Insurance stocks got a big lift from the government’s plan to extend rescue funds to the industry, similar to what the banks have received from the Troubled Asset Relief Program (TARP). However, many questions remain regarding who and how much they may receive.
This move, combined with some of the news listed in the next section, has helped continue the rally on Wall Street. However, there is one issue that is being overlooked in the short-term and it is the record amount of government spending. The following is a chart from the Congressional Budget Office that illustrates where we are now, and what the future may hold.
As much as I like to see the stock prices climb and consumers beginning to feel more confident, I am very concerned about the government’s lack of restraint and the burden it will be placing on us and our children in the years to come. Since April 5th is just around the corner, I believe it is appropriate for you to see what is occurring and why many citizens are beginning to take
notice and organize tax protests in the form of “Tea Parties.” The following is a link to a Wall Street Journal article that clearly articulates that the current U.S. tax code is too complicated and needs to be simplified (http://online.wsj.com/article/SB123933106888707793.html).
If government spending is not addressed, at some point the U.S. and its citizens will be facing a hyper-inflationary environment and a dramatically depreciated dollar. Neither of these items will be good for businesses or investors long-term.
Three out of four ain’t bad
- One of the largest U.S. homebuilders, Pulte Homes, made an offer to acquire one if it’s rivals Centex.
- Retailers reported March sales numbers that are showing some signs of improvement.
- Wells Fargo, one of the largest banks in America, reported earnings much better than expected and it provided a boost for the entire financial sector.
- Unemployment claims remain high. As Dan Greenhaus of the equity strategy group at Miller Tabak, noted in yesterday’s MarketWatch.com, “the continued rise in continuing claims remains an incredible negative for consumer spending and I refuse to believe that while weekly claims are averaging 650,000 and continuing claims push higher week after week that we can signal the all clear for the economy.”
The first three items listed above, all are signs of improvement in housing, consumer spending and the financial markets. Unemployment is a major negative factor that will not improve for many months. However, at least some sectors of the U.S. economy are showing some signs of stabilization, which can create a solid foundation for the stock market.
American companies are bargains to foreigners
A Mideast consortium is interested in buying the commercial side of Textron’s aerospace (i.e., Cessna jets and Bell helicopters). The Middle East buyer would not own the military producing side of Textron’s business, which would avoid any potential U.S. national security concerns.
Textron’s stock price is down 65% since last September, and the overseas investors obviously believe they are picking them up at discount. This is positive indicator that global economies are not dead and are beginning to show some signs of life.
Fund update
The following are excerpts from Oakmark Equity and Income Fund’s (OAKBX) Letter to Shareholders dated 3/31/2009.
“Thankfully, the Equity and Income Fund equity portfolio has enjoyed six dividend increases and no reductions so far this year. We like high dividend yields as much as anyone, but we consider yield to be only one factor in determining the true worth of a stock.
As we have often written, the Equity and Income Fund is intended to be a low volatility, total return oriented portfolio. To that end in this environment we have attempted to invest the Fund in businesses that provide products or services that are not discretionary but that have perpetual utility. Whether the product is food, natural gas, medical supplies, aggregates for road-building, or cable TV systems, we are confident that consumers will find a way to continue to purchase these items. We also believe that the world is not getting any safer, which means that defense companies’ business should remain solid.
Finally, in our effort to control risk in this difficult time, we have oriented the holdings to companies that we believe have solid balance sheets and strong cash flows. Most important, we have avoided companies that appear to have the need to refinance debt maturities within the next few years. While we expect market conditions to improve and liquidity to recover before too long, this forecast is highly uncertain. What we do know is that price and value tend to converge over time. If we focus on identifying and owning businesses that are significantly underpriced, that have demonstrated the ability to grow their value per share, and that have managers that treat their shareholders as their partners, we believe we will position the portfolio for the eventual return of a more favorable environment.”
Credit card borrowers beware!
Bank of America is following Citigroup, J.P. Morgan Chase and American Express who’ve recently raised interest rates on customers who carry balances on their cards. Banks are beginning to crack down on people who don’t pay off their bill every month. This is going to be especially painful for those cardholders who carry large balances, may have been laid off and
can’t transfer the balance to a lower rate card.
This is a huge wake-up call to all Americans who carry credit card balances. Though it will painful for some, it may be the tough medicine needed to finally wean them off becoming credit card dependent.
Upcoming Strategic Life Planning Session
Is your life the way you want it? Strategic Life Planning – A Journey of Discovery
We’re seeing a lot of people in career transition who have lost their path and aren’t sure how to discover a new one. The next Strategic Life Planning workshop is coming up Wednesday, April 22. Click below for details and to register, or call/email Deb at the office, 913-897-2074, dkunz@iia-kc.com. Space is limited and pre-registration is required.
Community educational events
The Sacred Heart Job Club asked Debra Kunz to teach, “7 Do’s and Don’ts to Cope with a Layoff” for their members, and the KC community. We donated the class so it’s free to attend. It’s sad there is such demand, though pleased we can help provide some information. If you know of another group who be interested in this program, please call or email Deb, 913-897- 2074 or dkunz@iia-kc.com.
“There are two ways of meeting difficulties; you alter the difficulties or you alter yourself meeting them.” –Phyllis Bottome, British novelist
“You cannot tailor-make the situations in life, but you can tailor-make the attitudes to fit those situations.” –Zig Ziglar, author and motivational speaker
“If a man could have half his wishes, he would double his troubles.” –Benjamin Franklin, diplomat, inventor and author
A Happy Easter to you and your families!
Tony Moeller, President
Integrity Investment Advisors, LLC
12721 Metcalf Ave., #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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