Tim Connolly: Winning Strategies

Sudden, vicious market moves not only tend to ruin your day, but  can sometimes ruin your sleep at night. Here are five terrific dividend paying stocks that are excellent quality companies with a good defensive diversification for this market. First, Aflac (AFL).-- Trading at a 9.3 P/E and a current yield of 3.37%, it provides a great entry point and current yield. Intel (INTC)—a low P/E of 9.1 and a current yield of 4.25%---what’s not to like? Chevron (CVX)---one of the great energy plays in the world and trading at a P/E below 8, with a current yield of 3.44%. Put CVX away for your retirement. Abbott Labs (ABT)—while healthcare is a scary place to be these days, Abbott has a good long  term view, and is one of the most powerful companies in its space. With a current dividend yield of over 4%, Abbott is another long term winner. Buy these stocks on sale, and get a good night’s sleep while getting paid for an improving market in the future. We will talk more about these stock and others with Phil Hecla, (HL) CEO of Hecla mining, and Marilyn Cohen, CEO of Envision Capital tomorrow on Winning Strategies at noon CT.

www.winningstrategies.net

Marilyn Cohen: Envision Capital Management, LLC

I Want To Believe

              Like Dorothy in the Wizard of Oz, I stand clicking my heels, crossing my fingers, wanting to believe in good things for 2012. 

              I want to believe the thing that scares the markets most…the Eurozone blowing up…won’t happen.

              I want to believe class warfare propaganda won’t cause rioting

              I want to believe that Dodd-Frank and all the regulatory burdens will insulate us from another near death financial meltdown.

              I want to believe Congress, no matter who holds the majority, will cut back on its drunken sailor spending and that fiscal prudence rules both the Senate and House chambers.

              I want to believe the Arab Spring was not actually a vote for radical, extremist  Islam.

              I want to believe the analysts and money managers on CNBC will finally be right (after three years) that bank stocks will turn around.  That would mean that banks are lending to more confident businesses and consumers.  That would also mean new jobs are created, thus raising property tax, sales tax and personal income tax revenues.

              I want to believe Ben Bernanke and the Federal Reserve Board will “know” when to put the brakes on and raise rates.

              I want to believe the rating agencies will become efficient, credible and accurate.

              I want to believe the additional monies states are putting into the schools will aid in actually teaching our children how to read, write and excel in math.

              I want to believe the Supreme Court will arrive at a fair and balanced ruling on Obama Care.

              I want to believe we won’t feel barraged or engulfed with negative Presidential propaganda from either party.

              I want to believe voters will elect Congresspersons and Senators who are more concerned with doing their jobs than with getting themselves reelected.

              I want to believe our Federal Agencies will become more efficient and not cost $1,000 to protect $100.

              I want to believe our country will have jobs for our college graduates. 

              I want to believe the soaring entitlement-spending trajectory can finally start its descent.

              I want to believe food stamps really go to the needy.

              I want to believe the SEC has gotten sharper and will be able to detect or at a minimum follow up when notified of a Ponzi scheme that takes down innocent investors. 

              I want to believe Homeland Security, the National Security Agency and the FBI are really protecting us.  And I want to believe they have finally ended their turf wars and are sharing information.

              I want to believe the new drugs, medicines and medical miracles in the FDA pipelines will increase, enhance and lengthen our lives.

Wayne Allyn Root: W.A.R. Strategies

ROOT: Obama’s bailout plan goes bust

Teetering Greece demonstrates the failure of government spending

Poor President Obama. Despite all his efforts, or maybe because of them, the U.S. economy keeps crumbling.

But to be fair, government is a failure everywhere. Exhibit A is the big fat Greek bankruptcy. Have you heard? A Greek tragedy is unfolding - again. Greece is bankrupt and insolvent - again. Government thinks it can save Greece with taxpayer money - again. And the more money poured into Greece by the European Union, the International Monetary Fund and central bankers, the worse it gets. The Greek gross domestic product is going in reverse. The economy is crumbling despite hundreds of billions loaned by government only a year ago. Now it’s time for Groundhog Day - again.

Does this story sound familiar? It plays on the news here in the United States nightly. Government pours trillions into the U.S. economy and things get worse by the day. Unemployment rises. The dollar sinks. Debt is multiplying. Real estate is collapsing. Inflation is raging. So Mr. Obama spends more. The vicious cycle continues.

When will we ever learn?Politicians, bureaucrats and central bank chiefs the world over keep repeating the mantra of big government: “If only you’ll give us more time and money, this time we’ll fix the problem.” But as one of my heroes, Ronald Reagan, often said, “Government isn’t the solution, it’s the problem.”

History proves that government ruins whatever it touches. The fact is, the economy will not improve until we stop government from interfering. Government may feel our pain but that’s because they are the ones causing it.

Don’t take my word for it. The Congressional Effect Fund, a mutual fund on Wall Street, has studied the effects of Congress on the economy for decades. Since 1964, whenever Congress is in session, the U.S. stock market is up about 1 percent on an annualized basis. During that same period, while Congress is on vacation, the stock market is up 17 percent. Coincidence?

Still don’t believe government is a walking disaster?

How about the Department of Veterans Affairs? A federal appeals court recently ruled that the VA suffers from “unchecked incompetence.” That incompetence is killing our brave veterans. It turns out that 18 returning vets commit suicide per day and 85,000 vets are on waiting lists for care. Even severely depressed vets must wait eight weeks to see a psychiatrist. Each year, 1,500 vets die while waiting for care. If you deserve a disability check, you’ll be waiting as long as four years. Still want to serve your country? Still want government to run your health care?

I just can’t wait for the results of Obamacare. Since government-run health care works so well for our veterans, can you even imagine how well it will work for the entire country?

The U.S. Postal Service - mandated by law - has no competition. Yet it loses $8 billion per year. No results like that have ever been produced in the history of the private sector.

The government-run school system is in shambles. Taxpayers spend the most per student in the world and get among the worst results. The Department of Education budget went from $30 billion to $60 billion under President George W. Bush. Does anyone think results doubled? Under Mr. Obama, we spent an extra $125 billion in stimulus on education. Does anyone see any improvement?

My wife Debra and I homeschooled our daughter from birth to her acceptance at Harvard. The first classroom of her entire life was inside the hallowed halls of Harvard. She just got her Harvard report card - straight As. Think it might be time to call government-run education a failure?

When Medicare was founded in the 1960s, government “experts” estimated its cost at $12 billion per year by 1990. Instead it was $110 billion.

When NASA started the space shuttle, their “experts” estimated its future cost at $10.7 million per trip. The actual cost has turned out to be $1.7 billion per trip.

Those kinds of mistakes in the private sector drive companies out of business. But this doesn’t present a problem for government employees. They just raise your taxes and retire on $100,000 pensions.

How about the Department of Energy? It was founded in 1977 to solve our energy crisis. It now has 100,000 employees and spends $24 billion per year. On what? Does anyone think we are less energy dependent than in 1977? Why didn’t we just spend that entire budget on buying gas for the American people?

How about the Federal Reserve’s track record? The Fed was created in 1913 with one main goal: Protect the U.S. dollar. Since the Fed’s creation, our dollar has lost 94 percent of its value. With friends like that, who needs enemies?

How about the Drug Enforcement Agency (DEA)? It has 11,000 employees and spends $2.5 billion per year. Are we winning the war on drugs? Could it be any worse without a DEA? Maybe the war on drugs is causing the drug epidemic.

Worst of all is the cost of government employees themselves. There are now 22 million people working for the U.S. government. The unfunded liability for the pensions of federal employees is now over $5 trillion. For state workers, the liability is estimated to be between $1 trillion and $3 trillion. One state alone, California, has unfunded liabilities of as much as $500 billion.

All of this money is spent on government employees who have just produced an annual deficit of $1.6 trillion and a national debt of more than $14 trillion. With unfunded liabilities added in, the taxpayers owe an unimaginable $100 trillion, almost double the world’s gross domestic product. What do these 22 million employees do all day? Think up new ways to bankrupt the country?

Should any of this surprise you? This same federal government took over the most famous, legal brothel in the history of Nevada and bankrupted it in a year.

The moral to this story: If you can’t run a whorehouse and make a profit, you’re not going to succeed at running the nation’s health care, the VA, the public schools, the post office, the war on drugs, the Department of Energy, the economy or anything.

If you’re waiting for government to save you or this economy, get ready for a long wait - eternity.

Wayne Allyn Root is a former Libertarian vice-presidential nominee and author of “The Conscience of a Libertarian: Empowering the Citizen Revolution with God, Guns, Gold, Gambling & Tax Cuts” (Wiley, 2009). He writes at RootforAmerica.com

Wayne Allyn Root, is the author of the new paperback, "The Conscience of a Libertarian: Empowering the Citizen Revolution with God, Guns, Gold, and Tax Cuts." He is a Las Vegas oddsmaker turned Vice Presidential nominee. Root is available to the media to provide pre and post election analysis, discussion and debate. His website is: ROOTforAmerica.com

John Merrill: ETF/Fund Strategies

SUMMARY.  The U.S. economy continues to show strong cyclical strength that should last well into this year.  The economy may decelerate to more moderate growth later this year or in 2011.

The cyclical bull market continued after an 8% correction in January and early February.  Corporate America is in very good shape with strong balance sheets and improving earnings and revenues.

ECONOMY.  Economic statistics released in February give added support to the strength of this cyclical recovery.  The government’s upwardly revised its estimate of economic growth in the fourth quarter to a very strong 5.9% (annualized) gain in real GDP.  Leading indicators suggest that this strength will continue well into the first half of this year.

The widely followed Institute of Supply Management (ISM) survey of manufacturing provided a strong reading of 56.5 for February, down slightly from a reading of 58.4 in January.  Numbers above 50 indicate that the manufacturing sector is growing. 

The nonmanufacturing (services) ISM index also produced a solid growth number of 53.0 in February.  This was its fastest pace in over two years.  This is a sign that the recovery is beginning to broaden out. 

All of the good news for the economy as a whole – and business in particular – has not yet shown up in increased payrolls.  The “Payroll Report” (a survey of businesses) released Friday continued to indicate that the U.S. economy is still treading water – neither adding new jobs nor letting more jobs go.  The report added 35,000 jobs to the December and January reports while showing a similar number of lost jobs in February.  The “Household Survey,” the report that determines the unemployment rate, was unchanged at 9.7%.  With each passing month, it appears that the peak in unemployment was reached this past October.

The combination of a rebound in manufacturing and negligible job growth is behind the sharp increase in the nonfarm business productivity numbers.  Fourth quarter productivity was revised to a 6.9% annual rate from 6.2%.  This is a huge number that is far higher than any other developed country.  This means that our companies are getting financially stronger, and are more competitive.  Eventually such numbers must lead to job growth.  For now, they are spurring corporate investment.  Capital equipment (“capex”) spending was up 18% in the first two months of 2010.  This can continue for some time as the level of corporate cash flow relative to capex is at 50 year high.

A continuing surprise behind the better economic numbers is how well the consumer has held up.  Retailers reported that store sales rose in February by the largest amount since November 2007 – despite the terrible weather and snow storms around the country.

Housing is a part of the economy where the statistics are still uneven.  The housing affordability index is at its best level in over a decade and the government’s $8,000 tax credit is still available yet pending homes sales fell 7.6% to 90.4 in January (the latest monthly statistic).  This may have been partially caused by the bad weather, yet this is an area that has yet to demonstrate a sustainable rebound.

Despite the current economic recovery, we still have questions about the ongoing strength and longevity of this economic rebound.  The “Long Leading Indicators Index” from ECRI, which measures economic growth six to twelve months out, has flattened out in recent readings.  This indicates that the strong rate of growth we are currently experiencing may fall back into a milder rate later this year.

The economic headwinds which we have pointed out before include:
•       Commercial real estate financing.
•       Below average wage and benefit growth.
•       Contraction of state and local government spending as they adjust to smaller tax collections.
•       Two new waves of mortgage problems coming from Alt-A loan and Option-Arm loan resets.
•       Uncertainties as to future government policies, taxes, and debt.

International economic growth has its own uncertainties.  Europe’s economy stalled at the end of 2009 – expanding at just a 0.4% annual pace in the fourth quarter.  In addition, sovereign debt issues in the peripheral countries of Europe, (Portugal, Spain, Greece, and Ireland) continue to be a concern; although Greece was easily able to sell government debt last week.  The Euro has weakened against other currencies over the past three months which should help their industry competitively.  Hopefully, their growth will pick up this spring.

As we have said for the past six months, we are now in the sweet spot of this economic expansion.  The solid and improving economic news is likely to continue well into this year.  However, we are watching closely those areas that may slow this recovery down.

MARKETS.  The S&P 500 fell over 8% from early January to mid-February in the most severe correction so far in the current bull market.  This pullback took it within 2% of its 200 day moving average.

As we noted in last month’s Commentary, most bull markets tend to stay above their 200 day moving averages although they will periodically fall back to it before beginning another upward leg.  In other words, this looked like a “textbook” correction.

The market got major support from this corporate earning season.  Approximately 72% of companies exceeded their earnings expectations.  Perhaps more importantly, about 2/3 also beat their revenue estimates.  Corporations have migrated from beating earnings from primarily cost cutting to improvements in top line growth, too.

The fundamental underpinnings of this bull market remain intact.
•       World economic growth has come back everywhere but Europe.
•       Inflation is still well in check (and will likely continue with the high unemployment and low factory utilization).
•       There is ample cash on the sidelines for investment.
•       Monetary policy is very accommodative (0% Fed funds rate)

We are ever more confident that the earnings per share of the S&P 500 index will reach $75 in 2010.  The historic average range of earnings multiples is between 16 and 17.  This puts the “normal” value of that index in the range of 1200 to 1275.  It is 1138 today.  This suggests that valuations are supportive of further gains in the markets.  More positive earnings surprises in the next couple of quarters could push this valuation level up further.

TANGLEWOOD STRATEGIES.  Our equity weightings remain:
•       Overweight U.S. large companies
•       Underweight U.S. small companies
•       Underweight REITs
•       Underweight International Developed Country stocks
•       Overweight Emerging Market stocks

We continue to believe that large, U.S. high quality multi-national companies are among the cheapest stocks in the market in terms of their own historical valuations.  They are also among the safest (overall) in terms of downside volatility.  We also believe they are well positioned to take advantage of growth opportunities wherever they present themselves around the world.  Several of our selected mutual funds focus on these companies – Amana Growth, Jensen and Parnasus Equity.

We believe emerging markets are likely to continue to outperform developed markets over the balance of this bull market.  The trailing return on equity (ROE) for the MSCI emerging market index is 12% versus 7% for developed markets.  This is likely to be the 10th year in a row of emerging market outperformance in this area.  Yet emerging markets are selling at a forward P/E multiple estimate of only 14 based upon consensus earnings estimates.

We have substantial positions in what we call “Defensive Winners,” funds that have substantially outperformed their relevant indexes over the past two complete market cycles – with less risk (volatility) than that of the indexes.  These funds include T. Rowe Price Capital Appreciation and Mathews Asia Growth and Income.

We made one change to our portfolios in February.  We added a small 2% position in the U.S. large-cap index (Russell 1000) when the market declined by 7%.

Underground Options Strategies

What he knows, he tells - off the record! A Wall Street executive with over 20 years of successful options trading experience, the Underground Options Trader provides a balanced approach on options trading, with specific trades identified each week, and sometimes on a daily basis to our regular subscribers.

WEEKLY COMMENTS for WINNING STRATEGIES- by Jan W. Vandersande

Weekly Commentary on the Stock Market and the Economy:

What are cycles and technical indicators saying now ?

During the past four months we predicted (plus or minus a few days) in advance all the tops and bottoms in the market. We have been expecting a rally into the important longer term cycles in late-May/early June and the high came in on May 31 (the high was a lower high than the highs made on May 2 as predicted). The market has sold off very sharply since making that high. The next intermediate cycle is now in late-June/early-July and we believe that the current rally should make a high in this time frame. The rally could continue (or hold up at these levels) for a few more days because the end of the quarter with the usual institutional window dressing (to prop up stock prices so their portfolios look good!!) is on Thursday. Also, the beginning of the new month starts on Friday and is usually (but not always) a bullish period because 401k and pension money comes into the market. The short term advance/decline oscillator is now already back to slightly overbought (from being very oversold) but the rally so far has not been impressive (so-so breath and low volume) so selling might pick up sooner than we anticipate, unless the market starts showing more internal strength soon. Also, call option buying has started picking up so sentiment is not as bearish as it was. The next short term cycle is in mid-July and we expect it to be a low. The next longer term cycles are in October and we expect them to be a low. QE2 (Fed money creation) appears to have fueled the rally this year but it ends later this week. It now looks like the market made a multi-month high on May 2 and it is even possible that the cyclical bull market has ended and that the secular bear market has resumed (this is based solely on cycles and needs to be confirmed by price action such as the major indices making lower lows below the March 16 lows). (Our cycles have been working extremely well the past four months but this could change at any time (no indicator is 100% all the time) so to trade by cycles only is not advised. Use technical and sentiment indicators as well as cycles-as we do).

     Buy-Write Recommendations for Income:

This week I have two interesting very short term (July Expiration) buy and write recommendations that are attractive.

Buy Triple Inverse Real Estate ETF- SRS - at around 14.90 and sell the July 15 call for around 0.50 (so a net cost of around 14.40) which would generate nearly a 4 % income (less commissions) in just over two weeks if called away. If the ETF closes below 15 on expiration in July then we will write the August call. This ETF is very volatile so this trade is for experienced traders only.

Buy Rambus- RMBS- at around 14.25 and sell the July 14 call for around 0.80 (so a net cost of around 13.45) which would generate nearly a 4% income (less commissions) in just over two weeks if called away. If the stock closes below 14 on expiration in July then we will write the August call.

Even the Fed is now predicting that economic growth will slow- Surprise?-No!!- We have been predicting it for months

The Federal Reserve met last week and as expected stated that QE2 would end at the end of June. They will reinvest the funds from maturing securities hence keeping their balance sheet constant. Once they start shrinking their balance sheet it would technically be tightening but that is not expected for many months. The Fed stated that the recovery is continuing but more slowly than they expected and it expects the economy to grow 2.7%-2.9% this year, down from April’s prediction of 3.1%-3.3% and January’s 3.4%-3.9%. Fed head Bernanke stated that the housing and financial (the banking sector) headwinds may be stronger and more persistent than the Fed thought. Oh, really??!! This should be no surprise since I have been writing for months that economic recovery has been slowing and very likely will keep on slowing, giving lots of data and statistics to back up my arguments. The data has been out there and it surprises me the Fed has taken this long to recognize it.

The Fed and many economists and analysts believe that the economy will recover from its current “soft patch” in the second half of the year as supply disruptions from Japan’s disaster ease and energy and food prices fall. However, the Economic Cycle Research Institute’s (ECRI) long leading index of global industrial production peaked in August 2010 predicting a slowdown in industrial activity starting this summer. The index in April was at the lowest level since 1980. Their long leading index turned down well before the events in Japan and the Middle East, which combined with bad weather have been blamed for the economic soft spot. According to the ECRI the slowdown is baked in the cake and should last for several quarters but they do not believe we will go back into a recession.

The growth rate of ECRI’s leading U.S. index fell to the lowest level since December (and has now dropped 9 weeks in a row) in data released last week. They stated that the economy is set for a sustained slowdown in growth. All their data suggests a global industrial deceleration unrelated to various temporary factors. To confirm this Philips Electronics, the European lighting and consumer electronics giant, warned last week that they expected a big drop in profits blaming Western Europe’s sagging economies. In addition, the end of QE2 and the fiscal tightening (as well as the continuing layoffs) at the federal, state and the municipality levels will have a dampening effect on the economy and probably partially (or even fully) offset any benefits from a recovery in Japan and lower gas and food prices.

However, not everything is doom and gloom. Lower crude oil prices (as we have seen recently) will reduce the cost of gasoline to the low $3 area, leaving the consumer with some extra cash to spend (as long as crude prices don’t go right back up). Also, data released last week showed growth in non-defense capital-goods orders (excluding aircraft). This could be the beginnings of an increase in capital equipment and software expenditures, because of the full expensing of capital expenditures allowed in 2011, instead of depreciating over a number of years (was part of the late December tax deal). Some economists estimate that this pulling forward of corporate capital expenditures from 2012 to 2011 could add as much as 2% to GDP the second half of this year (but would weaken GDP in 2012).

It will be interesting to see how this all plays out the second half of this year; if GDP ends up being in the 1-2% range, as we expect, or if it comes in higher as most believe it will.

Gary Cella: Under the Hood

AIG, The Pay Czar And Other Silly Things...Well, well the Wall Street Journal reported recently citing "unnamed people" (Why are they always afraid to be named?) that AIG head Robert Benmoshe is going to quit, take all his marbles and go home. Seems that old Bob is upset with his company having to pay only up to 500,000 dollars salaries to the top 25 highest-paid executives...Say it isn't so..That's just about going to cover the cost of the country club dues, summer home tax's, trip to Europe and private school for three kids.Gee, that hardship? Wow no wonder main street hates wall street. With real unemployment over 17 percent, the average salary of 28,000 dollars per person, and taxes and unemployment  going higher, you would think someone would thank their lucky star's to be making $500,000 per year.I guess not. Maybe Bob can just return all the money AIG got from us the taxpayers. Remember us? Were the people that that you got the money from so you can have a company that CAN pay you and your 25 Best Friends 500k. Maybe write a book called How to get by on $9600 per week. (Robert Benmosche has since announced he is staying with AIG).