Poor Richard’s Report
Over 300,001 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 institutional clients. I evaluate situations first on a fundamental basis then try to confirm on a technical basis. In the past it has been fairly successful.
Prepare for the Worst it is Survival Time !
Dear and Faithful Readers;
This will be my last Poor Richard’s Report that will concern the US stock markets and investments for at least one year. I might, from time to time, make a comment or two on current events on a personal basis, but my financial advice is here and now.
There are two main reasons. The first is that everything as we know it is going down a rat hole because of our past excesses. We must all share the blame. The second is that I have been elected Secretary of the Willimantic Rotary Club of Connecticut. That is a demanding office that requires a lot of learning and paperwork. It is a one-year office, but after the learning period comes Vice President and President after that. Those are the easy jobs, because then one is in a position of authority to delegate responsibilities.
Before all the bubbles had burst we were in euphoric stock markets. Price to earnings ratios (PE’s) went to all time highs. We were placing bets because it was going to go up. We did not pay attention to earnings, sales, and debt ratios.
Now the bubbles are still bursting, we have a credit crunch, and we are now putting our faith in two brilliant men, one of which does not believe in paying taxes. Our President is only as good as the people surrounding him. That is why former presidents did not want “yes” persons surrounding him. Some wanted both sides in order to decide.
WE ARE DEFINITELY HEADING TOWARDS SOCIALISM WHICH MEANS WE ARE LOWERING OUR STANDARDS. EXPECT MORE GOVERNMENT INTERVENTION INTERFERRING IN OUR DAILY LIVES.
The stimulus money does not produce continuous jobs. The majority of the jobs are one time shots. I believe the Government should have given the public the trillions of dollars to pay down debts of high usury rates that are actually legal extortion. Senator Dodd – where were you?
As the general public gets squeezed tighter and tighter on meeting payments on a declining home value, they will sell the highest price stock they have to meet payments. This also means real estate is dead as we know it. Transactions can be done between individuals outside the banking system – that is why one sees so many for sale signs “by owner”.
When I write that we are lowering our standards I really mean it. This has to do not only with what is a normal PE ratio, but a general slowing down of business. This in turn means lower sales, which entails lower debt coverage. This can lead to a spate of bankruptcies brought on by bond defaults. This can be a hazard for all types of funds because the fund managers have no idea where the “next shoe will fall”.
Municipal debt is also suspect because the voters keep rejecting budgets until they are at the bare minimum. California is right now (July 9, 2009) on an IOU that many banks will not honor. Money can be made or lost by a change in the credit rating of a bond.
Corporations will have a hard time competing with government debt for their debt offerings. This is happening world wide. Corporations that will be able to borrow will be paying high rates. This can force lesser companies to sink to the bottom.
One relatively safe place is the 10 year Treasury. It is yielding a paltry 3.50% area. The core deflation rate is 1/1/2% so combine the two you come up with a real 5% rate of return. With the real economy sinking even further in the months ahead these bonds could yield even less; that means to you, savvy purchaser, higher prices. Govt. bonds at this printing are under owned. That is a real positive.
The “professionals” are telling you not to stay in cash. What they mean is that they need you to buy their junk. Cash is king. Here is an ideal tale. Huntington Hartford was the chairman of the Great Atlantic and Tea Company in the 1920’s. Starting in 1928, I believe, he started selling his A&P grocery stores property and leasing them back. Everyone laughed. Then in around 1932 he started buying them back for pennies on the dollar. Cash will be king.
Even if we throw out every politician that will be running for reelection in 2010 it will still take a few years to level the playing field.
The SEC could pay a “finders fee” for successful whistle blowers. If that was the case, the SEC could not have ignored Bernie Madoff. That would make everyone squeaky-clean overnight.
Bring back the short sale rule.
Bring money market funds under bank supervision. They are really unregulated banks.
Separate brokerage and banks, but have them able to competein an equitable manner, and have the rules revisitewd by the Congress every 7 to 10 uyears. The Investment Company Act of 1940 should be abolished. That law was passed to protect the nascent mutual fund industry. Now it is a baby gorilla without diapers.
The best idea I have read and written about is having a short term trading penality of 80% gradually working down to zero after a holding period of 5 years and one day. That has the potential of leveling the playing field overnight. It would be like the Navy Seabees of World War II fame.
The bureaucrats in Washington are so scared of emails that they now communicate with little pieces of paper crumbled up in their pockets that have no meaning except to the person reading it.
The preferred I have mentioned in previous letters is still attractive at current prices because the income is 85% tax free and we are going to be taxed to “kingdom come”. Do not believe our President, but watch what he does. “Tricky Dick” Nixon will now be “Outrageous Obama”.
The Canadians never fell for our sub prime crap, so they have a pretty good system. Sure they are hurting, but they are pro business. To qualify for citizenship you must have money, investments, and a job. Oh, by the way, you must also be able to speak English. Their universal health care system is falling apart and if we go on one they surely will reverse theirs because their citizens will have nowhere to go when sick.
The comparison with the great depression of the 1930s is really ominous. The problem then was that the Federal Reserve was leaderless. The real man who was really in charge of the Federal Reserve was the President of the NY Federal Bank of New York, who died in 1928. It is often said he would have raised margin rates. Back then margin rates were 10%. Today margin rates are 10% for Government bonds and certain commodities. The reason for the 10% rate was that there was little movement. If the government really wanted to restore confidence back into the world markets and restore leadership and respect worldwide all they have to do is raise margin rates to realistic levels and raise taxes on short term trading while at the same time reward long term holders with no taxes.
These exchanges were formed on the theory that they would benefit individual businesses not promoting speculation.
When our systems were developed it was understood that short term speculators were needed to balance the market place, but excessive use and over indulgence are fatal flaws.
Only a veto-proof Congress can pass these laws today. They can and should take control and pass these consumer protection laws (that is us, dear reader) and if the President vetoes these laws, then they override it. These votes should be bipartisan.
During my years with Smith Barney they decided that it was very important to hire someone who knew what was going on in Washington. One analyst remarked that “if I knew the FDA was doing that , I would not have recommended the stock..” Good idea, but wrong people. They rubbed management the wrong way including some of our clients. The last person was Kevin Philips who used to be a speech writer and political advisor for Richard Nixon. He was very good, but way out of the main stream. So we dropped that idea, but continued to muddle through on our own.
My point is that one has to be aware whyat is going on in Washington D.C. in order even think of investing successfully.
Then there is an outside phenomenon to be aware of. It is called EL NINO. It occurs when a warm-water current in the southern part of the Pacific Ocean every so often changes its pattern. It is like if the Gulf Stream stopped flowing north for a year. Our weather patterns in the northern Atlantic region would change drastically. It is speculated that Magellan was able to sail around the world because El Niño had calmed the waters at the southern tip of South America. The economic consequences can be awesome. The anchovies swim in these waters, and when they are hard to find, or the catch for year dwindles because the current moved too far out to sea, the price of anchovies rises. Anchovies are not only food that is added to all kinds of feed, but they have certain chemicals that are an important source in basic manufacturing materials. So if the price of anchovies goes up because of scarcity, then we will have an honest inflation problem in a slowing economy.
To summarize bluntly – we are in the eye of a perfect storm. The price to earnings ratios will continue to drop over the next year or so until the sellers stop selling. The problem is that there is nothing to bring back the buys at this time.
My recommendation is to sell stocks. Buy the Canada Fund (CDE-NYSE -$11-$12 area) it is a closed end fund that owns Gold and Silver bars held in one of Canada’s largest banks. I would buy the Spider Gold Exchange Traded Fund (GLD- NYSE – $90 area). It sells for 1/10th the price of gold. The reason for gold is that I believe paper currencies will soon become worthless unless we move back to some form of a gold standard. The UBS bank in Switzerland estimates that if the US went back on the gold standard the price of gold would go to over $6,000 an ounce. Wise investors should hedge their accounts just in case paper currencies falter.
AMERCO $2.125 preferred (AO NYSE $22 area) can be bought below its call price of $25.00
85% of the dividend is tax-free. That is an 8.68% tax-free return.
I also favor certain securities in Canada because if their business friendly attitude and their bankers are smarter than the average banker. They were not greedy, and thought things through like Peyton Patterson’s New Alliance Bank (NAL – NYSE- $12 area) and avoided the sub prime and most of securitization mess. Most of these Canadian stocks don’t qualify for hedge fund shenanigans so they can qualify for long term holdings in my opinion. These securities can provide an investor with positive surprises over time. Newalta Corp (Nasdaq- NWLFT-$4.5 area) or (Tor NAL $ 5.15 Canadian) is a fine mid size company.
US Government Bonds are under-owned by the institutions and I would buy the 10-year or shorter, depending on the size of the funds you have.
I would hold on to plenty of cash, because as Huntington Hartford discovered along with Joe Kennedy, when the bottom hits, cash is king.
This is my last major letter for at least a year because I dislike writing negative letters and the markets have to take their due course. We are like a giant oil supertanker that takes 20 miles to change course in the open ocean.
I will be available for private free consultations at the addresses listed below. My mission is to help you protect your funds – not misuse them. It is better to be fore warned – than blindsided.
Keep the faith.
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.
Poor Richard’s Report
Over 300,001 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 institutional clients. I evaluate situations first on a fundamental basis then try to confirm on a technical basis. In the past it has been fairly successful.
Prepare for the Worst it is Survival Time !
Dear and Faithful Readers;
This will be my last Poor Richard’s Report that will concern the US stock markets and investments for at least one year. I might, from time to time, make a comment or two on current events on a personal basis, but my financial advice is here and now.
There are two main reasons. The first is that everything as we know it is going down a rat hole because of our past excesses. We must all share the blame. The second is that I have been elected Secretary of the Willimantic Rotary Club of Connecticut. That is a demanding office that requires a lot of learning and paperwork. It is a one-year office, but after the learning period comes Vice President and President after that. Those are the easy jobs, because then one is in a position of authority to delegate responsibilities.
Before all the bubbles had burst we were in euphoric stock markets. Price to earnings ratios (PE’s) went to all time highs. We were placing bets because it was going to go up. We did not pay attention to earnings, sales, and debt ratios.
Now the bubbles are still bursting, we have a credit crunch, and we are now putting our faith in two brilliant men, one of which does not believe in paying taxes. Our President is only as good as the people surrounding him. That is why former presidents did not want “yes” persons surrounding him. Some wanted both sides in order to decide.
WE ARE DEFINITELY HEADING TOWARDS SOCIALISM WHICH MEANS WE ARE LOWERING OUR STANDARDS. EXPECT MORE GOVERNMENT INTERVENTION INTERFERRING IN OUR DAILY LIVES.
The stimulus money does not produce continuous jobs. The majority of the jobs are one time shots. I believe the Government should have given the public the trillions of dollars to pay down debts of high usury rates that are actually legal extortion. Senator Dodd – where were you?
As the general public gets squeezed tighter and tighter on meeting payments on a declining home value, they will sell the highest price stock they have to meet payments. This also means real estate is dead as we know it. Transactions can be done between individuals outside the banking system – that is why one sees so many for sale signs “by owner”.
When I write that we are lowering our standards I really mean it. This has to do not only with what is a normal PE ratio, but a general slowing down of business. This in turn means lower sales, which entails lower debt coverage. This can lead to a spate of bankruptcies brought on by bond defaults. This can be a hazard for all types of funds because the fund managers have no idea where the “next shoe will fall”.
Municipal debt is also suspect because the voters keep rejecting budgets until they are at the bare minimum. California is right now (July 9, 2009) on an IOU that many banks will not honor. Money can be made or lost by a change in the credit rating of a bond.
Corporations will have a hard time competing with government debt for their debt offerings. This is happening world wide. Corporations that will be able to borrow will be paying high rates. This can force lesser companies to sink to the bottom.
One relatively safe place is the 10 year Treasury. It is yielding a paltry 3.50% area. The core deflation rate is 1/1/2% so combine the two you come up with a real 5% rate of return. With the real economy sinking even further in the months ahead these bonds could yield even less; that means to you, savvy purchaser, higher prices. Govt. bonds at this printing are under owned. That is a real positive.
The “professionals” are telling you not to stay in cash. What they mean is that they need you to buy their junk. Cash is king. Here is an ideal tale. Huntington Hartford was the chairman of the Great Atlantic and Tea Company in the 1920’s. Starting in 1928, I believe, he started selling his A&P grocery stores property and leasing them back. Everyone laughed. Then in around 1932 he started buying them back for pennies on the dollar. Cash will be king.
Even if we throw out every politician that will be running for reelection in 2010 it will still take a few years to level the playing field.
The SEC could pay a “finders fee” for successful whistle blowers. If that was the case, the SEC could not have ignored Bernie Madoff. That would make everyone squeaky-clean overnight.
Bring back the short sale rule.
Bring money market funds under bank supervision. They are really unregulated banks.
Separate brokerage and banks, but have them able to competein an equitable manner, and have the rules revisitewd by the Congress every 7 to 10 uyears. The Investment Company Act of 1940 should be abolished. That law was passed to protect the nascent mutual fund industry. Now it is a baby gorilla without diapers.
The best idea I have read and written about is having a short term trading penality of 80% gradually working down to zero after a holding period of 5 years and one day. That has the potential of leveling the playing field overnight. It would be like the Navy Seabees of World War II fame.
The bureaucrats in Washington are so scared of emails that they now communicate with little pieces of paper crumbled up in their pockets that have no meaning except to the person reading it.
The preferred I have mentioned in previous letters is still attractive at current prices because the income is 85% tax free and we are going to be taxed to “kingdom come”. Do not believe our President, but watch what he does. “Tricky Dick” Nixon will now be “Outrageous Obama”.
The Canadians never fell for our sub prime crap, so they have a pretty good system. Sure they are hurting, but they are pro business. To qualify for citizenship you must have money, investments, and a job. Oh, by the way, you must also be able to speak English. Their universal health care system is falling apart and if we go on one they surely will reverse theirs because their citizens will have nowhere to go when sick.
The comparison with the great depression of the 1930s is really ominous. The problem then was that the Federal Reserve was leaderless. The real man who was really in charge of the Federal Reserve was the President of the NY Federal Bank of New York, who died in 1928. It is often said he would have raised margin rates. Back then margin rates were 10%. Today margin rates are 10% for Government bonds and certain commodities. The reason for the 10% rate was that there was little movement. If the government really wanted to restore confidence back into the world markets and restore leadership and respect worldwide all they have to do is raise margin rates to realistic levels and raise taxes on short term trading while at the same time reward long term holders with no taxes.
These exchanges were formed on the theory that they would benefit individual businesses not promoting speculation.
When our systems were developed it was understood that short term speculators were needed to balance the market place, but excessive use and over indulgence are fatal flaws.
Only a veto-proof Congress can pass these laws today. They can and should take control and pass these consumer protection laws (that is us, dear reader) and if the President vetoes these laws, then they override it. These votes should be bipartisan.
During my years with Smith Barney they decided that it was very important to hire someone who knew what was going on in Washington. One analyst remarked that “if I knew the FDA was doing that , I would not have recommended the stock..” Good idea, but wrong people. They rubbed management the wrong way including some of our clients. The last person was Kevin Philips who used to be a speech writer and political advisor for Richard Nixon. He was very good, but way out of the main stream. So we dropped that idea, but continued to muddle through on our own.
My point is that one has to be aware whyat is going on in Washington D.C. in order even think of investing successfully.
Then there is an outside phenomenon to be aware of. It is called EL NINO. It occurs when a warm-water current in the southern part of the Pacific Ocean every so often changes its pattern. It is like if the Gulf Stream stopped flowing north for a year. Our weather patterns in the northern Atlantic region would change drastically. It is speculated that Magellan was able to sail around the world because El Niño had calmed the waters at the southern tip of South America. The economic consequences can be awesome. The anchovies swim in these waters, and when they are hard to find, or the catch for year dwindles because the current moved too far out to sea, the price of anchovies rises. Anchovies are not only food that is added to all kinds of feed, but they have certain chemicals that are an important source in basic manufacturing materials. So if the price of anchovies goes up because of scarcity, then we will have an honest inflation problem in a slowing economy.
To summarize bluntly – we are in the eye of a perfect storm. The price to earnings ratios will continue to drop over the next year or so until the sellers stop selling. The problem is that there is nothing to bring back the buys at this time.
My recommendation is to sell stocks. Buy the Canada Fund (CDE-NYSE -$11-$12 area) it is a closed end fund that owns Gold and Silver bars held in one of Canada’s largest banks. I would buy the Spider Gold Exchange Traded Fund (GLD- NYSE – $90 area). It sells for 1/10th the price of gold. The reason for gold is that I believe paper currencies will soon become worthless unless we move back to some form of a gold standard. The UBS bank in Switzerland estimates that if the US went back on the gold standard the price of gold would go to over $6,000 an ounce. Wise investors should hedge their accounts just in case paper currencies falter.
AMERCO $2.125 preferred (AO NYSE $22 area) can be bought below its call price of $25.00
85% of the dividend is tax-free. That is an 8.68% tax-free return.
I also favor certain securities in Canada because if their business friendly attitude and their bankers are smarter than the average banker. They were not greedy, and thought things through like Peyton Patterson’s New Alliance Bank (NAL – NYSE- $12 area) and avoided the sub prime and most of securitization mess. Most of these Canadian stocks don’t qualify for hedge fund shenanigans so they can qualify for long term holdings in my opinion. These securities can provide an investor with positive surprises over time. Newalta Corp (Nasdaq- NWLFT-$4.5 area) or (Tor NAL $ 5.15 Canadian) is a fine mid size company.
US Government Bonds are under-owned by the institutions and I would buy the 10-year or shorter, depending on the size of the funds you have.
I would hold on to plenty of cash, because as Huntington Hartford discovered along with Joe Kennedy, when the bottom hits, cash is king.
This is my last major letter for at least a year because I dislike writing negative letters and the markets have to take their due course. We are like a giant oil supertanker that takes 20 miles to change course in the open ocean.
I will be available for private free consultations at the addresses listed below. My mission is to help you protect your funds – not misuse them. It is better to be fore warned – than blindsided.
Keep the faith.
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.