Opportunity of a Lifetime

We think this is an incredible opportunity to buy stock and get rich.

2008 is currently the second worst year in stock market history. The only worse year is 1931.

Stocks are selling at 30 years low relative to earnings and 50 year highs relative to dividend yields.

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Worst Years in Market History
Since 1925

1931 -43.84%
2008 -37.56% *
1937 -35.34%
1974 -25.90%
1930 -25.12%
2002 -21.98%

* Through close on November 12, 2008


This morning we purchased the following stocks:

Caterpillar
BP
GE
3M
US Bank Corp.

I have also been looking at some of the accounts to add to our positions in Bank of America.

On Thursday we bought some more Citigroup ar $5.11.

I don't want to be in too much of a rush, but expect us to buy more stock over the next several weeks.

We expect Washington bail out the auto industry and implement a major stimulus package over the next several months.

We believe that the market will be substantially higher by mid January-early March.

Vote Early and Often

Elections tomorrow. I love Election Day. Since I was a kid, I have always liked sitting in front of the TV and watching the election results with my family. That is what I will be doing tomorrow night. I'll probably make a bunch of phone calls. Feel free to call my cell phone if you want. I'm always pretty excited on election night.

I've always loved politics even as I grew to hate politicians. I remember when I was 12, I replaced my Mother's sink so that I could stay up late and watch a McGovern infomercial. Politics, and particularly Presidential politics are just fun.

I wanted to share some thoughts on the market and these elections.

The market expects Obama to win. An Obama victory is already priced into the market. Should McCain pull off one of the greatest upsets in political history, I would expect the market to initially react negatively. Wall Street hates surprises and the civil distress and negative world reaction that would likely accompany that upset would be unsettling for the markets in the short-term.

In the longer term, I expect the economy and the stock market to recover regardless of who wins tomorrow.

Manufacturing hit a 26 year low last month. The lowest levels since September of 1982....one month after the beginning of the longest, greatest, and most powerful bull market in history.

I also think that it will be good to have this race finally come to an end. Political elections are divisive. They spread fear. Each party seeks to cast the opposition in such a negative light that it is hard not to buy into the fear. The news media hard sells the fear in order to keep you tuned in. By the end of the process, the country is divided into two camps each absolutely certain that the world will come to a quick and horrific end if the other guy gets elected.

Despite those fears, we've managed to survive and prosper through 55 Presidential Elections and I imagine we will survive a few more.

Bad News is Often Good News

One of the things that always fascinates me about the market is how seemingly bad news can often spark a rally.

This morning it was announced that US GDP declined in the third quarter. If we get another decline in the fourth quarter we will officially be in a recession.

We will find out if we got that second quarterly decline sometime toward the end of February 2009, or maybe the beginning of March.

As I've been telling you all, we've been in a recession for at least 9 months now.

Today's news signals to the market that we are already starting to come out of the recession.

That is why the market spiked up on seemingly bad news.

And this highlights the problem of getting your investment advice from the news media. The news media focuses on the current news, the stock market focuses on the predicted news in the future.

History says that stocks begin to rally 60% of the way through the recession. Are we there yet? I'm not sure, but we are close and likely to be there when the news media and the economists are ready to offically announce that we have been in a recession. Again, look for that announcement in late February or Early March of next year.

We still think this current rally will carry us to 10,500 - 11,500 by mid-January.

Stand Fast!

Oh, What a Day!

I was in one play in my life. I was a senior in High School and I auditioned for a Role in the “Mad Woman of Chaillot.” Frankly, I tried out because I was trying to get a date with a girl named Pam. I got the part, but not the date. It was a nice Cameo. I played the role of the “Stockbroker.”

I don’t remember my lines exactly, but it was something about the market going up, up, up and then down, down, down, and then up, up, up and then down, down, down….and then finally up, up, up!

My opening line when I walked stage was “Oh, what a day!”

For obvious reasons, I have been thinking about that speech a lot recently. I guess that this is an example of life imitating art.

Today I began going through each and every account individually and buying stocks that I thought were appropriate for your account.

The market is low; we built this large cash position for a reason and I think now is what we have been waiting for.

Depending on what you owned already and what you didn’t own I bought you some stock today.

I don’t think I ever bought this much stock in one day in my life.

Don’t get too scared, we still have plenty of cash.

The following is non-complete list of what we bought:

Colgate
Proctor&Gamble
Johnson&Johnson
Intel …….$15!
Citigroup (We sold this on Monday at $18.70 and bought it back today at $15.)
Bank of America
Coca-Cola
3M
Progress Energy
Bristol Myers
Pfizer
Sysco Foods
Kraft
Duke Power

We also bought a block of Caterpillar. The stock is at $41 down from a high of $96 earlier this year.

AND, a block of Yum brands.

The Long Winter of Our Discontent

This is a follow up to my previous article.

I want to talk a little about this 9 year Bear market. This is what I am calling this period of time.

Others disagree and call the last nine years a series of Bear and Bull Markets. Bear-Bull-Bear. I see that 2005-2006 "Bull Market" as a correction in a longer term Bear market.

What we have lived though 90% of is a period very similiar to the period 1972-1982.

On October 1st 1972, the Market hit a high of 1020. The Dow rose and fell over the next 10 years before finally rising over 1000 permanently in October of 1982 when the Dow closed at 1046.

On October 1st of 1999, the Dow closed at 11497. Today the Dow closed at 11022. For the past 9 years the Dow has risen and fallen without making any meaningful advance.

But, what happened in 1982? The Dow began a 20 year advance that carried stocks to previously unimaginable heights. The Dow went from 1000 to 11497.

So, what will happen at the end of this long hibernation? The Dow will rise to unimaginable heights. We are talking about a Dow Jones of 50,000-100,000.

This won't happen over night and this won't start tomorrow. But, this will happen. History repeats itself.

Crisis Averted

Today we got some more good news from Capitol Hill. Lawmakers came together and have reached an agreement to fund the $700 billion "bailout" of the financial industry.

I was surprised how many people and how many commentators were against the idea.

As I wrote last week, the alternative was a financial disaster of unprecendented proportions.

Imagine a world where you can't borrow money to buy a car or a home. Where many companies could not borrow money to finance their operations. Companies like GM going out of business as a result.

I think we were looking at skyrocketing unemployment, maybe as high as 20-25%. Massive bank closings. Frankly, I felt that the the cost of paying out the FDIC claims would have been far greater than the "cost" of the bailout. That was easy, because the "cost" of the bailout is negative.

The government will make money on this. They will buy these mortgages for less than they are worth and eventually will turn a profit. That is what happened in 1991 with the Resolution Trust Company.

There is one problem with this plan, the Treasury will need to borrow more money to finance the purchase of these bonds and that is inflationary and bad for the dollar.

I believe we are in the tail end of a bear market that is about to celebrate it's 9th year. That is a long bear market. One of the four longest in the last 108 years.

I don't think that we are about to see the market take off. I do think we have seen the bottom. That bottom is around 10,800 on the Dow.

Over the next several weeks, we will look to modestly restructure our portfolios to take advantage of the next 6-18 months. Looking out past that period, we can begin to see the outlines of another robust Bull Market forming that will carry stocks into new, as yet unimagined, territory.

"Fear Strikes Out"

Yesterday was another tough day.

I expected a big decline on Monday and the rally we got on Tuesday.

I thought that, in light of the AIG bailout, we might see something more normal on Wednesday. Perhaps even a rally.

Instead we opened down 300 points.

I was a little depressed and I went home for lunch. (Something I almost never do even though it is only 10 minutes away.) I wanted to hug my son. Alexander is now 2 1/2 and still cute as can be! He still doesn't talk much and is struggling a little getting potty trained.

I walked in and he saw me and started chanting, "I go potty. I go potty."

Sharon said she was mad at him and I asked why and she said, "Alexander tell your father why I'm mad at you."

"I pooped my pants," he said.

I started laughing and almost immediately felt better. There are a lot of things in life more important than work and money and while the content of his sentence wasn't all that wonderful, hearing him utter another complete sentence was music to my ears.

I came back to the office somewhat refreshed and invigorated and had a number of good conversations with clients, friends, and others I trust.

HERE IS MY TAKE ON WHAT IS GOING ON RIGHT NOW

We are all standing nervously in front of two doors.

One of those doors leads to oblivion, a complete collapse of the world economy, a return to the dust bowl era of the Great Depression.

The other door leads us through the final throes of this agony into the light of a new day.

I don't see a third option. It seems to me that it is one or the other; either things are going to get better or we are headed towards a financial disaster of Biblical proportions.

I believe that the signs point towards door number 2. I don't think we are headed into a second great depression.

As bad as the market has been this week, most of the damage has been in the financial sector. (General Mills was up a $1 today.)

There is a long history of a major brokerage house falling, as Lehman Brothers did the other day, at the bottom or end of a decline.

Oil is down.

Inflation is no longer a concern.

Manufacturing remains strong.

The economy has problems, but those problems are fixable.

Today, Thursday September 18th.

This morning, after thinking about what I had written yesterday as I stared down my fears, I purchased two stocks: Citigroup and United Technologies.

Citi is down 73% from its all-time high and more than 30% from when I sold off half of our position earlier this year. The stock has an 8.5% yield. Those kind of bargains just don't come along every day!

United Technologies is down 30% this year, with a 2% yield, a P/E of 13, and a growth rate of 11%. It is a great manufacuring company and the only reason it is down so much is that everyone is in a panic.


This afternoon, we got great news. Treasury Secretary Henry Paulsen announced a plan to create a government entity similiar to Resolution Trust Company that would buy up the bad debt in exchange for some Equity and save the banking system.

THE MARKET IS UP 400 POINTS!