The Long Term Investor

YET ANOTHER positive building block for the general economy and stock markets.

Consumer Price Index Surprise: Everyone Has Jobs and Prices on Many Things Are Falling

https://www.breitbart.com/economy/2020/01/14/consumer-price-index-shows-very-low-inflation-persists/

(BOLD is my opinion or what I consider important content)


"U.S. consumer prices barely rose in December despite record low unemployment, indicating that inflationary pressures remain very muted.

The Labor Department’s Consumer price index increased 0.2 percent in the last month of 2019, a slowing of the pace of prices from the 0.3 percent rise in November and the 0.4 percent rise in October. The December figure was below the consensus forecast of a 0.3 percent gain.

Core CPI, which excludes the volatile categories of food and energy, rose by just 0.1 percent.

In the 12 months through December, the CPI rose 2.3 percent. There was no change to either the annual figure when food and energy are excluded.

That likely means that inflation as measured by the Federal Reserve’s preferred metric, the personal consumption expenditure index minus food and energy, is running below the Fed’s two percent target. Core PCE inflation tends to run a half a percentage point below CPI.

Last week’s employment report showed that wages had increased by less than three percent on a 12-month basis in December despite unemployment holding at 3.5 percent, a 50-year low. This suggests that the U.S. labor market still has slack and undermines arguments from corporate lobbyists in Washington, D.C. that businesses need higher levels of immigration to fill jobs.

Many items that attract a lot of attention from consumers are down in price. Televisions are down more than 20 percent compared with a year ago. Apparel prices have fallen 1.2 percent, with women’s clothing prices down 2.2 percent. Major appliances are down 7 percent. Prices of fresh fruits and vegetables are down 1.8 percent.

The price of cars and trucks are up just one-tenth of a percentage point. Even drug price inflation is low, with prices rising just 3 percent."

MY COMMENT

Pretty good. BUT......the bias is STILL on the deflationary side of things. A slowing economy with deflationary tendency would not be a good thing. Look at Japan and the EU and others in the world and you will see that DEFLATION is extremely difficult to get out of once it takes hold. It can linger for a long long time.

Mixed markets today. Dow up 32. SP500 and NASDAQ down. Supposedly due to China deal signing tomorrow and bank earnings being reported today.

 

I hate these sorts of POSITIVE news and market days........when you think "I am going to have a nice gain today" and you look at your account and you not only dont have any gain at all,.....but a small loss. I have five or six stocks down today in spite of all the positives. So.....I have a loss of about $500-$600 at the moment. That is the price you or in this case...."I"....pay (once in a while) for having a very concentrated stock side to my portfolios.

INTERESTING.......the majority of sites and news papers that I have looked at today have ABSOLUTELY NOTHING about the trade agreement. Kind of like the old tree falling in the forest........if positive economic news happens and no one reports it, did it really happen? I would guess that at least half to two thirds of the country no longer looks at any sort of TV news or newspaper any more. NOT a good thing if you are an investor. KNOWLEDGE is power.

 

Well by the end of the day with all the funds reporting......I had a gain today of a little over $400. At LEAST I was able to squeeze out a little gain rather than a loss. Onward and upward for the rest of the week. We have had a really nice open to 2020 to date:

DOW year to date +1.72%
SP500 year to date +1.81%
My Portfolio year to date +2.48%

Earnings will pick up over the next six weeks and will be the primary driver of the general markets. There is a BIG PILE of money siting on the sidelines that might serve to drive the markets over the first part of the year. Seems that many companies tried to tamp down expectations last time they reported and were pretty conservative in forward looking statements. Lets hope this makes earnings a BIG market driver.

 

YES.....the markets are going to be DRIVEN by reports and earnings over the next six weeks. I am leaning to the side that financials will be good and with the new China deal, forward statements will be less wishy washy.

Stock Market Jumps On Strong Retail Sales; Morgan Stanley Surges, But Tesla Dives On Downgrade

https://www.investors.com/market-tr...-tesla-stock-downgrade/?src=A00220&yptr=yahoo

(BOLD is my opinion or what I consider important content)

"The stock market got back on track early Thursday with record-setting gains on strong U.S. retail sales data and corporate earnings results. The Dow Jones Industrial Average gained more than 170 points in today's stock market amid boosts from Dow Jones stocks Apple, Goldman Sachs (GS) and Intel.

Dow Jones stocks Apple (AAPL) and Intel (INTC) were among the top-performing stocks on the Dow Jones Industrial Average, lifted partly by bullish results from Taiwan Semiconductor (TSM). Meanwhile, financial stocks Charles Schwab (SCHW) and Morgan Stanley (MS) reported earnings results. Stock market leader Tesla (TSLA) dove as much as 5% after an analyst downgrade. Lastly, PayPal (PYPL) shows a new buy point in a new formation. (Check out Wednesday's IBD Investing Action Plan for more important stock market events and other earnings results.)

Dow Jones Sets Record High In Current Stock Market Rally
The Nasdaq composite rose 0.9% in morning trade. The S&P 500 moved up 0.6%, while the Dow Jones industrials also rose 0.6%. All three major indexes set fresh all-time highs Thursday, as the current uptrend continues.

Among exchange traded funds, the VanEck Vectors Semiconductor ETF (SMH) jumped 1.6% as chip stocks rallied behind the TSMC report.

The Innovator IBD 50 (FFTY) ETF gained 0.5% Thursday. The ETF of top growth stocks is above a 35.52 buy point after last week's breakout.

Dow Jones Stocks: Apple, Goldman, Intel Lead
Among the Dow Jones stocks, Apple gained about 1%, as it looks to halt a two-day slide. The iPhone maker is about 40% from a 221.47 buy point in a flat base.

Intel stock rose 0.8%, as it tries to retake a 59.23 buy point in a cup with handle, according to MarketSmith chart analysis.

Elsewhere, Goldman Sachs rallied almost 1% after Wednesday's volatile session — fueled by its Q4 earnings results. Shares are about 12% above a 222.34 entry in a flat base."

MY COMMENT

It is hard to see what I bolded in the above with all highlights in the original article. BUT, most of what I highlighted is the small statements in the article that deal with earnings reports and why the markets are UP today. We are in an AMAZING period right now in terms of all the indicators and the stock markets. It will either be a HISTORIC MARKET making a major move up.......OR.......some unknown event or happening will come out of nowhere and we will see everything fall apart and end up in a correction. In other words short term........who knows?

 

HERE is confirmation of what I was talking about in the posts above. We are in a very RARE GOLDEN time for stock and fund investors. UNFORTUNATELY the one big ugly event that will loom over the markets more and more as the year progresses is the election. All in all the various economic factors and busines news is EXTREMELY positive.

(BOLD is my opinion or what I consider important content)
The market's earnings losing streak may be about to end

https://www.cnn.com/2020/01/17/investing/earnings-fourth-quarter-preview/index.html

"Earnings season is off to a strong start. We haven't been able to say that in a long time.

JPMorgan Chase (JPM), Citigroup (C), BlackRock (BLK) and Morgan Stanley (MS) all reported results for the fourth quarter that topped forecasts. So did Delta (DAL) and Dow component UnitedHealth (UNH).

If the trend of companies surpassing Wall Street's estimates continues, Corporate America may break its earnings recession — a streak of three consecutive quarters in which profits dropped year-over-year.

Analysts are currently predicting another decline in earnings for the S&P 500 in the fourth quarter -- but of only about 2.1% according to estimates from FactSet Research. So if companies wind up beating forecasts, as they often do, then that will mean that earnings may finally go up again.

"Earnings expectations for this quarter are quite low so it should be somewhat easier to beat them. We should have a decent earnings season," said John Praveen, a managing director and portfolio manager with QMA.
That could be a good sign, especially if companies are confident enough to raise their outlooks for 2020 as well.

Rebound in profits coming this year?
Analysts now predict earnings in the first quarter will be up nearly 5% from a year ago, according to FactSet. The earnings momentum should build throughout the year. Analysts expect a 9.5% jump in profits for all of 2020.
Praveen told CNN Business that earnings growth of about 10% this year seems like an achievable target thanks to stronger global growth forecasts. Big multinational companies should benefit the most from revenue and profit gains in their overseas businesses, he said.

The fact that many big financial companies are doing so well -- State Street (STT), Charles Schwab (SCHW) and US Bancorp (USB) also topped analysts' earnings forecasts -- is a good sign for the rest of the market and broader economy as well.

"We could see more strength for the rest of Corporate America," said Mark Doctoroff, global co-head of the financial institutions group at MUFG. "The earnings recession may be over."
Doctoroff said in an interview with CNN Business that it was particularly encouraging to see how many banks reported solid results from their consumer lending units. The combination of a healthy job market and lower tax rates for many Americans is helping offset the Federal Reserve's three interest rate cuts last year that have hurt profit margins for some banks.
Still, companies in other sectors also need to report strong results for the earnings recession to finally end.

Busy week of earnings lies ahead
More blue chips will release their earnings during next week's holiday-shortened trading session. (US markets are closed Monday for Martin Luther King, Jr., Day.)
On tap are IBM (IBM), Netflix (NFLX), Johnson & Johnson (JNJ), Comcast (CMCSA), Procter & Gamble (PG), United (UAL), Southwest (LUV) and Intel (INTC), just to name a few.

"It's pretty clear that the earnings slowdown is probably coming to an end and we're probably headed for a modest recovery. The economy continues to do okay," said Ed Clissold, chief US strategist with Ned Davis Research. "But we'll get a better feel when we get earnings from more tech and consumer companies in the coming weeks."
Clissold added that investors are hoping that even more blue collar manufacturing sectors start to show strong growth. That could push stocks, which are currently at all-time highs, to keep hitting new records since it would justify the broader market rally.
"What could make earnings go from good to great would be a bigger pickup from traditional sectors like energy, materials and industrials," Clissold said.""

MY COMMENT

In my opinion we are in for a very good earnings season. I also believe that the view of weak earnings over the past year or two is NOT entirely accurate. My view is that earnings have been stronger than expected in general over the past year or two. Much of what is called weakness is simply NIT PICKING of earnings reports.....especially forward looking statements. We have been in an environment where everyone is looking for any sign of weakness and hammering companies for a few days after earnings as a result. The REAL STRENGTH of the economy and business is the fact that the dip that is often seen after earnings are reported is usually only for a few days to a week or two. The recovery in stock price comes quickly. It would be nice to see a market where the BIG PICTURE is once again the focus, rather than nit picking some obscure or out of context data in an earnings report. All in all in my opinion the year looks MASSIVELY POSITIVE for stock and fund investors an business. I continue to be fully invested for the long term as usual.

 

Three weeks into the new year the markets are BOOMING. STILL, I would not be surprised at all to see a little correction some time around April or so. In the meantime, I will continue to take everything the markets want to give me. At the moment we are at:

DOW year to date +2.84%
SP500 year to date +3.06%
MY PORTFOLIO year to date +3.44%

Be AWARE, these sorts of returns are short term historical aberration. Things will smooth out as usual as the year continues. There will be one or two corrections this year. This is normal market behavior. HOWEVER, at the moment the general market direction is UP. You cant fight the fed, you cant fight the tape, you cant fight all the economic indicators that are STRONGLY positive at the moment. I have seen many market predictions that this year will be a low average year.......5-9% by year end. I believe these predictions are LOW....my "guess" would be 12-18% for 2020 by year end. The key event will of course be the election.

 

The BLEEDING continues at Boeing. Besides the air crash disasters......this is now a TOTAL ABJECT FAILURE in crises management on the part of Boeing. See article below for the latest news. I am NOW closely watching this holding. I can live with the product failure....but the management FAILURE is something else. I will watch over the near term and if necessary will SELL this holding with the intent to add it back to the portfolio when things are becoming positive again. Right now.....NOT a lot of lost value for me. If I do decide to sell I will post here. My intent with any sale would be to put the funds in the SP500 and hope to make some medium term money till it is time to reinvest in Boeing. I STILL see the stock as having a $100+ upside, but I may decide to park the money elsewhere and get back in once the timeline for approval of the plane to fly is clear. OBVIOUSLY it is just a matter of time till this is resolved and production is up and running again........the BIG QUESTION being how much time. For me it is just going to be a question of what I could do with that money during the 6-12 months (hopefully) till this is resolved versus holding on to BA during that time.

https://www.usatoday.com/story/news...t-grounded-summer-vacation-travel/4533643002/

 

You guys are reading my mind. This morning at the open I sold ALL shares of BOEING in all accounts. My primary reasons:

1. MOST IMPORTANT.....I can no longer trust management. This has now evolved into a very OBVIOUS management failure that has been ongoing for some time now. As I was thinking about this I was struck by how often when I have sold out a company, like GE when Jack Welch left, or MSFT in 2002, and many others, it is due to NOT LIKING or TRUSTING management. I can stand to hold through a financial or product issue "IF" I am confident in the management of the company. The events of the past week (and this entire disaster) have SOURED me on Boeing management and their ability to deal with this crises. At this point the handling of this issue has been one disaster after another on the part of management of the company.

2. FINANCIAL.......Seeking 10 billion in loans right now. News items reporting as much as 25 billion in financial losses for customer payments, etc, etc, over the next few years. Billions of dollars of inventory siting and not deliverable. Production halted. The financial impact of this disaster is going to be a drag on the company for at least 2-3 years. HEY.....this is starting to add to up to real money.

3. LOSS OF INVESTING GAINS......I can move this money into other investments and have good exposure with more probability for gains in other investments during this GOLDEN ERA BULL MARKET. How long this bull market will last is anyone's guess, but I like to have money working for me all the time in the markets. I see this issue NOT being resolved for 6-12 months minimum. By resolution, I mean getting the plane approved to fly. Financial impact will be longer.

I will reevaluate Boeing once this issue is over and.........IF......management seems to have their act together will consider a new investment. There is STILL obviously MUCH value and strength in this company, that is why the stock is still above $300 per share......BUT....time will tell. It will be interesting to watch going forward.

I am a long term investor. BUT, when it is time to sell it is time to sell. I have no problem dumping a stock when it is time.......and, now is the time for me with this stock. I will park the funds in the SP500 until needed. This reduces my stock portion of each account to 10 companies. I like to stay between ten and fifteen companies. I need to start to look at what is out there to potentially add to my portfolio with this money. BUT.......no hurry.

 

SO.......as I was logging in to my account to do the Boeing trade above, I got to thinking about account security. What do any of you guys use for account security?

Over the past 15-20 years I have used a TOKEN to log into my account. I have all the accounts that I handle under one log in for convenience. Fifteen to twenty years ago, with more and more being done on the computer, I started to get concerned with the amount of money in these accounts and the danger of hacking and lack of security. I contacted of my broker and was provided with a TOKEN that I use as part of the log in password. It is a little device about the size of a half dollar that generates a random six digit number that must be used as part of the password to log in. I also have a "verbal password" that I must tell the rep in order to do any live or phone transaction. It is a random word that I NEVER use for any other purpose and has ABSOLUTELY no connection to anything to do with me or family.

Of course, now there are many two factor identification systems, many using your cell phone. I STILL prefer to use the old token since it is TOTALLY separate from my cell phone, computer or anything else in my life. It sits in a secure location at home and NEVER leaves that location. If I had to do some transaction while not at home I would do so by calling the broker and using the verbal password.

 

HERE.........is my portfolio now that I have sold all shares of Boeing. See post above for my reasoning in making this sale at this time. I really dont have anything that I am interested in adding to the stock side of the portfolio at this moment......so, I will stick with only 10 stocks. I would prefer to have one or two more stock holdings, but I am very particular in what I will consider adding and after a quick run through the SP500 holdings yesterday nothing stood out to me as an OBVIOUS possibility. My initial criteria to start the process to consider a business are.......BIG CAP, AMERICAN, DIVIDEND PAYING, GREAT MANAGEMENT, ICONIC PRODUCT, WORLD WIDE LEADER IN THEIR FIELD, LONG TERM HORIZON, etc, etc, etc.

PORTFOLIO MODEL

"Here is my "PORTFOLIO MODEL" for all accounts managed which is the basis for MUCH of my discussion in this thread. I am re-posting this since I often talk in this thread about my portfolio model. My custom in the past on this sort of thread was to re-post my portfolio model every once in a while since I will tend to talk about it once in a while. I "manage" six portfolios for various family including a trust. ALL are set up in this fashion. If I was starting this portfolio today, lets say with $200,000. I would put half the money into the stock side of the portfolio, with an equal amount going into each stock. The other half of the money would go into the fund side of the portfolio, with an equal amount going into each fund. As is my long time custom, I would than let the portfolio run as it wished with NO re-balancing, in other words, I would let the winners run. Over the LONG TERM of investing in this style (at least in my actual portfolios), the stock side seems to reach and settle in at about 55% of the total portfolio and the fund side at about 45% of the total portfolio over time. That is a GOOD THING since it tells me that my stock picks are generally beating the funds over the longer term. AND....since the funds in the account generally meet or beat the SP500, that is a VERY good thing.

As mentioned in a post in this thread, I include the funds in the portfolio as a counter-balance to my investing BIAS and stock picking BIAS and to add a VALUE style component (Dodge & Cox Stock Fund), a top active management fund that often beats the SP500 (Fidelity Contra Fund) and a SP500 Index Fund to get broad exposure to the best 500 companies in AMERICAN business and economy. The funds also give me broad diversification as a counter-balance to my very concentrated 10 stock portfolio.

STOCKS:

Alphabet Inc
Amazon
Apple
Costco
Home Depot
Honeywell
Johnson & Johnson
Nike
3M
MSFT
PG

MUTUAL FUNDS:

SP500 Index Fund
Fidelity Contra Fund
Dodge & Cox Stock Fund

CAUTION: This is a moderate aggressive to aggressive portfolio on the stock side with the small concentration of stocks and the mix of stocks that I hold and with the concentration of big name tech stocks. Especially for my age group. (70). So for anyone considering this sort of portfolio, be careful and consider your risk tolerance and where you are in your life and financial needs. I am able to do this sort of portfolio since my stock market account is NOT needed for my retirement income AND I have a fairly HIGH RISK TOLERANCE. In addition I am a fully invested, all the time, LONG TERM investor. (LONG TERM meaning many years, 5, 10, 20, years or more)"

MY COMMENT

This portfolio is HIGHLY CONCENTRATED on the big cap side of things. OBVIOUSLY between the funds and my ten stock holdings there is MUCH doubling and tripling up on the stocks. THAT is INTENTIONAL. I strongly subscribe to the view of Buffett and some others that TOO MUCH diversification kills returns. I do NOT believe in the current diversification FAD that most people seem to now follow.......or think they are following. I DO NOT do bonds and think the current level of bonds held by younger investors.....those under age 50.....is extremely foolish.I DO NOT do market timing or Technical Analysis.

AS TO TODAY.......the markets cant go up every day. At times there has to be a pause to consolidate the gains to date and take into account daily news that impacts the markets but has NO REAL relevance to investors beyond the very short term. We are also into earnings reporting which will be the primary day to day driver of the markets. ONWARD AND UPWARD........TO INFINITY AND BEYOND.

 

I have ADAPTED my stock holdings over the years to what I consider the PREMIER companies.........also, companies that connect and sell to the MILLENNIAL mindset. NO......I am NOT going to run out and buy every business that is a Millennial fad of the moment. BUT, if I have a choice, one factor I am going to consider in buying a company is BROAD consumer acceptance of an iconic product. AND.....considering that the Millennial generation is going to quickly become the largest generation of consumers they are an important factor. THUS:

Millennials like Amazon Prime, Nike spending trends survey finds

https://www.foxbusiness.com/markets/millennials-amazon-prime-nike-spending-trends-survey

(BOLD is my opinion or what I consider important content)

"Millennials have "killed" consumer products like paper napkins, breakfast cereal, and canned tuna. They are even responsible for the death of casual sit-down dining, according to news accounts.

So what does this generation born between 1981 and 1996 actually like? The people over at Roth Capital Partners questioned 2,500 of them for its eighth annual millennial survey to find out.

Most millennials are fans of Amazon Prime, reusable water bottles and dairy alternatives, the survey found.

Seventy-three percent of millennials are Prime members, 74 percent own reusable water bottles or tumblers — YETI, Hydro, Flask and Contigo are the most popular brands — and about two-thirds of millennials use dairy alternatives. More than half of millennials said they were willing to pay a 10 percent premium for socially responsible brands.

“Millennials are seeking brands that share their values and speak to them directly in a personalized manner,” Paul Zaffaroni, managing director and head of consumer investment banking at Roth, said in a press release. “Institutional investors and strategic acquirers are actively pursuing these brands and have been willing to pay a premium for them.”

Some of those popular brands include Nike, Adidas and Vans for footwear, and Gucci for luxury goods, the survey found. For mattresses, millennials like Serta, Sealy, Tempur-Pedic, Purple and Casper.

The most used subscription service is Dollar Shave Club, Marketing Daily reported, based on the survey results. That was followed by Chewy and Target, and Ipsy for women and Stitch Fix for men.

Millennials have unique shopping habits too, according to the study.

Nearly half of millennials — 45 percent — have purchased apparel from brands they first discovered on Instagram. Among millennials who shop online, 63 percent said they prefer to make returns to a physical store. And 76 percent of them said they then stay to shop after making an in-store return.

“Millennials will make up nearly three-quarters of the workforce by 2025 and are rapidly redefining consumer patterns,” David Bain, managing director and senior research analyst at Roth said in a press release. “Investor awareness and study of millennial consumer behavior and preferences is an essential factor to projecting business earnings and setting valuations.”

MY COMMENT

OF COURSE, we are in the early stages of this massive change over in the generations. This includes the transfer of wealth to the Millennial and other generations as the baby boomers die off. I would personally be VERY CAUTIOUS jumping into the many, many, up and coming companies aimed at Millennials. Over the months and years ahead many of these companies, like those in the dot com mania era, will FAIL to ever make a profit.

 

I am......at the moment.....considering PG and KMB.....to replace Boeing in my portfolio. Proctor & Gamble fits what I would like to add at the moment. My portfolio is a little heavy in the tech side of things with Google, Amazon, Apple, and Microsoft in there as 40% of the ten stock holdings. I consider Amazon a tech company due to their BIG presence in the cloud world. I would like to add one or two old world type CONGLOMERATES with BIG product lines to the mix for stability, the dividend, and a little bit of safety. Since PG is a Dow stock I dont have it in my SP500 Index Fund or in my individual stocks. Kimberly Clark is the 140th weighted holding in the SP500, so I do own it already in my SP500 Index Fund. I might consider adding both as a one half position and see how they do and than make a decision whether to hold both or only one. Have been reviewing their financials. Also reviewing their product line. Both had a pretty big year over 2019. HERE is one positive opinion going forward......BUT....there are many opinions on all sides, good and mediocre.

https://markets.businessinsider.com...e-miss-q2-earnings-guidance-2020-1-1028839809

https://www.wcpo.com/news/insider/procter-gamble-co-shakes-up-management-structure

I am more interested in Proctor and Gamble at the moment due to their larger more diverse product line compared to Kimberly. I am also impressed with how they have come back over the past year from being stagnant for the last few years before in stock performance. I will let it kick around in my brain for a while and see how I feel as a little time goes by.

 

SO.........decided to make the buy on PG in all accounts at the open today. At the moment.......UP, $1.65 per share. YEA!! I have added PG to the account model set out in the post a few above this one. HOPEFULLY, this is my LAST trade of the year. I expect that this holding will add to portfolio stability when we see a correction or recession some time in the future. The dividend will be nice. It will be interesting to watch the company with their management structural changes and see if they are doing the right things to appeal to newer, younger, consumers as they have kids and age. HOPING that their baby products are used in the upcoming BABY BOOM as the Millennials have kids over the next 10-15 years.

 

So you can see from the above two posts that when I say "I will let it kick around in my brain for a while" that means about 12 hours. I have NEVER been one to agonize over selling a stock or buying a stock. I look at what is available and make up my mind and act. Not that that is a good thing or a bad thing, that is just my personality. I spent the past couple of days reading about PG, KMB, and one other company. I looked at all the financials for the past three years as well as the recent earnings release on PG, reviewed and considered their forward statements, considered analyst opinions, looked up their management team and recent management changes in philosophy, went through a list of ALL their products, etc, etc. If last year was NOT a one-off year the changes in their management structure might be paying off. I do like the fact that their senior management has many many decades with the company and their product line. BUT in today's world it all comes down to MARKETING.