this the one he chose. Failure to back him could send us down even faster. Consider this war-an economic war. Those who balk are traitors. They are traitors in a time of need. During the next two years if it obvious that some programs are not working then they should be stopped. If they refuse to admit failure then we can boot them all out in two years and rescind these acts. Being a registered Republican, these are not easy words to write, but we are at a defining moment in our history and I feel we must show unity or else we won’t be able to sell any bonds to finance these expenditures.
    By the way, this economy stinks world wide. The consumer is tapped out and if we don’t watch it as a country we will be too. We could be running into a debt brick wall a few years from now. I sure hope not. Cash is King!
    Today I would not own any money market funds except U S Government funds. There are too many funds and you don’t know where the next bankruptcy will come from. There has already been one fund that “broke a dollar”, but that was quickly made up. Cold hard cash is good, because later on you will be able to pick up tasty bargains at tremendous discounts
    I would also look at preferred stocks. They have second call on a corporation’s assets right after the bond holders. You have to be choosy. I prefer AMERCO Pfd A which is the holding company for U-Haul Trailer Company. It is listed on the NYSE and trades just under 20. The yield is just over 10% and 85% is tax free and they quarterly. You have an added protection in that they have a covenant for dividend in arrears. They must make up any dividends in arrears before they can resume regular payments. Here is the kicker. The call price is $25, if you paid 20 or under you stand to make over 30% gain. This is important because I believe any corporations will go all out to reduce their debt burdens. This will instill consumer confidence and support the common stock.
    So those of you who feel beaten down in a mutual fund here is a long term solution to your problem.
    It is important that you look around your own area and check out local companies. As an individual living in the community corporate officers like to brag at parties etc and just by common sense deduction and no inside information you might yourself a solid winner.
    ` Remember – never give up – there is a light at the end of the tunnel – it may be a pen light from here , but the close we get the brighter it shine. They economy will rebound, but the growth will be more subdued and the price to earnings ratio’s will keep contracting until this market is completely over sold and undervalued.
    These are formidable times which require much discussion. My last letter I tried to cover too much at one time so I will write more often , and try to limit my topic.
    Cheerio !!!

    Richard C De Graff
    256 Ashford Road
    RER Eastford Ct 06242
    860-522-7171 Main Office
    800-821-6665 Watts
    860-315-7413 Home/Office
    rdegraff@coburnfinancial.com

    This report has been prepared from original sources and data which we believe reliable but we make no representation to its accuracy or completeness. Coburn & Meredith Inc. its subsidiaries and or officers may from time to time acquire, hold, sell a position discussed in this publications, and we may act as principal for our own account or as agent for both the buyer and seller.