Poor Richard’s Report
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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.