Ideas and Outlook DEC 7 2009

IE Outlook + Ideas

The I/E Outlook will be published as a Blog instead of a newsletter. Why? Easier access, greater distribution and better feedback. The negative is that you will have to go to the letter instead of it coming to you. Go to .. http://ideasoutlook.blogspot.com/

The current outlook for the US and world economies is terrible. The people in charge (government, politicians, the financial sectors, most economists, the media, “experts”, etc.) are making things worse. The U.S. is printing and giving away money. They are making the U.S. dollar worthless.

Stock Market(s) outlook:
Near term (3-6mo.) Short term “bounces” may happen. Short-term “bounces” should be used as an opportunity to raise cash or raise “stops”. Probability is for a continuing down trend with high volatility. There is a lot of “bad” news out there. A very severe drop during the next 3-6 months is very possible. Severe drop? 50+%
Intermediate term (6-12mo.) there is no more than a 35% chance of a “bottom” or upturn. Damage is still being done. Economic numbers will be dismal.
Long term (1- 1½ yrs) there is less than a 50% chance of a meaningful change or rise. Over the coming year (2009) the probability is for continued weakness in world economies and declines in financial assets, commodity prices and real estate. The probability of world-wide financial meltdown or “crash” during this time period is real and more than 35%.

Real Estate Outlook: The Real Estate Industry, Government, Investment “gurus”, etc. try to be positive. The “stimulus packages” are pushing mortgage rates down now, but won’t continue forever. Rates will rise as lenders expect greater risk and continued falling prices.
Real Estate taxes will probably rise sharply to make up for Local and State tax shortfalls. Property owners can’t move their property to another location. The best they can do is sell, move or do the traditional, “bribe” your local politician.
Probability is a further continued 10-25% value drop over the coming year. There is a good possibility of a repeat of the 1990-92 collapse when some values fell by 50% or more.

Interest Rates: Near term trend is obviously down. Rates cannot go lower than zero. The U.S. and foreign governments are flooding the markets with money. At some point, foreign and domestic lenders will realize that all those dollars we are issuing and borrowing are backed by nothing and will never be repaid. When that happens, they will stop buying U.S. Treasuries and lending us money. At that point the dollar will fall and interest rates will start to rise. When? Probably 3-9 months.
Recent events:
The $700 billion or $2 trillion or $7 trillion “bailout” is making the problems worse. The money disappears almost as soon as it is allocated. No one is quite sure where the money is going. One thing is sure, a lot of it ends up in the pockets of politicians and their friends. A lot of the money has already gone (despite denials) to pay “bonuses” and “retention incentives” to those who caused the problems, to make “whole” Sovereign Wealth Funds, Hedge Funds, private investment pools, etc. (The Sec. Treasury can supply the information).
The Treasury gave AIG another 25 or 50 billion, Citigroup and other banks endless billions and just about any entity with political influence anything they ask for. The total is now over 150 billion. (The top people at AIG used part of the first 25 billion to have a $400,000 party in addition to bonuses and other “giveaways”.)
Congress and the Treasury now want to give another 25-80 billion to GM and Cerberus Capital. Cerberus Capital is a private investment partnership that owns Chrysler and GMAC.
The beneficiaries (partners in Cerberus, relatives, etc.) include past and current members of Congress and at least one President. Carlyle Group will also benefit. Carlyle Group also includes past and present U.S. government officials, relatives, etc.
Cerberus also is trying to convert into a bank so it can get more money directly from the Treasury and have the US Treasury guarantee part of their obligations and bad investments.
Government (Sec. Treasury, Fed, Congress, etc.) keeps changing their public statements almost daily. Nobody (including, Congress, Paulson, Bernanke, etc.) knows what they are doing, how much money has disappeared and where the taxpayers money is going. The only “plan” seems to be to steal as much money as possible.
The most recent “scam” is to declare a company a “bank”. This allows them to gain access to US Treasury money.

The stock markets continue to be wildly volatile and manipulated. Congress, the current Administration and regulatory agencies refuse to enforce the rules and regulations that are supposed to protect our markets.
Investors looking to Obama for help or leadership are disappointed. He explains inaction and silence by muttering, “There is only one President at a time”.

NYTimes (12/03/08) The chairman of China’s sovereign wealth fund said here on Wednesday that China had no plans to further invest in Western financial institutions, nor did it have any plans to “save” the world through economic policies.

The U.S. Government Accountability Office reported that there is no or inadequate oversight of how Treasury is giving away money. This will be one million times worse than when Bremmer gave away bundles of $1 million in Iraq. $millions to $billions to $trillions.

What to do right now? Help! We need ideas!
Cash (FDIC protected) is good. T-Bills have a lousy rate of return, but they are safe. Liquidity is important.
Keep short-term! If foreign buying stops, who will buy our Treasuries?
The market will go up, stay the same or go down. If it goes up, you may lose part of a minor move. If it stays the same, you will lose worry, loss and agita. If it goes down, you are a genius.

Ideas:
From V.R. Look at BIDU. China will survive and prosper.

From C.S. Many utilities are selling below their replacement costs. He believes “takeovers”, mergers and buyouts will accelerate. Suggestions (some are in play now) include; CES, MIR, NRG, ED,

From J.G. Convertible preferreds selling below redemption price and offering good yields include; AESprC, EPprC, CEpr, CITprI, CITprA. Many are down sharply because mutual funds are forced to sell to meet redemptions. Opportunity is income plus upside potential.

From: R.T. Look at SKS. He estimates the shares are well below the value of their real estate. Good candidate for buyout or takeover.

For daily updates, go to … http://www.marketwatch.com/ (skip the ad)

For daily buy/sell/hold, and new ideas, go to .. http://briefing.com/Investor/Public/Calendars/UpgradesDowngrades.htm

Please send IDEAS, LINKS, etc. Send to actnow98@aol.com

More to come.

DEC 7 2008