Friday, July 29, 2011

Fiscal Crisis And Hint On Buying Stocks.

The Speaker of The House is having quite a time trying to bring into the fold some of his newer members as he attempts to get some forward movement of the “debt crisis” which may or may not be shaping up as a fiscal 2YK.

Now the general opinion of those in the media that are left leaning is that this group - with strong Tea Party affiliations - are the ones who will be ultimately responsible for a four figure drop in the DOW and beggar status for the United States. What is left out is they are doing exactly what they were voted into office to do and they are hard liners on it so the next few days of arm twisting will be of much interest.

The postion I found interesting and personally somewhat compatible to my own warped fiscal opinions is the “Gang Of Six” and their attempts to reach a bi-partisan accommodation. The reduction in the number of tax levels, reduction of corporate taxes and a further revision of the tax code stood out. That of course would be accompanied by cuts and the ever present “Revenue Enhancement” otherwise known as taxes.

I really see the rich as an easy target and it appears the breaking point for being rich is a family income in access of 250K. An easy target since about 98% fall below that but what I find appalling is that half the people in this country pay no taxes. Zippo! And that is some with income that touches 85K. With no skin in the game you are not part of the game. IMO everyone should pay taxes even if it is a nominal few bucks. After all the handouts the tax codes provide to get to that zero base and below - you can actually receive money back - sort of a bonus. No taxes and a refund to boot. So when that zero is reached that is it. Nothing. No give backs. And then a few dollars sort of a minimal tax.

IMO I have been impressed with the actions by the Speaker in attempting to resolve this issue. He has a split party or what is really a party of clearly defined factions along fiscal policy. The Tea Party types have entrenched themselves and although I may not agree they are doing exactly what they were elected to do. I just wonder if this may cause a party split similar to what happened to the Democrats in 1972 and 1980 over different issues. Maybe a political version of the cleansing of the hive?

What is absolutely a given is that any measures that Obama has attempted to address a broken economy have failed. You can play the Bush card just for a bit until you have ownership and this president now has ownership and seems lost. The number one priority should have been the economy from day one and not an poorly planned health care proposal that was rushed through a Congress who want to curry favor with a president who “claimed” a mandate. I just love hind sight.

Right now there has not been an aggressive shift of funds as folks seem to have taken a bunker mentality like I have. Gold is up a bit but draw downs in mutual funds are not present. Like me it seems to be a long haul situation where a loss is almost a given but what falls will rise. I place it in the category of what happens when a significant world event takes place such as 9/11 or the Japan mess several months ago. You take a hit and then in three or four weeks the dust has settled and been brushed away and you are back to square one.

This week the markets will lose about 3-5% depending upon how today goes. With a down market cash will be king over the next few months as bargain hunters will be on the prowl. With the mess comes opportunity. I will now give you the great tip I have used for years to purchase stocks. In fact I was discussing this with an investment advisers who was quite intrigued by my approach. This is something that is relatively easy to do with the age of the internet and the wealth of information available.

I go to mutual funds research. You can do this on about any financial site without having an account or just use Yahoo. A few months ago I wished to purchase some pharmaceutical stocks so I went into funds that specialized in pharma. I looked at about six funds from the successful to the not so successful and when you do that you can see what their holdings are. So I check out each fund and see how many have similar holdings that are relatively successful. I make a list of potentials and narrowed it down to Medco Health Solutions (MHS). I checked it out on various research portals such as The Street and Market Watch and found it to be under valued so I made a purchase. The stock trended upwards are finally was purchased by their most significant competitor - Express Scripts (ESRX) and I stand to make a tidy 40% when this corporate marriage is finally consummated. Total time spent about two hours.

Is the above a guarantee for success? Well..….I used the same method and loaded up on World Com so that should say it all but it does offer you an option to build your own mutual fund without the costs of a mutual fund such as front loads and fees. I built my own and so can you just by selecting some of the blue chips that make up the DJ and toss in a few high performers from the NASDAQ. I still have mutual funds and consider them and their poor cousin ETF's to be excellent. I just like to create my own which is exactly what fund managers do.

One other thing I have done is not all funds are created and managed equally. I really go against the grain on this one but have the hard data to prove it and advisers get a bit flummoxed over it. Say I have $75,000 I want to toss into large cap fund. The conventional wisdom is you pick a fund and in it goes. I would pick three funds with similar objectives, holdings, performance and fees and pump 25K into each. Duplication of services? I have actually seen a variance as high as 30% over a period of one year since some funds are managed better than others and it also spreads the risk even within similar financial objectives.

1 comment:

North Slope Rigger said...

I have to point the blame on the Democrats on this one and being a wing nut I feel quite comfortable doing so.

The very first thing this president attempted to do was ram a flawed health care initiative down our gullets and did his best to exclude the Republicans from the process since his party had control of both houses. How did that work out in 2010?

The debt has to stop and the spending spree in which the Democrats are far and beyond the number one problem has to stop. The target of the rich is a joke. The Bush tax cuts actually rewarded all of society and the rich benefited most. Good. You work hard you get rewards. Let me see all those rich actually work, are successful and do actually run businesses that create jobs. The Democrats do nothing but become enablers for those that seem to be takers from society. The proponents of the disadvantaged. The spokespersons for all the victims. What a crock of BS to buy votes.