M&A All the Way

Is the recent uptick in deal announcements the sign of greener pastures, or does the increased mergers and acquisitions (M&A) activity indicate a potential market bottom NOT a market top. There are many, so called, pundits that might argue both sides of the fence. Unfortunately for many investors, half of them will be wrong. Markets tend to get overheated near “market tops.” Currently, companies have deep pockets, but very short arms, and as a result, companies have been very stingy with their capital. However, if we continue to see more internally financed cash deals, I will view that trend as a tremendously positive signal of longer-term fundamental confidence, a characteristic which was absent last year. One word…cash. About $1.8 trillion of it is just piling up on the non-financial balance sheets of domestic companies (Financial Times). Investors are getting restless with the obscene amounts of money earning 1% in this low interest rate environment. With very little potential for interest rates to increase in the near future, impatience is looming large. Shareholders want to see more productive strategies applied to their capital sooner than later. As an investor, doing your homework on corporate health and the cash holdings of a potential investment are essential in today’s marketplace.

Liar, Liar, Pants on Fire!

I’m a dad with four kids nowadays, but despite the fact that I turned 40 two weeks ago (our college girl babysitter told me 40 is the new 25…extra tip that night) I can still remember what it feels like to be a kid. Because I can muster the memory of being a child and yet enjoy the current perspective of being a parent I now know a seldom admitted truth. That truth is that sometimes parents lie. Forget the tooth fairy, that’s an obvious one. I find that most parental misrepresentations are done in the name of protection. Like how you answer a five year old when they ask you where babies come from, or how you assure the kids that everything is going to be OK when someone loses their job or gets really sick. This week, as an investor, the Federal Reserve left me feeling like a child being placated by Mom and Dad, but unfortunately with my current perspective as a parent I can recognize when I’m being played. This placation took the form of the statements that followed the Fed Board meeting that was held on Tuesday. In its statement the Fed acknowledged what I think we all kind of already knew on some level and that is that our economic recovery is anemic at best, and in the darker corner of our minds possibly faltering or even reversing. Now it’s one thing to allow yourself to contemplate the monster under the bed on your own, but when Dad, in this case the Fed, openly acknowledges that the source of your anxiety might just be legitimate it puts a whole new spin on the issue. So what you say…we all knew this recovery stinks and now the Fed has just acknowledged the truth… what’s wrong with that? Well the acknowledgement of our precarious economic state was only the first part of the ruse. It was the second part that addressed what policy action could be taken to bolster the strength of our recovery that left me feeling placated. That’s because the policy response basically said “relax things aren’t that bad and everything is going to be OK” when I got the distinct feeling what they were really saying is “sorry son the bear is charging and I’ve got no more bullets for the gun”. The Fed policy response was that they were going to use principal repayments from those $2 trillion in mortgage bonds they bought over the last 20 months to buy more government bonds. In this trillion dollar world, this was about a $30 billion dollar response, or put simply it wasn’t even a band-aid. Now if you read my column you know that I’m not the kind of guy that begs for a big government fix for all our problems. I personally believe that our current economic malaise will only be cured by time, that is, if the medicine the Fed and government keep feeding the patient doesn’t end up killing it first. My disappointment with the Fed statement this week is more about style than content. As a good Dad, I know that if I don’t have a way to slay the dragon then I shouldn’t open the closet door. This week the Fed acknowledged the monster in the closet, turned off the lights and went to bed. So where does that leave us? A glance at the stock market this week answers that question.

What Will They Think of Next?

Want to see what a downward spiral looks like? Then take a gander at America’s present state of affairs. Just this morning, a bill was signed into law that would ensure over 160,000 teachers their jobs for another year. Sounds great, right? Wrong. This law is going to cost “us” big time. Not only will the $26 billion law hike up taxes for multinational corporations, but the law will also steal from the poor. Yes, that’s right: STEAL FROM THE POOR. In order to provide the funds for this new law (without dipping into the ever-growing national deficit) our nation’s food stamp program will lose a portion of its funding—funding that was promised to the program during last year’s government bailouts. But that’s not a big deal; it’s only FOOD, right? And, it gets better. In order for several states to get their part of the money, they have to spend millions of dollars that they don’t have. So, if you’re keeping score, that means that we are hiking up taxes (basically going back on our word), stealing from the poor and forcing people to spend money they don’t have. Now I’m not saying that teachers aren’t worth the trouble. They basically build the foundation of our future. But, because teachers are so important, don’t they deserve a long-term solution instead of just a temporary fix that will only “guarantee” their jobs for one more year? And what are we going to do next year when we run into this same issue, or worse? This is not a permanent solution by any means. The countless measures the government has taken to keep this country “afloat” are becoming something close to ridiculous. I wonder how the government will cover-up the fallout from their latest folly?

The American Dream Revisited

Young adults, particularly those in the "Millennial" generation (ages 18-29) are having a hard time achieving the American dream, a dream that, to several past generations, was readily attainable with a good work ethic. And you can't say the millennials are lazy. That's not the case. This group of young people is the most educated generation yet. Yet, the more people graduating from college and grad school, the more careers are becoming a thing of the past. Trying to find a job within your specialization can prove daunting even for a seasoned veteran and let's face it: education does not experience make. Is this generation over-educating themselves? Many millennials have "dumbed down" their resumes in hopes of getting jobs they are afraid they will be deemed over-qualified for. And student loan defaults are at an all-time high as well. Thoughts?

Government for the People

I can’t remember a time filled with more investor anxiety and uncertainty. Even as we stood on the edge of the economic precipice in September 2008, we did so with a bit of financial naiveté as to what we were facing. But with innocence lost after the last two years, we now understand the potential negative scenarios ahead of us and it leaves employers, markets and consumers almost paralyzed with caution.

The uncertainty stems from a dichotomy of outlook. American companies continue to post strong profits, and most have positive expectations for the rest of year. In addition, the leading economic data considered to provide the best visibility on the direction of the overall economy continues to paint a picture of a subdued but consistent recovery taking place. And no one seems to care. All positive reports are promptly disregarded and the nation as a whole seems overly focused on whatever negatives news we can glean.

The stock market sells off on bad news, and the stock market sells off on good news. It leaves me wondering why?

Before I answer my own question, know that I tend toward the conservative side of the spectrum. Not the “defend Republicans at every turn” type of conservative, but rather the “live and let live, government is rarely the answer” type of conservative.

My answer is this: Federal government, please take a break for a while Business reporters used to talk about things like earnings, stock valuations and mergers, now all anyone talks about is the government, and the government itself just won’t shut up.

First there was the auto industry, forget 200 years of bankruptcy law, there’s a new sheriff in town and he does things his way. Then there was the endless debates on healthcare “reform”, now financial “reform” and next probably energy “reform”. There’s deficit spending that literally boggles the mind and trillion dollar stimulus plans that nobody even notices on the ground.

And to what avail? Considering all the conflicts of interest in Washington, all this overheated rhetoric eventually gives us watered down adjustments to the status quo that provide real solutions.

It seems like investors hang on all this debate in breathless anxiety, only to ask in confounded fashion at the end “is that it?”. Washington is solving no problems, which is fine with me, but they really need to stop acting like they’re going to, and just take a break.

If the government could just relax for a while from all this “reforming”, focus on giving us some answers about 2011 tax rates after the “Bush” tax cuts expire (namely the dividend and capital gains taxes), and at the very least provide us with some rhetoric on how it’s going to deal with its outrageous budget deficit, I think America could get back to the business of America, which is business…not government.

And heck, who knows, if we all get back to business there might just be a job or two created in the process. Happy Fourth of July.

Independence Day

Let us not forget what Independence Day is supposed to stand for. Let us not forget what it means to be "independent." Let us not forget that which our forefathers fought for and created when they founded this country. We do sometimes forget, in our passion for change, that which made us the greatest nation on earth....

Is it Soccer or Futbol??

The US advances to the round of 16 in an exciting victory over Algeria in the waning minutes of their match this morning. The World Cup is globally, the most watched event and the economic impact for for the host nation has statistically been better than that of hosting the Olympic games. The next quest for the Cup will be held in Brazil followed two years later by the Olympics in Brazil. Brazil has a strong economy and will need some major infastructure improvements for both of these games. Don't neglect them in your investment portfolios. I would love to hear some thoughts on this idea.