- the safety of staples,
- a lack of clarity, and
- the peril of owning stocks at all.
Nothing Else Working? Look to the Staples
Posted at 11:02 a.m., Feb. 23, 2009 A return to the soft goods and staples? One look at your screen today shows that the market has lost faith in a host of sectors. Even in declining flows of cash into equities, the money has to go somewhere. I think it is flowing back to the staples. First, the case against the other large S&P areas. 1. The uncertainty in the common stock of the financials has turned portfolio managers on to the sell side endlessly. As you can tell from the misdirection in the financials that the government is offering, it is impossible to figure out the worth of the common stock. So, with the exception of Morgan Stanley ( MS), Goldman Sachs ( GS), Visa ( V) and MasterCard ( MA), there is no way a responsible portfolio manager can initiate new positions in the group, even if JPMorgan ( JPM) and Wells ( WFC) seem dirt cheap. This is all Geithner's fault, but there isn't much we can do about it. The destruction of the insurers -- Hartford ( HIG), MetLife ( MET), Prudential ( PRU), Lincoln National ( LNC), Manulife Financial ( MFC), Genworth ( GNW), Principal ( PFG) -- remains one of the most astoundingly horrible sectors of the market. 2. The early-cycle stocks have simply been demolished on the worries about unemployment and the lack of credit. The end of the auto industry as we know it has further damaged the group and the bogus infrastructure story from the stimulus bill is revealing the machinery stocks as companies without catalysts. Same goes for steel, which is in free fall today.
Without Clarity, We're Stuck in a Down Spiral
Posted at 9:26 a.m., Feb. 25, 2009 Are the banks already "nationalized?" My friend David Reilly over at Bloomberg penned a piece this morning saying it's already happened. But then the obvious response is, if we are nationalized, then why is there still independence? Why is Vikram Pandit able to say he wants to keep Banamex (which he should), and why is Wells Fargo ( WFC) able to pay that huge dividend, a totally inconsistent payout that Peter Eavis highlights today in an excellent piece about capital ratios and how Wells' is inferior to JPMorgan's ( JPM) yet only JPM cut the dividend. And why are the same boards of directors and officers that ran Citigroup ( C) and run Bank of America ( BAC), the two acknowledged problem kids (at least acknowledged by the banks), still there if we are nationalized? Which brings us to the semantics of the situation. Reilly points out we have nationalization of the system but no seizures. That's an oddity given that Sheila Bair -- my guest today on CNBC, on a show that runs tonight at 10 -- was actually nationalizing banks, in the "seizure" sense of the word a few months ago to prevent runs on the banks. In retrospect, did we need to do that? Did we need to truly nationalize, and how (speaking of inconsistencies) could we not seize BankAtlantic ( BBX), Corus ( CORS) or Bank United ( BKUNA) and yet seize WaMu and Wachovia? How did those banks not get seized and WM and WB did? Oh, and while we are at it, why did the government seize the deposit institution that was Lehman -- it had billions in deposits -- and not seize AIG ( AIG), which had no deposits and was totally rogue? All of these must be on the agenda. Someone has to clarify what the heck happened. Someone has to explain whether the principal method of bank funding -- preferreds -- gets wiped out, because if you wipe out preferreds, you are seizing and "nationalizing" in the old sense of the word is here.
Don't Need Stocks? Don't Own 'Em
Posted at 6:30 a.m., Feb. 27, 2009 Fall back. Fall back to basic principles. What do people have to do whether they want to do it or not? What do governments have to pay for whether they want something or not? What must be used whether you like it or not? That's where we are right now in the helter-skelter pell-mell race to take all stocks to single digits as the notion of a worldwide global depression sinks in. So many of you -- some incessantly, for heaven's sakes already -- have asked me, "Why bother?" or "Why not sell everything?" or "What's the point?" To which I say, patiently, and endlessly, and I'm on record on this, that if you need money for anything important, take it the heck out of the stock market. As far as I can tell, I am the only one who has said, "Get it out of the stock market," and judging by the firestorm with which it was received -- including a national ad campaign against me -- I can see why people don't do it. I am reiterating again that it is right. You need that money in the next four-and-a-half years? Go. Sell some. Maybe we get a lift, sell more. We don't get a lift, sell anyway. The market's horrible. But there is such a thing as asset allocation. You can have 100% of your money in cash, and that's been terrific. For now. You can have lots of shorts on, that's terrific too. For now. You can own some stock and have lots of other assets, like gold and Treasuries and municipals, and that's also fabulous. For now. The main thing for the stock portion of your portfolio, if there is one, is to think and remember what people have to do to exist. Think also what governments have to do to exist and, if you have to own stocks -- and maybe you don't (so stop reading here) -- you have a better chance of buying a survivor than not.