Thoughts on two national banks, two local banks, and the Smithfield town council.

Bank of America, symbol BA, is a national franchise bank. It has the largest footprint of retail banking in the country. It has an enviable position in terms of access to customers. The deposit base is solid and the upside from it's business is bright. With that said the bank recently has been selling the parts of the business with the best outlook, notably some of the credit card business and the Chinese portion. Add in the continued missteps of the management and we get some serious downtrend in the stock price and no recovery in the last week either. In my opinion this all comes back to the CEO Brian Moynihan, who I have never thought was up to the position there. He began his duties as CEO saying he was going to do his work out of Boston and New York, not the headquarters in Charlotte, which said to employees that his comfort came first.  Add to that his early desire to run BA like old Fleet Boston, which was bought by BA due to some weakness in operation, and you get the trouble you have today. I no longer think this bank has a positive upside. I did not say it was going to die or anything, just that it was going to perform like a regulated utility in the future. Just with a non existent or very low dividend. Dead money going forward. I have no position in BA.

 

Goldman Sachs which I have posted on a good bit about the price being beaten down too much and the upside for investors looked good is starting to change in my mind. The change is my mistake, as I did not think about another source of trouble for the investment bank going forward. GS is making all the right moves, in changing it's approach to suit the new Dodd Frank regulations, to enhance their profit opportunities. The moves of people and assets to Singapore is smart too to avoid many of the new US regulations. Ditto on being smart about contributing millions to Obama for reelection to get him to call off the government dogs. The thing I overlooked was the trial lawyer wing of the Democrat party. The trial lawyers and big education unions basically own the Democrat party and whenever they say jump the party obliges. Recently the problems for GS have not come from Obama, but from companies and people piling on law suits against GS for alleged mortgage issues.  Trial lawyers see lots of profits here and Obama will not buck them so if this continues at the recent pace GS could have more trouble than even millions of donations can keep at bay. I own GS long, but now have concerns about that position.

 

Two local banks in my area continue to face problems differently. KS Bank, which is privately stock owned, continues to weather the recent real estate troubles quite well frankly. They continue to make some profits going forward and their write offs are manageable. KS is not hitting home runs or maybe even singles but they have not struck out either.  Four Oaks Bank, on the other hand, can not stay out of the news. Bad news that is, they regularly get wrote up for some new adventure in federal oversight. FOB  each time refutes the news with news of their own, but eventually you begin to think where there is smoke there might be fire. FOB is not currently profitable and has been writing off bad real estate loans for some time now.  I have opined in my postings that with the new Dodd Frank regulations small community banks are in trouble. Just buying some of the new required software costs millions. That is millions most all of these community banks do not make in profits now.  I expect what is happening to the small banks might not have been what was expected when the law was passed, but with any law not thought out well you get unintended consequences. These UC however costs jobs. Does anyone in the Obama administration care?

 

I attended a Smithfield Town Council meeting last night where the current town council set a meeting to ask the public to come comment on what they thought would make a good new town manager. With the recent trouble in town government centered on this post this was a good idea.  The public at the meeting last night counted to 3 people, including me.  All 3 of us spoke and gave opinions and the council said they appreciated the input. My mind wonders where everyone else was at this meeting. If people are really outraged as they say they are about the recent troubles you would think more would take time to be a watchdog on the council.  Maybe the people believe a change in leadership in November will do the trick I do not know. But you got to wonder if we are back to business as usual.  Maybe the recent property tax rate increase is not enough to be worth the trouble to come? 

Identity Theft

If you have not been a victim of identity theft, then you have no idea what problems it will cause you, nor do you know how much a hassle it it to restore your good name.  Likely you listen to all the commercials on TV and radio and wonder why such a fuss over the idea of losing some numbers and such. I have personal experience with it so I know.

 

Let me give you some free advice, that you should make use of or just ignore and regret. There are two numbers in your life that you must never give out without serious consideration.  Your Social Security number and your bank account number.

 

Your SSN must be given to those who need to report to the IRS, such as banks, investment houses, and your employer. Virtually no one else needs that number. Do not be swayed into giving it to your cable operator, city or county governments, or anyone or any business just wanting it for use in identifying you.  They do not need it and you are not required by law to give it to them no matter how much they insist. Tell them NO and stand by it.

 

As for your bank account number no one other than your bank needs that.  Your bank account number in someone else's possession is a ticket to them emptying your account without your consent.  If you use online transfer of funds be extremely careful about making all transactions a one time authorization. Do not allow companies to have ongoing access to your bank account. Also, do not use your debit card for paying bills.  I know it is simple and easy, but it is dangerous. If someone gets that number they can take out of your account any amount for the most part and the bank is not liable for one penny to you. Yes, many banks do refund your stolen money, but they do not have to do so by law. Use your credit card for regular purchases and have the discipline to pay your bill monthly. You can also get a cash back card and make some money here as well.  You DO have protection from theft with credit cards. Final note, NEVER carry your checkbook with you and avoid writing checks unless no other way to pay. Ask those who you pay who do not offer payment by credit card to change their policies. Tell them if they do not you will seek to do business with those who do. I have done that and got response from even governmental agencies.

 

Now I know most of what I suggested above is extra work or a hassle currently, but it is nothing compared to the hassle of identity theft. Let me give you some idea of what happens with identity theft. The person who steals any of your above numbers can open credit cards and accounts in your name and buy thousands of dollars of merchandise in your name. Most of it you are generally are not required to pay back, but trust me some of it you very well might be required to pay back. When my identity was stolen I was able to avoid paying back a couple of credit cards, but one company had me in small claims court where the company got a judgement against me and I ended up paying several thousand dollars for something I never purchased. Yes, trust me it can happen. Add to that I could not get a cell phone for about one year since the person purchased two cell phones in my name and never paid the bill resulting in no cell phone company allowing me to have a phone. Try not having a cell phone for a year.  The theft caused me significant hardship in trying to purchase a car. But the real problem was dealing with banks who would no longer trust you and credit agencies who had my credit scores in the sub 500 range. Dealing with credit agencies and proving to them you are who you are is a major problem and took me over 18 months to clear that up enough so I could again purchase things and get credit cards again. Yes, your credit cards and debit cards are revoked many times when you have identity theft.

 

So ignore this advice to your own peril, but trust me you will remember this posting when your identity is stolen and it is done everyday. Identify theft is the fastest growing crime, because people are not careful.

 

 

                  

Five Stocks in AAA rated Canada for your consideration

If you are looking to get out of the mess that is the US market and political situation in the US then Canada is a great place to invest.  Triple AAA rating on their government debt too. The government there is business positive, so your money here will not be held political hostage like the current situation in the USA. Below are four picks I believe make good choices.

ERF...With recent market action this stock is yielding right at 9%. Note you get a monthly dividend payout, but it is taxed in Canada at 15%, but you get declare that against what you owe the IRS in the USA. ERF continues to improve it's market position with acquisitions in the North Dakota oil boom and some of the gas properties in the Appalachian area, but it's main business is in Canada where there is lots of oil. Nothing like oil in the ground to have a great hedge against inflation and nothing like an oil company in Canada that just keeps right on paying you.

 

BCE..largest telecom in Canada, think AT&T of the north. They have wireless, land line, and video delivery as well.  Almost 6% yield too. No business in the USA. This is one solid company that raises their dividend regularly and adds some capital gains for you as well.

 

POT..The world need fertilizer now. Fertilizer companies must have Potash to make the stuff. There are less than a dozen places in the world where you can find potash and Canada is the leading place. Potash Corp. mines about 80% of all the potash in Canada. Their stock continues to hold up well even in this environment. They tripled their small dividend this year and reported huge earnings. POT is a safe place to place investments and provides solid continuing capital gains.

 

CVE...I have opined on this stock for the start of my blog. Cevonus Energy sits on a huge deposit of oil in Canada is only now getting to it and making profit. An investor here can expect nice gains on it's 2.5% yield and also nice capital gains from increased profits and dividend pay outs. I would not be surprised to see this stock north of $100 in less than a decade while holding the same yield as today. Safe, growing Canadian oil with growth.

 

TRP..Operates pipelines in Canada and pays just above 4% dividend. This dividend is about as safe as they come. Pipelines are like electric utlities since to get oil and gas to markets for sale they are essential. TransCanada Corp. has lots of them in oil rich Canada and with the Chinese and the US needing the oil there will be lots of demand for years to come. Add in if Obama actually decides during the election season to ignore the crazy environmentalists and agrees to allow the Keystone X pipeline project to commence TRP will own the pipeline and all the juicy profits from the use of it.

         

What a ride. It is still a dangerous world out there.

Remember last week and how fear griped everyone and the market tanked big time. Well forget about it!  Well maybe not forget about it since even though we have recovered much of what was sold away last week we still are not near the high set back earlier in the summer. Rallies such as these mean little since a good bit of what happened last week was driven by computer trading a good bit of the last few days rally is computer driven as well. If you bought last week maybe time to take your profits and be happy. If you bought dividend stocks for the dividend just be happy and stay put, you got a good buy in a long term holding. It is a dangerous world and the European problems have not gone away and the economic problems in the US have not gone away either. I would expect a downturn any day now as professional traders lighten up on their holdings.  Today is likely an oversold bounce. Just few sellers in the market.

I still like good large cap dividend stocks here. Many corporate balance sheets are solid and durable going forward no matter what happens in this struggling economy and trust me it IS struggling. This rally is a market event not a economic event.

CTL continues to be oversold and a real nice long term buy. NNN is a solid company and it's price has held up extremely well during the past week.

Warren Buffett, billions of reasons for a tax rate hike, and the news media too.

Seems Mr. Buffett can not help himself and once again made news by saying that those evil rich people should pay more taxes. I have lost count of the number of times he has said this in some form or another. For the record let's examine what is going on here with his continuing push for higher taxes.

First off let's understand even if the tax rates were pushed up Mr. Buffett would not be paying additional taxes not matter how high the rates go up. Mr. Buffett has made an agreement to give much of his billions of net worth to the Gates Foundation so anything he withdraws from his Berkshire Hathaway fortune as capital gains to spend will be more than offset by his charitable gift rendering the distribution tax free. So do not have empathy for Mr. Buffett wanting pay more taxes. I doubt he will pay a dime of income tax the rest of his life. Unlike his secretary, who he constantly says pays a higher tax rate then he does. Of course he does not point out that his secretary is paying social security which is not a tax but a payment into an annuity to be collected later. If was more caring he could pay his secretary more and push her up into a higher tax bracket, but do not expect him to since he is notoriously cheap. Just ask the staff at the Buffalo NY newspaper about that point. Now if Mr. Buffet was truly wanting to pay more taxes he could just donate some of his money to the US Treasury, come on Warren and set an example for all of us. While you are doing that why not take some of those billions you are giving to the Gates Foundation and give them to the US Treasury if you truly believe they need the resources. Hmm..I expect with no tax deductibility there you do not like that option.

Let's also point out that Mr. Buffett never points out that President Obama thinks rich begins at $250K of income. Not quite billions there. How about this idea Mr. Buffett suggest a higher tax rate on mega income owners of say $5 million dollar plus annually. Let's also include in the new tax deal that the highly paid movie stars and sports stars who avoid lots of taxes now by using Foundations by saying if you make over $1 million dollars annually you can use no tax dodges like Foundations and you just got to pay. Wonder how fast Hollywood and the professional players unions would tell him to go to hell there?  Add in that movie stars and sports stars, unlike corporate executives high pay, get to deduct their income from the company's tax liability. Let's end that little tax dodge too, courtesy of the Clinton administration back in the 1990's.

Lastly, once again the agenda press has fallen in line here too. You will notice no one in the press questions Mr. Buffett's generosity of proposing higher taxes here. They do not because higher taxes are part of their agenda. No questions, no pursuit of why Mr. Buffett is so desirous of higher taxes. Not one single story asking why?   Mr. Buffett personally prospers from higher taxes because the smaller businesses he is so fond of buying for his Berkshire empire get hit with these big taxes when the original owner dies and must look for a buyer to pay the tax load and guess who is sitting there with a pot of cash just to do that? Yes, he not only gets to buy from people in their our of extreme distress he gets to buy these businesses cheaper too. What a swell guy.

So my friends appreciate the fact that Warren Buffett has lived the American Dream life and prospered from his smarts, but do not give him credit for his supreme generosity beyond it's due.

               

Positive points and a rumor.

A couple of positive developments this morning.

 

One is the news that many cash rich corporations are using the downturn in stock prices to increase stock buyback's or initiate new ones. This will help considerably in putting a floor under stocks and help form a market bottom. It of course might not help in hiring new employees, but right now the market action is top of the mind. It also is positive that these corporations believe their stocks at current prices merit buying. Add in yesterday's news that company insiders were picking up their buying of their own company stocks as well. Since insiders must hold generally at least six months before selling they will not be flipping shares.

 

Two is the tepid response the US Treasury 30 year bond auction got this morning. The buy ratio was about 2 to 1, which is considerably down from previous 30 year auctions. This means that people are moving some money and assets to better yielding assets. The 30 year bonds had to move up yield a bit to get the bonds sold too. Any movement of money from US bonds to stocks and other assets will help buoy prices also and help with some improvement in economic activity.

 

One final note of info. There are reports this morning that some of the news coming out of Europe about France and it's alleged banking failures are nothing more than well placed traders who are trying to protect and enhance short positions in stocks or options. This thinly veiled reference could very well mean George Soros, who has already said he has shorted this downturn and making serious money doing it. There has also been rumors the last week that people in the US administration more concerned with making money for political friends and less concerned with policy are feeding these reports. Who knows who it could be and if it is true, but with options expiration just over one week away it certainly makes sense that people are trying to prolong bad news to protect already profitable positions to final payment.  If stock prices are being manipulated to some extent by large player interests this also could help stock prices going forward as eventually these interests will either make their profits and move on or give up.

 

Now do not interpret these posts to mean anything but what they are, nowhere did I post here that this downturn is over. However today's market action is positive and helps build a bottom as we must ebb and flow to do so.

Fear, rumors, and no bottom to be found.

The market closed down another 500 points yesterday, making it down just over 2200 points since this sell off began. I wish I could say that we have hit bottom, but frankly I think we got some to go on the down side . The reason is simple, this is not a market event, this is a response to the lack of economic activity in the country and also the world. Investors and markets have finally decided things are not getting better and the Federal Reserve Tuesday reinforced that knowledge with their unusual action of stating interest are staying put for TWO years going forward. Market pros are still in the market and that means we have not seen the final selling know as capitulation.  I would not even dare to call the bottom here, but it would not surprise me to see another 1000 points or more. I know that is not what people want to hear, but this is what you get from capital being completely on strike. The congressional legislation that gave us Dodd-Frank financial regulation and the health care bill passed two years ago is just two of several legislative actions that have caused the small business person to lay low, quit investing and hiring in their business. Add in the constant demonizing of business and most of these entrepreneurs do not want to take risks with their capital, they certainly do not want to be pointed out as making money.  Much of these problems we face are choice not fate and can be changed at the ballot box if their is will to do so.

 

A couple other economic trends worth noting here is what is known as the peak spending year rule. People spend more on consumer items at the age of 49 that any other year in their life on average. The baby boom generation and their large cohort there are now fully past that age and demand has subsided from their spending binge. Add in that most of them has also hit credit card limits as well and you get a general easing of consumer demand. Another generational fact is starting to move into the peak consumer spending ages of 30 to 49 years and that is Generation X which trend to be quite complacent and ill trained as a group. Males in this generation more so than females. With this trend you get lower spending due to lower salaries and the lack of engagement in society makes for less involvement in civic activities. This final trend makes way for the generation behind it to take over as leaders and decision makers sooner than normal. Unfortunately the next generation, known as The Millennials are not old enough to take up the slack in consumer spending yet.

 

Add to that the death throes of socialism in Europe where the money to finance the large social safety net has run out. People who no longer work and no longer worry about their access to anything since governments supply everything finally know their party if over and do not like it. I had mentioned to you the chain of countries to go down. Greece, Ireland, Spain, Portugal, and Italy. All those have either defaulted or had austerity measures forced upon them. England, which is experiencing huge riots over austerity measures there also made changes. France, as I had said was soon up, looks to be just that as rumors are rampant today that they French banks are in trouble. Makes you wonder why sane people in the US would want to follow this path, but follow it we have.

 

In any case stocks are still on the way down. US treasuries and bank CD's are paying nothing. These items are not safe as your money does even keep up with inflation with them. The safe places in my opinion are very blue chip dividend stocks where you can be relatively sure of your payout and even if the stock price goes down more you can live off the dividend. One bright spot here is that insiders at these large cap stocks are now buying. They are saying our business is not going anywhere and they believe there is value here. For about the tenth time you can find good pay outs and safety in agency Reits, backed by the real estate and guarantee of the US government. Why would anybody own US treasuries, when they get the same protection and much higher payout in agency Reits? Lastly, I will also reiterate my belief that many US states are safe to lend too, safer than the US government, and payout more yield and tax free too.

 

Fear is rampant and until that subsides the market is biased to the down side.