Review of Barron's -- Dated 15 October 2012

Barron's has lately been putting very bullish titles on their front cover, this weekend's edition almost begs to be refuted or at least debated.  The Cover Story is "14,165 -- Almost There". referring of course to the Dow's 2007 all-time high.  Right there under the title, they note that we are just 6% away from matching the high (not taking into account inflation).

Author Andrew Bary writes the below three sentences to kick off his article:

"There's an old saying that the stock market climbs a "wall of worry", and that's never been truer this year, as the U.S. market indexes barreled ahead, brushing aside concerns about concerns about economic weakness in Europe, China and the US.  AT its recent high, reached about a week ago, the Dow Jones Industrial Average was up 11% on the year and within 4% of its peak of 14.164.53, reached five years ago, on Oct. 9, 2007.  Powered by Apple (ticker: AAPL), Google (GOOG) and General Electric (GE), and other stock giant stocks, the STandard & poor's 500 was doing even better, with a gain of 16.5% at its high, making it one of the strongest major indexes in the world."

Even though the Dow lost some 2% last week, he still is bullish, if not this year then in 2013.  Strategist Jim Paulsen (CIO at Wells Capital Management) believes the S&P could make its new highs by the end of the year.  One easy way to play the Dow going up would be the SPDR Dow Jones Industria. Average ETF (DIA).

Bary goes on to write that the earnings yield (the inverse of the P/E ratio) is around 8% now (meaning a Dow P/E of about 12.6 vs. P/E of about 17.7 in 2007) which is much better than in 2007.  The index's dividend yield is now some 2.5%, and that could go up.

Bary notes that five companies have replaced AIG, GM, Kraft, Altria and Honeywell in the index: Cisco Systems (CSCO), Bank of America (BAC), Chevron (CVX), Travelers ((TRV) and UnitedHealth Group (UNH).

He notes two more things: that an economic slowdown would hurt (and that companies need to start making more money) and that it is bullish that retail investors have NOT been along for the ride.

[Ed. note:  Look, these guys at Barron's know much more about Wall Street and stocks than I do.  And a case can be made for stocks when bond yields are so low, yet the Dow dividend yield is some 2.5%]

***

Alan Abelson takes note of something that ought to stir anger (or something!) among the electorate.  He notes that the citizens of our country have lost an astonishing 39% of our wealth (I presume that means the average, maybe median) while our representatives have INCREASED theirs by some 5%...  Some of this increase (though he notes that some 27% have lost wealth while in Congress) was ill-gotten (insider-trading, etc.)...  "The rules that apply to us do not apply to our Congress-critters." (my words).

He then writes a small piece, rather wishy-washy by his standards, about market valuation, saying it may be premature to run for the hills.  [Ed. note:  If you have substantial stock gains, you should consider selling some, unless you are RICH...]

Abelson finishes with comments by Frank Getz (of Wellington Shields), who offers up somewhat similar non-committal advice.

??? this week, Alan...

***

Kopin Tan writes this weekend's edition of "Streetwise".  He writes that it is QE and technicals that override the fundamental picture.

He may very well be right, I think so as well.

He finishes by noting that the tech sector has been weak lately (yes) and that Apple's 10% recent drop has not fazed many analysts who follow the stock.

***

"Review and Preview" had three items that caught my attention.  Wiliiam Waitzman and Zach Trenholm write a short piece noting that holdings of DERIVATIVES have gone up lately, and most of them held by the same four usual suspects: JPMorgan (JPM), Citigroup (C), Bank of America (BAC) and Goldman Sachs (GS), despite toughened (?) rules of Dodd-Frank...  [Ed. note: It's beginning to look like the huge Dodd-Frank bill is going to be a disaster...]

"He Said":

"We didn't participate with the [Fed], OK?  We were asked to do it.  We did it at great risk to ourselves.  Would I have done Bear-Stearns again...?  It's real close."

-- Jamie Dimon, CEO of JPMorgan on its takeover of Bear-Stearns

A short piece (author unlisted) shows a graph very similar to a recent Zero Hedge piece about the price of the AS&P 500 nearing its two peak prices (March 2000) and October 2007) with a warning that it could go down, WAY down, very similar to hte ZH piece.  While ZH said we could lose 808 points ("could lose"), Michael Belkin ("Belkin Report") said the S&P is in danger of falling if the business cycle turns down.  Yes.

***

Lawrence C. Strauss writes a bullish piece on BlackRock (BLK), the world's largest investment manager (hey, can learn something every day).  The stock has not done well over the past three years, yet Strauss says that they have a good team and responding to competition  from competitors Vanguard and Schwab.

Founder and CEO Laurence Fink is also rumored to be in line to be US Treasury Secretary should Obama win re-election.  Thought you might like to know that...

No thank you!

***

Alexander Eule writes a bullish piece on CarMax (KMX), the national used car chain.  He says that normally CarMax would be getting lots of lightly used vehicles were it not for the fact that not many have come in sice the financial crisis started.  He writes this may change, and that CarMax may climb 20%, even I note on his chart that CarMax sells at some $32.55, much higher than its 8-and-change low late in 2008.

No thank you!

***

Jack Hough writes an interesting piece (though hard for me to gauge, as I do not know private equity well, nor the companies in question).  It seems that "Private Equity" has LOTS of cash now, and if they don't put it to use, they may have to give it back to their shareholders (and forego fees...).  He takes note of Carl Icahn's offer to buy out Oshkosh (OSK) a specialized truck manufacturer at a 21% premium) and lists the below four companies that could be targets of private equity takeover:

Big Lots (BIG)
Charles River Laboratories Int'l (CRL)
Guess (GES)
Terex (TEX)

***

From time to time I encounter guys on the internet writing that a great global play in the coming years would be companies in the WATER business.  Author David Englander writes a bullish piece about one of these major players: Layne Christensen (LAYN).  This company has a number of divisions (drilling water wells, building water-treatment plants and drilling for mining companies).  The stock is down from its 2008 peak in the upper 50s to about $21.00 now.  Their new President is apparently has been making changes at the company, one of the main changes at a severely under-performing division (that lost money under-bidding for municipal contracts).

Maybe.  "Caveat Emptor" (Buyer Beware)

***

Tiernan Ray ("Technology Week", Mr. Ray hardly ever misses writing this column, either he takes little vacation or he likes his job) writes that the "Arms Merchants" of tech-land are doing better then the chip companies themselves.  He means the equipment makers that allow Intel (INTL), Samsung Electronics (005930.Korea), Taiwan Semiconductor Manufacturing (TSM) to make their chips.

The equipment manufacturers include Applied Materials (AMAT), ASML Holding (ASML), and other firms  that are somewhat smaller.  As a group they have prospered lately, while the chip companies have not.

He is bullish (qualified) on the "Arms Merchants"!

***

Lawrence C. Strauss interviews Wall Street veteran Byron Wien.  I have seen Byron Wien's name mentioned many times over the years, but I did not have a feel for where he stands.  Strauss and Wien now have helped me see where he comes from.

Wien saw bigger problems back in 2008 than the bulk of Wall Streeters.  He turned out to be right.  He saw a slow recovery (no further crash), right again.

He made a number of calls over the years, many of them right and just a few wrong (at least in this interview).  He is an optimist, he took care to make that point a couple of times.  He feels blessed to be able to go to work at almost 80 years old, work he evidently likes.

So what investments does Byron Wien like?  Almost everything!  Including gold and commodities (as the currencies are being debased).  He recommends diversification...

Bravo interview, Mr. Strauss!

***

Jim McTague, not taking this election lying down, again gets GOP demographer John Morgan's take on who will win..., of course Morgan says Romney.  McTague provides Morgan's map that is "redder" than the map I usually follow (at realclearpolitics.com), meaning more states are now Romney (rather than toss-up).  McTague and Morgan both make clear, however, that this race will be very close.

I agree, both close and a win for Romney.  One of my friends is well connected politically.  He says that it will be a big turnout by Republicans that will decide this time.  The young and the minorities will not turn out as much for Obama this time.

***

PENTA (a column and daily blog now apparently), oriented towards the $5 million and over crowd, waxes about value to be had traveling around in Italy...  Short version: get off the beaten track of the Tourist Trail.

***

My brain fogged-over trying to read Carolyn T. Geer's story on "How to Pay for Long-Term Care"...  This IS an important topic, and I do not mean to make light of it, but it is complex.  The take I got from her piece is that insurers in this space are trying to re-design their offerings for long-term care, and that each of us should "self-insure" (that would mean "save more" for those of you in Yorba Linda).

If long-term care is an issue in any of your lives, dear readers, you might want to buy this issue of Barron's and read this piece!

***

Gene Epstein ("Economic Beat") writes about the continuing fall-out of the possible fudging of the unemployment number down to 7.8%.

Epstein takes the sensible (to me) position that these statistics fluctuate all the time, and there is probably nothing nefarious about that.  It has happened in all administrations.

***

I salute Editor Thomas Donlan for his stand against BOTH Romney and Obama re China and the supposedly manipulated currency and other practices supposedly injurious to America.  Being able to import cheap Chinese goods is a BIG PLUS to American consumers (whose voice is dampened because they hardly notice).

Donlan believes that the USA and China should strengthen our partnership with each other, for mutual benefit.

+ 1

***

In the Market Week section, Vito J. Racanelli discusses last week's 2.2% fall in stocks, the sharpest weekly fall in months.  He then goes on to write about stocks that may raise their dividends, of interest to those of us looking for INCOME...  [Ed. note: I really need to study this income issue, and write something helpful]


"European Trader" author Jonathan Buck notes that Burberry (BRBY.UK) has been doing very well lately, even vs. other European luxury brands, and especially in China.  He notes that fashion is very fickle though... Buck then mentions that EADS shareholders will likely be happy as the Airbus manufacturer dropped its plans to take over BAE Systems (a British weapons maker) amid heavy political opposition.

Assif Shameen ("Asian Trader") likes INDIA, and brings in two analysts who do too.  I mentioned recently that India's Manmohan Singh has put real reforms on the table over there.  The author and the two analysts think that India's stocks will go up...  He specifically mentions Bajaj Auto (BJAUT.India) which actually makes small motorcycles (you see them in Peru: they put a small cab on a two wheel axle on the back and are used as "moto-taxis" (to haul one or two people and/or stuff for fairly short distances in Lima urban neighborhoods).  [Ed. note:  NO, there is no money to be had in supplying replacement bearings for Bajaj in Peru, too much competition...]

Reshma Kapadia ("Emerging Markets") asks: "Is South Africa a Deal Yet?"  South Africa has some serious problems recently (miners killed, a nationwide trucker's strike, etc.).  She writes some comments by analysts, who sound bearish to me.  Is South Africa a deal yet?  For me, no thanks!

Michael Aneiro ("Current Yield") still benefits from the world of topics to choose from re the bond (and similar) markets.  This week he notes that housing 30 year loans stand at a VERY LOW 3.39% (average).  He then goes on to note that it is THE BANKS and MORTGAGE BOND HOLDERS who are benefitting more from this latest QE, what a surprise...  JPMorgan chief Jamie Dimond thinks that the housing market "has turned the corner" and he is encouraged by improving credit trends.  [Ed. note:  Hey, Mr. Dimond, where is all of the money still owed to MFGlobal's customers?]

It must be time for insiders at LinkedIn (LNKD) to be allowed to unload their shares, seven insiders did for a total of some $42.7 million.  An insider at Liberty Media (LMCA) unloaded some $39 million worth.

Finally, the Mighty Peruvian Sol once again inched higher by a tiny 0.3% vs. the US$.  Hey, up is up, I'll take it (some readers will recall that a stronger Sol vs. our dollar is good for our company down there).

Verdict:  If long-term elderly care is important to you, or f you need further details on anything discussed above, yes, buy this issue.