Dell executives reported this week that they believe the U.S. computer market has reached its low point, and they expect a wave of replacement purchases for aging computers in 2010. Another big technology name provided good news this week when Intel reported much better than expected earnings. In addition, IBM, Goldman Sachs, Johnson & Johnson and CSX all reported better than expected earnings for the second quarter of this year. This is helpful since the previously mentioned companies come from a variety of industries – technology, financial, consumer products and railroad.
Merrill Lynch surveyed 221 fund managers whom managed a total of $635 billion. The survey revealed that overall the managers were more positive on economic growth and bonds in July, but less positive on equities. It appears that the stock market’s recent run up may have diminished their appetite for risk in the short term.
Another one bites the dust
The administration either drew a line in the sand on financial bailouts Wednesday or is becoming much more discerning by denying emergency aid to CIT Group Inc., a struggling commercial lender on the brink of bankruptcy. The company said its management and directors were “evaluating alternatives.” A bankruptcy filing would wipe out CIT’s shareholders and the government’s $2.3 billion (prior bail out investment) stake.
CIT is one of the nation’s largest lenders to small and mid-size businesses. The company has warned that its failure could threaten about a million corporate borrowers. Concerns are that other lenders are already under financial strain and many CIT clients may lose their financing options.
Small businesses are considered crucial to economic recovery and employ about half of the private-sector work force. As a result, any setback to small businesses will most assuredly delay and greatly diminish an economic recovery.
Fund Managers’ thoughts
Oakmark Equity and Income Fund is a holding of many IIA clients, and it is co-managed by Clyde S. McGregor, CFA and Edward A. Studzinski, CFA. I believe you may find some of their comments insightful. As a result, the following are some highlights from their 6/30/2009 letter to shareholders. The fund returned 10% in the quarter ended 6/30/09, and is up 4% year to date through 6/30/2009.
- They’re continuing their goal of providing their investors with a real total rate of return that allows them to pay bills and perhaps flourish.
- In the past quarter, they did not buy what they considered an aggressive trade—that is investing in U.S. financial stocks, especially banks and investment brokers. They felt these companies lacked accounting transparency. “Also, for those who would point to the fact that the major banks all passed ‘stress’ tests with flying colors, we offer a basketball analogy: it is like bringing the regulation height of the basket down to seven feet and then emphasizing the immediate and increased improvement in dunking statistics.”
- For the fixed income portion of the fund it has a mix of U.S Treasury bonds, U.S. Treasury Inflation Protection bonds, corporate and foreign government bonds.
- They expect that there will be another uptick in mortgage defaults and welfare payouts as more people try to cope with having less. Ultimately, as a society the United States will be dealing in the near future with a lower standard of living.
- Many developing countries’ economies appear more capable of surviving a protracted economic downturn than those of developed countries. The United States stimulus plans have truly taken on aspects of the old “Helicopter” Ben Bernanke: “print the money and throw it out the door.” Contrast that with China’s stimulus plan, in which fund allocation as well as the number of jobs to be created is detailed down to the individual project level.
- Their long-term orientation has given them what they believe to be a substantial competitive advantage for the first time in recent years. Also, they’re pleased to find a greater number of companies that are being run as long-term concerns in order to benefit the shareholders rather than as wealth-transfer “vehicles” to benefit senior managers.
Quotes
“In looking for people to hire, you look for three qualities: integrity, intelligence and energy. And if they don’t have the first, the other two will kill you.”
Warren Buffett, Berkshire Hathaway chief executive
“You’ve got to love what you’re doing. If you love it, you can overcome any handicap or the soreness, or all the aches and pains, and continue to play for a long, long time.”
Gordie Howe, hockey star
“Live in such a way that you would not be ashamed to sell your parrot to the town gossip.”
Will Rogers, humorist
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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