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Watch Shoppers – Not CNBC…

Watch what people do not what they say. Sales for the full first weekend of holiday shopping – Thursday through Sunday – are up 16.4% versus a year ago according to the National Retail Federation. The American economy is not going to fall off a cliff – consumers are showing the way.
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The Pendulum Effect

I believe there is a “pendulum effect” in so many areas of our world. Some may call it “a lemming effect”, but pendulum sounds so much better. Let’s consider “pendulum effects”:

Think about the Pendulum Effect in today’s ability to finance a home. It seems as though it was just a couple years ago when anyone could get a loan for a piece of real estate – or a home. In fact they called them “liar loans” (all you had to do is apply for a loan, lie about your financials, income, etc. and a loan was given). That is part of the center of the financial collapse in 2008. Today can hardly get a loan from a bank. They are scared to death to make loans – thus the pendulum swings from one side to the other.

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Buffett at the Buffet

I find it insightful to pay attention to some of the greatest investors of all time – Warren Buffett. Many of our clients know what fans of Mr. Buffett’s investment prowess. We have differing view of some of his other views – but that is for another day.

Clearly he is one of the best investors, and for that we are all blessed to have the opportunity to see his moves “real time”, as opposed to post-mortem. I think he got one very right at the end of September.

While stock prices are gyrating, Mr. Buffett is buying back some of his own stock – the company is buying back their own shares. He publicly said he would spend up to $30 Billion of the current cash the company has buying their own shares. One of the smartest investors on Wall Street is buying back his own stock.

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Does Your Budget Resemble the U.S. Government Budget?

A Balanced Budget by definition: Income = Spending

If your Budget has a running deficit there are only three possible solutions to turn that into a Balanced Budget:

  1. 1. Reduce your spending
  2. 2. Raise your income
  3. 3. A combination of 1 and 2

Logically we know that you cannot decrease a deficit by borrowing more. But, that is exactly what our Government is doing.
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Feelings, Facts and Fatigue

It is interesting to watch investor and advisors go through the market cycles and gyrations. Often we get derailed by feelings – mistaking them as “facts”. It is important to notice the difference between the two and how we are influenced by feelings versus facts. Let’s take a look:

Facts:           

  • The economy (GDP) is growing at a current rate of about 2.5%.
  • The long term average growth rate of our GDP is 2.7%
  • Corporate revenues (sales) are up 11% (Year over year – YOY)
  • Corporate profits are up 17% YOY
  • There is $10.8 Trillion in money market funds as of 09.30.2011
  • Unemployment is at 9.1%
  • Under-employment is at 20%
  • 265 Companies have increased their dividends (vs. 191 increases last year), 5 have decreased dividends (vs.  decreases 3 last year)
  • Companies are buying a record amount of their own stock back – indicating they have confidence in themselves about their future.

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Businesses Making Wise Investment

  • Everyone knows housing is still weak.
  • Everyone knows jobs are growing, but not fast enough to seriously lower the unemployment rate, which stands at 9.1%.
  • Everyone also knows real GDP has expanded for nine consecutive quarters, at an average annual rate of 2.5%. No one is satisfied with this; but it is a recovery, not a recession.
  • So, how can real GDP grow when housing and employment are so weak? Something must be going right…somewhere.
  • Well, it turns out that the strongest part of the economy has been business investment.   Equipment and software investment (Cap-Ex) has grown five times faster than GDP – 12.9% at an annual rate over the past nine quarters.

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