Rate Hikes and the Stock Market

We have been on record for some time that any rate hike from the Federal Reserve is over a year away.  In fact we see none until after the 2016 election cycle.  Even then if it comes it will be quite small with a note from the committee that they are done for awhile.  Here is our thinking. 

The economy is still weak.  Retail sales are lagging and home sales can not get past start.  The media and more importantly the financial media is just flat out ignoring those facts.  The Fed fortunately is not.   Note that home mortgage rates refuse to go past the 4% mark for a 30 year loan. Move above that 4% and home sales drop every time. That in turn keeps a lid on housing values as those two elements are linked. Add in that many young people can not afford a new home while working as a service worker, which are the only jobs being created presently. Retail sales too are not growing as noted by the continuing closing of stores by chains such as Target. Those two financial facts alone dictate the truth that employment is still way below where it needs to be in this country. Despite the headline seeking below 6% unemployment rate the fact that there is no wage pressure tells anyone who has been a long term observer that there are lots of employees seeking the few jobs available.  Now much of this labor weakness is the lack of marketable skills and the unemployed not matching the jobs that are open. Many just refuse to take a job, any job, to keep the money flowing. The UNDERemployment rate is still over 10% and reflected in federal data. 

So with these weaknesses the Fed is unable to push up rates with no demand for loans and no demand for business expansion. This economy is also being restrained by huge regulatory burdens and high taxation of SMALL business put on by the Obama administration where the mass of new job creation always comes in the economy.  The jobs that are there are entry level, which again many young folks will not take due to being over qualified.  The ones that are taking jobs are jobs in the service and restaurant industries as we noted earlier where the wages are low. The Fed also sees a world economy as weakening and Europe, China, Russia, and Japan in economic trouble. Finally the political angle, no way the Fed raises rates in an election year when they need a Democrat to win the White House to keep them appointed to the Federal Reserve Board. 

We again touch on the generational theft that is occurring with the twin issues of low rates which constitute the financial engineering of allowing big corporations borrow debt to buy back stock and the continuation of mega corporations to use profits to buy back more stock and reward those who are shareholders.  Obama's huge deficits and mountain of national debt are rewarding those who are the ultra rich and just want 2% or 3% interest from US Treasuries for their huge asset bases to throw off nice sums of interest to live on.   These ultra rich, like the shareholders noted above, tend to be older gentry rich or the retiree rich in lifetime accumulated assets.  How long we will continue to vote in the people who keep this generational theft going who knows.  The electoral control is now mostly in the under 35 year old voters who seems to be clueless in their foolish actions of electing those who continue the generational theft of using government to pad the rich and retired and take jobs and opportunities for the young. 

In the end those who continue to own stocks, and we continue to suggest large corporations, will prosper and be comforted.  Seems we now afflict the already afflicted and comfort the already comforted.  We who own assets are thinking another eight years of Hillary Clinton and we will be nearing the end so who cares who the Republican nominee is if we can run out the clock doing life this way. Think of it like this, if you hold AT&T and Verizon, both paying above 4.5% dividends you are getting a nice return on your savings.  All the while with the solid safety of knowing the young folks hooked on iphones and such are using their precious few dollars in pay to support you by being coddled and amused with their toys.  The beat goes on. 

Current complete Trading Portfolio, Mutual Fund list, and Watch List.

We offer our current entire trading portfolio, watch list portfolio, and mutual fund list here.  We continue to find the market safe and suggest mega and large cap stocks and stock funds.  Avoid corporate bond funds, real estate, utilities, and anything that can get hurt with a raise in interest rates.  We still believe there will be no Fed raises until late 2016, but ere on the side of caution. The strong dollar will support the stock market for the foreseeable future with the influx of foreign capital. Add in the huge Federal Reserve US Treasury portfolio and continuation of Obama's spending. That political economy and the financial engineering of stock buy backs makes for opportunity in investing and trading for at least another two years.  This generational theft should continue under Hillary Clinton as President assuming enough people continue to buy into this scheme. It is indeed a great time to be a trader and investor if you are past 55 years or age or so. 

AAPL....Apple is our largest holding.  We continue to like this company for the long haul but believe it has traded a bit ahead of itself here and will wait for a pull back before adding more.  However if you looking for long term you will be fine here at just below $130 as the people who buy their products are literally addicted to buying anything new that comes out making for high sales and high profits for as far as the eye can see.  Their stock buyback program is second to none. 

AXP...We believe American Express sold off a bit too much as going forward any of the big three issuers of credit cards are the toll makers for more and more payments by everyone for everything bought going forward.  Amex still has the high volume high ticket card holders which makes for high profits that even Warren Buffet likes. 

C...We like Citigroup for the value and like financial stocks for the upside potential. The big four banks offer almost complete safety due to the "Too big to fail" rules now in place with the increasing dividends and capital gains soon to come when interest rates finally begin to rise. Banks are now fully regulated utilities that have yet to find full value like their cousins electric utilities. 

GCI...We are waiting for the spin off of the newspaper group from Gannett as the spin off will consist of some nicely placed properties that will be undervalued for the profits they will make.  The key is how much debt the new company will be saddled and if not much will allow them to go buy some cheap newspapers out there. We are waiting to see what value might emerge. 

GILD...Gilead Sciences is a undervalued drug company that is becoming the big player in bio.  There is risk, but at a single digit PE much of that is priced in for their blockbuster profit making drug line. 

GS...The big bank not included in the big four too big to fail group but offers good value and the opportunity to gain from the bank advisory services. Goldman Sachs also has the blessing of a deep attachment to Hillary Clinton the assumed next US President. 

INTC...Continues to pump out profits, stock buybacks, and is involved in almost everything digital. Yes there is concern about Intel not being involved enough in mobile however we believe the death of computers is an assumption that will not happen. 

JPM..We like JP Morgan best of all the big four banks. It is value priced and has great management. 

MEG..Little known television station owner is primed to make some big money in the coming 2016 political season.  There is high risk here and we are waiting to see if the stock sells off and gives us an entry point where risk is less. 

MET..Metropolitan is the biggest insurance player out there, notably in the life insurance business.  The low PE means it is value priced and like other insurance companies is primed to make some good profits when interest rates kick up and their premium pool can gain from higher rates. 

MSFT...Microsoft under new management is getting smart about future business.  The next Windows upgrade will be the last as the company begins to concentrate on cloud services and other higher value tech business. 

NEWM..New Media Investments..Simply put our favorite stock for future capital gains.  This small newspaper acquirer is using stock sales and little debt to buy newspapers on the cheap. We are leveraging up more in this small cap stock.  Do not underestimate the opportunities in smaller newspapers who still have a monopoly status in their markets and are making good profits. 

NNC..Our go to North Carolina Muni Bond fund.  This closed end fund is undervalued by almost $2 per share and pays right at a 5% tax free dividend.  Here is a great place to collect cash and wait. 

ORCL...Oracle is the big fish in the software pond and therefore when anyone is upgrading or rebuilding their products are a must buy.  Value priced. 

PM..Phillip Morris is the largest international player in the tobacco industry. Despite some pullback from being hurt by currency risks this company is very shareholder friendly and does big buy backs and increases dividends regularly. 

PRU..Prudential is a large player in the insurance industry.  It is undervalued and ripe for a move upward when interest rates finally make the move upward. 

SF..Stifel Nicolaus has been on a consolidation binge for some time.  We like this stock and management a lot due to it's skill at folding in acquisitions and it's savvy for finding smaller players in the financial industry to fold in to slowly make SF a big player in the stock market game. 

T...AT&T..continues to be a steady eddie stock with slow growing dividends and safe place to park capital. 

TCAP...Triangle Capital..We really really like this stock. Great safe dividend, fabulous management, and good capital gains potential. 

VZ..Verizon..Large telecom stock which we have been trading for a long time. Steady growth, solid dividend, and sleep well at night. 

VEIRX...Large cap Vanguard value fund with lots of dividend paying stocks.  The Equity and Income fund is a good choice for dividend income, stability of principal, and better than average capital gains. 

VFIAX..This Vanguard Fund is the S&P 500 index fund.  Basically owning percentages of the largest 500 companies in the US.  Stability, growth with the market, and as Warren Buffet says betting on the health of the American economy going forward.  Absolute essential fund for every portfolio. 

VWIAX...This Vanguard Fund is in our opinion the best one for stability of principal while giving you some solid dividend and bond interest income.  Wellesley Fund is 60% stocks and 40% large cap corporate bonds.