I know, I know, times are tough. Yet, by investing now in one of the many government-sponsored, energy-efficient household improvements, you can reap big savings in the form of tax credits. (more…)

The market action this week appeared ideal for further upside gains in the week ahead. Although sectors such as technology, commodities, industrials and financials led the markets higher, other sectors are beginning to participate while volume expands as more investors abandon the sidelines and take the equity plunge. I expect this to continue. (more…)

If everything goes as planned, the up-coming $300 million Federal ‘cash for appliances’ program will be ready by November 30, 2009 just in time for the holiday season. At that time, the Department of Energy will start awarding individual states their share of the loot. The program is supposed to incentivize consumers to ditch old energy-wasting refrigerators, stoves or washing machines in exchange for a new ENERGY STAR -rated version. But there’s a hitch. (more…)

There is a saying that markets climb a wall of worry. That aptly describes the stock market’s behavior over the last few weeks. There isn’t a day that goes by without some talking head warning that “the markets are ahead of themselves” or “valuations are rich at these levels.” That may be true but investors continue to look over the valley and focus on what they perceive are the golden days of recovery ahead of us.
“I think we’re seeing the last big opportunity of my lifetime,” said a 62-year old investor from Canaan who lost 30% last year and is considering changing investment advisors.
He is disgruntled that his present financial advisor has missed most of the 54% move up in the Dow and still won’t commit to the markets. It is a common predicament for many in our business. Since last year many brokers and money managers lost between 35-50% of their client’s money, they are understandably cautious of a market that has gone straight up on extremely light volume. They worry that if they commit what remains of their clients money and guess wrong, they will be out of business.
The few mangers who called the market correctly last year, however, began moving back into the market in March and have been incrementally investing client money as the markets moved higher. I have to say that the last two years of market volatility has separated the truly good managers from what I call “Bull Market Babies”, those who are long on marketing but short on the unique ability of truly managing money. (more…)

The report this week by the Congressional Oversight Panel that ‘”it is unlikely they (taxpayers) will receive the entire amount” of the $60 billion in bail-out money we gave to the auto industry ticks me off. No way should Americans walk away from this at a loss. The solution is simple. We should swap whatever bad debt remains into equity and just sit on it. (more…)

September arrived and stocks dropped on cue right out of the box with the S&P 500 breaking the 1,000 level on Monday. For four days in a row, the indexes moved lower before once again turning higher on Thursday and Friday. It was as if all the hype about how bad the months of September and October usually are was a self-fulfilling prophecy. The problem for me is that corrections don’t usually occur when everyone in the world is expecting them. (more…)

There is a little-known special pension available to veterans and their spouses called The Veterans’ Aid and Attendance Special Pension. If you are disabled or fear you may become so in the future. This program could mean the difference between just scraping by and living a reasonably, comfortable life style in your sunset years. (more…)

Actually, I believe the economy began its recovery in July but calling an end to a recession is usually no big deal. And I imagine it doesn’t feel like a recovery to the almost 10% of us who are unemployed. It may be hard for the rest of us to believe as well since I expect it will take more time than we think before the good times roll once again in America.

The National Bureau of Economic Research (NBER) is the final arbiter of exactly when recessions begin and end in this country and it will be quite a while before that august institution declares the exact date of the recession’s demise. Going into this recession, I recall that the Bush Administration refused to let anyone in the government utter the “R” word until the fall of 2008. By then, the recession was in its eighth or ninth month but it was almost a year before the NBER made it official.

Given that I work for a money management firm and Allen Harris, the owner, is an economist by trade, I asked his forecast on the economy. He agrees, the recession “has nearly ended and the recovery is beginning.”

However, Harris’ forecast is not all wine and roses.

“We expect a saucer-shaped recovery where economic output stops contracting and remains very weak (below trend, at about 1% to 2.5%) for nearly a year (mid-2010) before U.S. GDP growth gets to a point where it can sustain something closer to 3%.”

Now much of that weakness can be blamed on a variety of factors. Employment for one, which is still falling sharply and will continue to do so since it is one of those economic indicators that lag the economy. Another factor is the massive losses suffered by financial institutions. Those bad loans have not disappeared. They still exist on the government’s books. It will take a long time for the government to unwind these toxic assets and while they do, this deleveraging process will limit the ability of banks to lend, companies to invest and households to borrow and spend.

Speaking of households, the consumer will not fulfill his/her usual function of spending the economy out of recession. Faced with a mountain of debt, falling home prices, a loss of wealth via the stock market and worries about shrinking income and job loss, consumers need to cut spending and save more than they have in decades.
Then there is the financial system as a whole. Fed Chairman Ben Bernanke has made it clear that the financial sector is not yet out of the woods and that it will take more time than we suspect for it to rebuild.

Nouriel Roubini, an economist at my old alma mater, The Stern School of Business at New York University, believes there is a rising risk of a double-dip, W-shaped recession. A noted Bear, who correctly warned investors of both the recession and decline in the stock market last year, worries that all the fiscal and monetary stimulus that the government used to pull us from the brink of collapse now threatens our economic recovery. I understand his fears and he could be right.

By now, just about every American understands that the government has piled up massive debt (called the deficit) to bail-out Wall Street and the economy. This year the deficit will swell to $1.6 trillion, which is over three times last year’s record deficit of $455 billion. Between 2010-2019, the cumulative deficit forecasts range from $7.14 trillion to over $9 trillion depending upon one’s assumptions.

Our national debt is so large that going into more debt (even for a good cause like healthcare) makes our stomachs flip flop. The Obama Administration understands this and so does the Congressional Budget Office (CBO). Both have warned that down the road something will need to be done to contain our rising deficits. The usual tools to accomplish this are raising taxes, cutting spending and jacking up interest rates. However, in a weak economy, there is a risk that taking those actions will send us into stagflation.

“We face perils in acting and perils in not acting,” acknowledged CBO Director Douglas Elmendorf this week.

If the government does nothing while spending and deficits continue to increase and easy money policies proliferate then the bond market will act on its own. Buyers of bonds will go on strike until interest rates rise across the board in order to compensate them for what they will perceive as runaway inflation. That will make it increasingly difficult for corporations and consumers alike to borrow at a reasonable rate. In the end we would get the same thing—a stagnating economy and high inflation.

Harris acknowledges that a double-dip recession could happen but gives it a small probability. He argues that government spending always fills in the demand gap coming out of a recession and that there is nothing unusual this time around.

“W-shaped recessions are extremely rare but one did happen during the 1980-82 timeframe,” he says, “As a result, I think people are over-emphasizing that possibility.”

Markets Mark Time

Some investors were miffed, others were worried but most were confused simply because the markets did little this week. Like junkies needing more juice, the bears can’t wait for the markets to crater while the bulls see no reason why the summer rally should not continue. Yet remember that this, the last week in August and the first week in September, traditionally are slow weeks with many market participants away on vacation. (more…)

“After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good,” so said Ben Bernanke, Chairman of the Federal Reserve Bank on Friday. Once his statement was released, the stock market never looked back.

The pullback in the beginning of the week was all but forgotten. The sell-off, which took the S& P 500 Index (as well as the other averages) down over 2.3% on Monday, was triggered by declines overseas. A 5% decline last Sunday night in Chinese stocks spooked global markets and engineered Monday’s sell-off. Investors believe that China is, and will continue to be, key to our own recovery. You see, China is not only a big buyer of our Treasury bonds but is also a leading buyer of most of the world’s commodities and other products. It is the furnace of the world where raw goods go in one end and cheap, consumer products come out the other in the form of massive exports fueled by a cheap currency. Last year while we plummeted into recession, China experienced at most a slow down in their torrid economic growth rate.

Given that, our stock market’s rally off the March lows pales in comparison to the 100%-plus gains in Shanghai over the same time period. To me, the recent 20% pullback in the Chinese stock market was natural and long overdue; yet I admit it could be disconcerting to investors, especially when it happens over the course of just two weeks.

All of those fears seemed a bit overdone, however, and when the Chinese markets snapped back and began to improve later in the week. It was up and away here at home. The pace of existing home sales also helped. U.S. home sales jumped 7.2% in July, which was the fastest in two years. It lifted investor’s hopes that the recovery in housing activity is gathering momentum. Naysayers warn that most of the increase in housing sales is due to the government’s tax credit incentive and when it expires on December 1, housing prices will slump.

Our take is, that like the auto industry ‘cash for clunkers’ program, the government’s $8,000 tax credit incentive for first time home buyers is simply another arrow in the government’s quiver. It will be followed (as necessary) by additional incentives until the private sector can take over and the economy can grow without government help. A case in point is the recently launched cash for appliance incentives that are designed to help stimulate the consumer staples sector.

I expect the next number investors will be watching is the retail sector’s back-to-school sales. It is the second largest retail event after Christmas and it will be a good measure of the mood in consumer spending. Analysts are all over the map on this one ranging from down 8% to mildly positive versus last year’s sales. Although purely anecdotal, I made a few calls to neighborhood stores, focusing on those who compete on price, and this is what I found out.

“Stable overall, but we’re definitely seeing an increase in school supply sales over last year,” says Jennifer, co-manager of Wal-Mart in Hudson, N.Y.

However, “Jennifer,” who wouldn’t give a last name, isn’t seeing a spill-over to other areas such as clothing, computers or furniture for college dorms. Over in Wal-Mart’s Pittsfield, MA, store, a spokesperson did see some spill-over.

“We are seeing a pick-up in sales overall across the boards, including clothes,” she claimed.

I also called Prime Outlets in Lee, MA, which boasts over 60 retail stores ranging from clothing to cap guns, and spoke to Carolyn Edwards, the outlet’s senior marketing manager. Since the outlet benefits from shopper traffic from Connecticut, Massachusetts and New York, I suspected she would have a good perspective on the buying mood in the Berkshires.

“July traffic was up but sales were moderate at best, despite the rain,” she said, “but it’s too early to predict back-to-school, since Labor Day arrives later this year.”
She explained that the back-to-school season, which normally ends in August, will peak later in September this year because of that.
“We think that the kids will hold off buying, go back to school next week, see what everyone is wearing and then go shopping during the Labor Day weekend.”
However, she has seen few signs that the consumer has changed his behavior.
“They are still delaying purchases, and when they shop they are looking for value. Fortunately, that’s what we are all about.”
Although it was just a smattering of calls, what is interesting to me is that none of the retailers I questioned reported anything worse than flat sales. That should give the markets hope if we here in the Berkshires are any indication.