Monday, July 28, 2014

"Many stocks look nearly fully valued here, so there is no "Margin of Safety". Goldman has come out with a Neutral on the market for the next 3 months. The Fed is ending treasury bond buying too rapidly, now that they decided to start tapering. Buyer BEWARE"

Dow Jones Industrial Average 16,876.00 (Down) Week ending 07-25-2014

I started out this week's blog collecting data for CBS Corp. It had a margin of safety and the right PEG and ROE numbers for my criteria format, but then I looked at the Insider transactions and exercise of options area, and I had to beg off.  It appears that Sumner Redstone is the CEO of both CBS and Viacom. That's odd for major corporations. Redstone owns over seventy percent of the voting interest of Viacom. Viacom and CBS Corporation are both controlled by Redstone through National Amusements Inc. So, under CBS, I saw options at zero dollars in very large blocks to National Amusements Inc. and then exercises of options under Sumner Redstone himself for CBS and for Viacom. Viacom also trades in two classes of stock A & B. ( I had visions here of the old Rapid-American Corporation with Sharon Steel and a complicated array of transactions and companies if you are old enough to remember that!) . I further found that the Shareholder's equity in both CBS and Viacom had both gone down year over year , (especially Viacom). Somewhere this boat has sprung a leak and I don't want to be the captain going down with the ship trying to figure it all out.  Buyer BEWARE.  All the data that I had collected on CBS Corp. I had to scrap.

So, here we are in the dead middle of summer and Goldman Sachs comes out and declares that they have gone market neutral. Janet Yellin at the Federal Reserve comes out and says that US bond buying will be drawn, (tapered down), from 65 Billion a month down to zero by October 2014!  That is way too rapid a cut and reduction in liquidity to the financial system. If they are hurrying to get it done by the USA November elections, that is just plain stupid and a mistake. That is 90 Days from now. Buyer BEWARE!

My recommendation this week is for you to sell some of your stocks and raise your portfolio cash position to 25% cash at this point. Get rid of some losers and take some profits off on some of  your winners. Liquidity is essential for healthy growing markets and they are taking away the punch bowl!

Don't Panic. Just be prepared and correctly position your stocks and finances for the changing conditions in the markets.

8-2-2014 more notes**   "If fiscal and monetary policy alone are used to control inflation in the modern economy, it will be controlled only by creating unemployment." John Kenneth Galbraith, The Essential Galbraith.

What the Fed is not taking in account in its statistics is the 1 million young people a year that come out of college and are left behind as the "Never Employed". These people are not counted in the unemployment statistics. This group not only does not have a job, but they are strapped with the largest student loan debt in history. A debt larger that all the credit card debt combined in the United States. The true unemployment rate is more like 10-11 percent in the country, not 6.2%.
The Fed needs to continue to supply extra liquidity to the system to let this situation unwind. 

Thank you for listening,


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