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Gary Alexander
September is off to a wonderful start, with a 255-point Dow increase yesterday. But last month also started with a big (208-point) rise August 1 but then fell 4.3% for the full month, so Day One does not tell us where any month is going. As the financial media keep reminding us, September is the "worst month for stocks," although this has not been true lately. September has risen in four of the last five years.
There is a reason September has been a dangerous month in past decades. In the olden days - say, before Eliot Spitzer - companies and company analysts were generally too optimistic early in the year and then slashed their over-optimistic estimates in September, before third quarter earnings announcements season. Today, however, most analysts tend to lowball earnings estimates, creating positive earnings surprises. Legally and practically, it's far safer to under-promise and over-deliver than to over-promise your results.
The three worst Septembers came in the 1930s, but 1974 and 2001 also add to September's scare factor:
September of 1929 is next worst, with a 9.7% decline. The 1929 fall panic set the pattern for all future fears of September and October, so let's take a brief look at the September prelude to that 1929 crash.
The Curse of 1929 Began in Early September
On September 3, 1929, the Dow Jones index closed at 381.17, a level it would not see again for 26 years. The Dow lost 48% in 10 weeks, and 89% in less than three years. Two days after that peak, on September 5, 1929, Roger Babson - a market statistician with a reputation as a permanent bear - said, "Sooner or later, a crash is coming and it may be terrific … factories will shut down...men will be thrown out of work … the vicious circle will get in full swing and the result will be a serious business depression."
The Babson Curse has gone down in history as one of the greatest market calls, but he had been singing the same bearish tune since 1921. All the while, the Dow was multiplying by 500%. By 1929, Babson was clearly in the minority. In The Great Bull Market, economic historian Robert Sobel wrote, "In 1929, the leading economists of Harvard, Yale, Princeton, Ohio State, Michigan - one can hardly think of a major institution missing from the list - were believers in the bull market." For example, Yale's Irving Fisher said in 1929 that "stock prices have reached what looks like a permanently high plateau."
Since 1929, some other scary Septembers (most recently, 9-11 in 2001, and the financial crisis of 2008) have created fears of September, but the majority of recent Septembers have been positive. Focusing on the current September market, any mid-term election autumn is a particularly good time to buy stocks.
Mid-Term Election Rallies Often Start in "Hurricane Season"
Mid-term election lows often come during the "market hurricane season" of August through October. Some recent examples are August 12, 1982, October 11, 1990, October 8, 1998 and October 9, 2002. But no matter when the mid-term election year low comes, the rally that follows can be truly spectacular.
The Almanac Investor has tracked the details of the most reliable and predictable cycle in market history, the four-year Presidential election cycle. Unlike some other calendar correlations, the election cycle is logical and predictable. Voters tend to reject any concentration of power by either major political party. "Gridlock" is the implied Constitutional solution - a division of powers to prevent a monopoly of power.
From 1942 to 1994, the President's political party LOST seats in EVERY mid-term election, averaging a 34-seat loss. Some of these turnarounds were dramatic: In the 1940s, the Republicans gained 53 seats in 1942, when a presumably popular four-term winner, Franklin Roosevelt, was at the war-time helm. The GOP then gained a shocking 66 seats in 1946, when Truman was President. The market loves these mid-term power shifts, delivering an average 57% gain from the mid-term low to the next election year high:
This year (so far), the mid-term election year low came on July 1, at Dow 9596. Using that figure as the 2010 baseline, we could see a new record high over 15,000 Dow in 2012. And if we see a stunningly dramatic Congressional change (like 1994), an 82.6% gain could take us up to Dow 17,500.
September and October can be violent months. They are usually placid, but a few September/October markets have scarred our psyches, so it might pay to add downside protection before markets take off.
Quiz: Do you think September and October (taken as a whole) will be up, down or sideways this year?
As August nears the exit ramp, we're likely to see another down month for stocks. Although the Dow is stuck around 10k (for 12 years now!), a look beyond the headlines reveals a healthier market climate than last year at this time. In particular, buyers are starting to reward quality. We've seen that trend in our own Navellier Large Cap Growth Portfolio. Quality stocks are finally beating the market, as we always thought they would. This makes for a much healthier situation than last August's phony junk-stock rally.
Last year at this time, we wrote (in Navellier's Market Mail, dated August 31, 2009), "The August stock market rise is narrow and suspicious, on low volume, but there has been incredibly high volume in five formerly-troubled financial stocks (namely, AIG, Bank of America, Citigroup, Fannie Mae and Freddie Mac), which accounted for approximately 40% of the NYSE's trading volume in August!"
Here's the chart we printed a year ago, updated with prices reflecting the last year's action:
Last August 31, we wrote, "In the case of mortgage giants Fannie Mae and Freddie Mac, the consensus on Wall Street is that their common stock equity is virtually worthless. So why did these 'worthless' stocks more than triple on huge volume? Clearly, day traders like to swing for the fences in low-priced stocks of disputed value, regardless of their fundamental flaws…. This is not a healthy trend."
This August, by contrast, we're glad to see better-quality large-cap stocks lead the way. Last year's junk-stock rally was clearly fueled by a desire to "get rich quick." You would think traders might be chastened by the dot-com collapse of 2000, the global market meltdowns of 2002 and 2008, and the real estate collapse since 2006, but no. Just one year ago, in August of 2009, investors were so desperate to recover their lost riches - or create new fool's gold - that they bid a handful of junk stocks up to the stratosphere.
A Tale of Speculation in New (and Old) Orleans
This week is very important in France, and especially in the French stock market. Historically, August 25 is the Patron Day of St. Louis. It's the day Joan of Arc (the Maid of Orleans!) entered Paris triumphantly, in 1429. More recently, the Allies liberated Paris on the same date: August 25, 1944, "St. Louis' Day."
Nearly 300 years ago, the French outpost of New Orleans was incorporated on August 25, 1718. Being a summer day, the Gulf weather was likely hot and humid enough to make any explorer wonder why on earth anyone would call this bug-infested sweltering swamp five feet below sea level "home." But the visiting French "Cajuns" (from Acadia) named the new town in honor of their beloved Duke of Orleans.
This discovery fueled a stock market mania in Mississippi River swampland. One year later, on August 24, 1719 (the eve of St. Louis' Day), large and giddy crowds swarmed outside the office of the Scots-born French finance minister John Law, who made a market in shares of his new "Mississippi Company." He sold shares in stock based on the successful model of the Dutch and British "East Indies" corporations. John Law's company promised to explore the Mississippi Basin in French America, and sell land shares.
The price of these shares was soaring in August, 1719. To celebrate their new-found wealth, thousands of new "millionaires" (a French term first coined that year) gathered in the Jardin des Tuileries to enjoy fireworks and a holiday musical show. A barricade blocked their exit, and panic ensued. Hundreds suffered broken bones and 11 women were suffocated or trampled to death that night. Soon, the market in Mississippi stock suffered the same fate, but that hot August night in Paris was like Silicon Valley in 1999 and 2000. Replace the French gold-plated carriages with BMWs, and you can imagine the scene.
Fast forward one year later, to August 1720, the second anniversary of the founding of New Orleans, and the first anniversary of the peak of the "Mississippi Bubble." A new market bubble was sweeping Paris that summer. At the beginning of the summer of 1720, French investors were unloading their now-sinking shares in the Mississippi Company to buy shares in a British stock, the South Seas Company.
In June 1720, South Sea shares traded at a high of 1,050 British pounds. But South Sea shares fell to 380 pounds by the end of August, 1720. Investors who had borrowed heavily (on margin) to invest in South Sea stock were now forced to sell other investments to repay their loans. Part of the problem was that the British and French were printing more paper money to mask the loss in share prices, so gold and silver were disappearing from circulation. Investors who lost nearly everything in 1719 lost the rest in 1720.
So you see, there's nothing new under the sun. The same kind of investors that rushed from a Mississippi Bubble to a South Sea Bubble within one year, rushed from the crumbling edifice of financial stocks in 2008 into the supposedly government-backed survivors of that massacre (Freddie, Fannie and AIG) in 2009. But crap is still crap, even if it is federally-financed crap. Alas, in the last year, we've quietly seen Freddie and Fannie banished to the Bulletin Board listings of the OTC market, losing 85% in 12 months.
Fifty years ago today, on August 19, 1960, the Soviet Union launched Sputnik 5 into orbit, carrying two dogs (Belka and Strelka), two rats and 40 mice. All came back to earth safely the next day, after 18 earth orbits, becoming the first animals to return safely from space to earth. On the same day, U.S. pilot Francis Gary Powers was not so lucky. In a Soviet court, he was sentenced to 10 years in prison for spying, after being shot down over Soviet air space in May of 1960. He would be released after two years, in exchange for a Russian spy, Rudolf Abel. Alas, Gary Powers later died in a news helicopter accident in California.
Also in this week in history, the Soviets built the Berlin Wall in just five days, August 13-18, 1961. (Who says the Commies can't work fast?) Vice President Lyndon Johnson then visited the Wall on August 19.
In the summer of 1961, the new U.S. President John F. Kennedy despaired of America's incompetence in the space race: "We are behind, and it will be some time before we catch up." In the context of the Cold War, President Kennedy committed to close the missile gap by chasing Russia to the moon. He famously said that America must "land a man on the moon and return him safely to earth" by the end of the 1960s.
Those were heady times in my high school - a time when everyone with the least bit of brains was being pushed into physics, math and science, in order to help close the missile gap by putting some lucky guys on the moon. We lived in Seattle at a time when most of the whiz kids in my calculus class were sons of Boeing engineers. Ever since the first Sputnik hit the skies in October 1957, we were being pushed into science. As part of that push, Boeing sent my father to Huntsville, Alabama in 1963, to build big rockets.
Which is Harder - Rocket Science or Investing?
Yes, my father was a rocket scientist for Boeing. In the 1950s, he worked on a top-secret project, Bomarc - a surface-to-air missile deployed by the U.S. Air Force. That qualified him for managing a team that designed and built the Saturn first-stage booster rocket at the Marshall Space Flight Center in Huntsville, Alabama, and later at NASA's Michoud Assembly Field in New Orleans during the 1960s moon race.
Later in life, dad applied his scientific skills to the stock market. He kept elaborate graphs of each stock he followed, by price, dividend, P/E and other ratios. It was all very mathematical, but his track record was unsatisfactory, so he asked for my advice. Looking at all his charts, I said, "Dad, investing isn't like rocket science. It's harder than that." He wasn't sure if had lost my marbles, so I explained, "Investing involves real people making emotional decisions, usually bad decisions. In rocket science, you can project a missile into space with known variables, with almost exact precision. With investing, you have to work with human beings. The numbers have some limited value, but they won't be able to predict stock prices."
Little did I know that my cynical financial analysis paralleled the words of some crossover physicists and engineers who had also tried their hand in predicting markets. In 1984, a group of physicists from the Los Alamos National Laboratory launched the Santa Fe Institute, which attempted to apply chaos theory to the markets. According to Justin Fox, in his book, The Myth of the Rational Market, "Physicists struggled with the reality that sentient beings are harder to work with than, say, subatomic particles." One physicist J. Doyne Farmer, a co-founder of The Prediction Company, said, finance "is a harder field than physics."
In my 30+ years of working with financial newsletter editors, I've run into many former engineers who became investment advisors, lured by the fascination of seeking scientific formulas for profits. These advisors became successful, but only by abandoning their need for finding scientific certainty in markets.
Some engineers never seem to shake off their fixation on finding a magic market formula. This week, for instance, I've been hearing all about the "Hindenburg Omen," which was apparently confirmed last Thursday. This omen, named after a doomed dirigible, is triggered when the daily number of NYSE new 52-week highs and new 52-week lows are both greater than 2.2% of total NYSE issues - but only as long as the McClellan Oscillator is negative on the same day, the 10-week moving average is rising and the new 52-week highs are not more than twice the number of new lows. As the Hindenburg Omen user's manual says, "This condition is absolutely mandatory." But that's not enough. A new Hindenburg Omen is only confirmed if a second Hindenburg Omen occurs within a 36-day period after the first signal.
I really don't want to get into all the secondary Hindenburg Omen indicators, but this is what happens when too many engineers study market history looking for some kind of kinky backward correlation.
If you want a scientific metaphor to explain market swings, perhaps the pendulum provides the answer. Stocks were too high at 14,280 Dow in October, 2007, and stocks were too low at 6,400 in March 2009. The fair price is somewhere between those two extremes. But we'll never get to a frozen-fair market. A pendulum never stops in the middle. Valuations will swing in wide arcs - due to sentiment, not logic.
P.S. America Beat the Soviets - and that's Bullish
As you know by now, America sent two guys to the moon and back in 1969, meeting JFK's ambitious deadline. Then, Ronald Reagan's fascination with missile defense systems ("Star Wars") bankrupted the Soviet Union. Exactly 30 years after the Berlin Wall materialized in just five days, the last Soviet power play flamed out, dramatically. On Monday, August 19, 1991, the Dow fell 70 points (-2.4%) in response to a startling turn of events in the supposedly free Russia, when eight senior "hard-liners" placed Mikhail Gorbachev under house arrest. They sent troops to take over Moscow, Leningrad, and the Baltics, but they forgot to arrest the President of Russia, Boris Yeltsin, who rallied opposition at the Parliament.
Soviet Vice President Gennady Yanayev said that Gorbachev was suffering "serious health problems" and was unfit to govern. But at the Parliament Building, Boris Yeltsin led a growing crowd of protesters that included defecting troops. For the rest of the week, the coup began to unravel, and the Dow gained 142 points in four days, doubling Monday's losses. On Wednesday, August 21, the Dow gained 88 points (+3%) after Michael Gorbachev declared that he was back in charge of the "Soviet Union," but his quick resurrection was premature. The provinces were in revolt, as Latvia declared its independence that day.
Wall Street had its own problems that week, as Hurricane Bob swept through the Mid-Atlantic states and New England on August 20, leaving 18 dead and causing $2.8 billion in damage. But when traders got back to work in August 21, the market soared 3%. And, due in large part to the death of Communism in Russia and the rise of capitalism in China, the 1990s turned into the best decade in stock market history.
Thanks to all you rocket scientists for making freedom (and bull markets) possible. Just don't try applying physics to the stock market. Successful investing isn't rocket science; it's far harder than that!
Tomorrow will be our only Friday the 13th of 2010. There were three of those spooky days last year. The first one (in February) was a downer, the other two rose. Going back further, Friday the 13th has mirrored that ratio: Two up days for each downer, for a net 67% positive reading - better than average, historically.
Last week, I wrote about the magic that happened on Friday the 13th of 1982, when the massive 1982-99 bull market began. Five years later, to the day, on August 13, 1987, the Dow touched 2700 for the first time, culminating a 250% rise from its Thursday, August 12, 1982 intra-day bottom of 770.
Soon after reaching that peak, however, the crash of 1987 took stocks down 35% in two months and 22% in one day. "Black Monday" of 1987 traumatized investors over the next decade or so. I remember one very scary Friday, October 13, 1989, when the Dow Industrials fell 190 points (-6.9%), from 2759 to 2569, after the breakdown of a $6.75 billion leveraged buyout deal by UAL - the parent of United Air Lines - which triggered a collapse of the junk bond market. In retrospect, that scare was overblown, but the market was looking for an excuse to sell off, spooked by the "October curse" on top of Friday the 13th.
I remember Friday, October 13, 1989 very well. I was working at InvestorPlace.com, and we all worked over the weekend to record telephone hotlines and send out "flash alerts" to our concerned subscribers, to let them know that the market was basically healthy, so "please don't panic on Monday." At the time, our investors had no other way of hearing from us. This was before e-mails and the Internet. InvestorPlace had hundreds of thousands of subscribers to our various newsletters, and they were a VERY scared flock.
As it turned out, the Dow Transportation Index fell another 7.26% on Monday, October 16, 1989, but the market quickly recovered, reaching 2999.75 Dow by mid-1990. Then, it was off to the races in the 1990s.
Is Friday the 13th a Bad Day to Invest?
Since the big 1982-99 bull market began on Friday, August 13, 1982, there have been 46 trading days falling on Friday the 13th, with a historical record of more than 2-to-1 positive outcomes: We've seen 31 up and 15 down days (67% positive). More recently, six of the last seven Friday the 13th markets have risen, including a whopper (+165.77) on June 13, 2008, right before the financial crisis struck in October.
Basically, when we're in a bull market, Friday the 13th becomes exceptionally lucky. During the 1990s bull market, stocks rose 13 times (vs. 3 down days) on Friday the 13th. However, there were four straight declining Friday the 13th trading days from 2002 to 2004, as the big bear market of 2000-03 ended.
In addition to the scary number 13, Friday itself has been the worst investment day of the week recently. Ed Elfenbein has showed (on his blog, "Crossing Wall Street") that Fridays in 2010 have declined a net 11.94% vs. +13.36% for Mondays, and virtually break-even for the three mid-week days. Since the bull market began in March 2009, the S&P is up 25%, but it would be up 42% if you eliminated all Fridays.
Meanwhile, the Stock Market is…Undervalued
Friday the 13th apparently came a bit early this week, with a 265-point decline on Wednesday, August 11, due to hugely disappointing June U.S. trade deficit numbers ($49.9 billion, or a $600 billion annual rate). This will have negative implications on the final revision of the second quarter GDP. We'll probably see a 0.4% deduction from the recent (2.8%) estimate, pushing the dollar further down. Already, the 10-year T-bond is down to 2.74%, and the dollar fell to a 15-year low vs. the Japanese yen (at 84.72 yen per dollar).
Meanwhile, we need to remember that companies grow based on their earnings, which are not usually dependent on the U.S. dollar or government deficits. As of mid-week, we have heard from 450 (90%) of the S&P 500, whose second-quarter earnings are up 28% (year-over-year), for the sixth straight quarter of net positive earnings surprises. Top-line revenues are up 9.3% (y/y). What's more, Ed Yardeni reports that the average profit margin for these 450 reporting companies is 9.4%, almost a full point above analysts' expectations of 8.5%. Bottom line, earnings keep rising strongly while stock prices remain flat.
Rising earnings have pushed average S&P P/E ratios down to 13.2 for Growth stocks and 11.4 for Value stocks, according to Yardeni. Due to economic uncertainty, most of these businesses are not hiring much, but they have plenty of room to continue delivering productivity growth with their existing manpower. Over the last five full quarterly reporting periods, productivity rose 7.1% from the last quarter of 2008 to the first quarter of 2010, representing the strongest five-quarter growth rate since the early 1970s.
We haven't seen a V-shaped economic recovery yet, but we've already seen a sharp V-shaped recovery in earnings, so perhaps investors should remember that the stock market reflects companies, not currencies.
Have a Happy Friday the 13th market day.
In the first half of the 20th century, August stock markets were dominated by the beginning of harvest season. Before World War II, most Americans lived on the farm, making the fall harvest a season when all their hard work paid off. August was the best month of the year in the stock market, too: “Harvesting made August the best stock market month, 1901-1950,” according to the Stock Traders Almanac, 2010.
Since 1950, however, August has had a mixed track record: Now that only 2% of Americans farm, the market has lost its potent fertilizer for fueling August profits. Yes, the Dow rose in 35 of the last 60 Augusts, falling only 25 times, but August has been the second-worst month for the Dow and S&P since 1987.*
*There is an important footnote to that statement: Every few years, unusual extenuating circumstances send the August Dow down double-digits: Saddam Hussein’s invasion of Kuwait on August 2, 1990 sent the market down 10% in August. Then, the hedge fund crisis of 1998 sent the Dow down 15% in August.
Taking this exercise down to the current day, August has been a positive month in six of the last seven years (2003-09), with 2005 being the lone loser. Before that, we saw declines in August 2001 and 2002, but August 2000 saw the Dow rise 693 points (6.6%). The S&P peaked at 1520 that Labor Day before falling in the fall. Since 2000, August has risen 7 of 10 years, for a net gain of 0.9%. Not bad, not great.
Is “Hurricane Season” Bad for the Stock Market?
Hurricane season roughly overlaps the worst stock market months. Hurricane season officially runs from June 1 to November 30 – somewhat overlapping the “sell in May and go away” theory that has dominated stock-market trading strategies over the last few decades. But hurricanes hardly happen (to quote Henry Higgins) in June or November. Practically speaking, the Hurricane season is shaped like a bell curve, with the most serious danger running from August through October. That, in turn, coincides with the market’s worst months, namely September and October. This gives rise to the historic “market hurricane season.”
Are hurricanes and market collapses related? Not much, but a little: The worst hurricane damage in recent years came in 2005, with Katrina’s fury still being felt in New Orleans, along with a killer Hurricane Rita hitting the Texas coast and Wilma ravaging a trail across Florida. Those three (and several other) 2005 blasts (don’t forget Dennis and Emily) caused an estimated 3,865 deaths and $130 billion in damage.
There is a weak market parallel here. Stocks fell 1.9% in the hurricane months of 2005, despite an overall rising market that year. If you recall the Katrina disaster, there were “expert” warnings of a new wave of tropical hurricanes coming, allegedly caused by global warming; but no hurricanes made U.S. landfall in 2006 for the first time since 1994, and the market had a strong 8% surge during the 2006 hurricane season.
If you define the hurricane season as August 1 to October 30, the market rose in three of the last five years:
Hurricane Season(August 1 to October 30)
Year Dow Jones Hurricane Season
2005 -1.89% Killers: Katrina, Rita, and Wilma
2006 +8.00% No hurricanes hit the U.S.
2007 +5.43% Hurricane Dean (175 mph)
2008 -18.04% Hurricane Ike (145 mph)
2009 +5.90% Hurricane Bill (135 mph)
The real cause of the 2008 crisis was the financial system’s collapse, of course, not hurricane Ike. But one vital lesson we can learn from history is that most hurricane seasons pass without serious damage and most markets survive the September/October scary-season with small net gains. But it’s those once-or-twice-per-decade crashes (like 2002 and 2008) that cause investors to shy away from stocks in August.
Holiday Breaks – A Serious Market Threat?
In recent years, it’s become popular to link the market’s August doldrums to prolonged trader vacations. All of Europe seems to take all of August off on vacation, with most Northern Europeans seemingly descending on the same few Mediterranean beaches. In the U.S., traders and specialists take off most of late August, invading places like the Hamptons or Cape Cod; but have you seen what they pack on their trips – blackberries, iphones, and other electronic addictions. They may be on “vacation,” but it would be a mistake to think they’re not sneaking peaks at CNBC or monitoring markets on their electronic gadgets.
Out in rural Washington State where I live, I like to pick blackberries in August. In the east, however, they click their blackberries on the beach. I don’t call that a vacation. But it has an upside. As you look around you in resort areas this month, notice the electronic appliances. That’s good for Apple and Intel stock, I suppose, but it can also give you confidence that market-movers can ride to the rescue in a hurry.
The Most Important Interrupted August Vacation in Market History
In early August of 1982, Fed chairman Paul Volcker was on a fishing trip in Wyoming when Mexico defaulted on its sovereign debt and global deflation threatened to unleash a new market hurricane. Paul Volcker cut his fishing vacation short and started lowering interest rates, fueling a massive market boom. It all began on a very lucky Friday the 13th, with a Las Vegas-like double-bottom of “777” on the Dow.
August 1982 turned out to be a great month, up 11.5%, but it started out with eight straight down days. The Dow declined every day from August 3 to August 6. Then, it declined the next four days, too:
August, 1982 Dow closing Comment
Monday, August 9 780.35 The intra-day low was 770
Tuesday, August 10 779.30 Breaking the “780 support level”
Wednesday, August 11 777.21 The first of two “777” closings
Thursday, August 12 776.92 The double-bottom: 2nd “777” low
Friday, August 13 788.05 The first baby-step up,,,
The market’s first move came after Volcker eased the Discount Rate by a full point, from 12% to 11%. In all, Volcker’s Fed lowered the Discount Rate six times in the second half of 1982, down to 8.5%. Short-term (90-Day) T-bills declined from 13.3% to 7.8% in the third quarter, and banks lowered their Prime Rate from 21% to 13%. Volcker didn’t have a blackberry, PC, or cell phone, but as a result of his flexible fishing schedule, Volcker’s bull market grew into a 15-fold El Toro Grande, while saving some fish’s life.
Standard & Poor's reported this week that the non-financial companies in the S&P 500 have accumulated a record-high $837 billion in cash as of March 31, 2010, the latest quarterly accounting period available. That's up 25.8% from a year earlier and up 221% from the end of 1999. General Electric leads the way with $116 billion in cash, while three tech giants (Cisco Systems, Microsoft and Google) each have over $30 billion in cash, with Apple at $24 billion.
But that's just the S&P 500. According to the Federal Reserve's first-quarter flow-of-funds data, released last month, U.S. corporations now have more than twice that amount, $1.8 trillion in cash. This cash hoard is growing rapidly. So far, the S&P 500's second-quarter earnings are up 21% over the same quarter last year - the fifth straight double-digit year-over-year quarterly gain.
There are several uses for that new money, all of them positive, but they aren't happening much (yet): Companies can (1) buy back stock, (2) redeem bonds, (3) hire new people, (4) raise their dividend, (5) acquire (or merge with) other companies or (6) expand, by building new facilities or buying new capital equipment. These cash usages are all on the rise, slowly, but none of these positive cash outlets is increasing anywhere near the level of aggregate earnings growth.
Take dividends for example: So far in 2010, 142 of the S&P 500 have boosted their dividends, while just one has lowered its dividend, according to Eddy Elfenbein of crossingwallstreet.com. Last year at this time, Eddy reported, just 93 had raised their dividends and 61 had lowered their payout. Ten of the S&P 500 firms have initiated dividends this year vs. just one last year.
But net dividend growth is microscopic. Companies paid $50.4 billion dividends in the second quarter, up 5.9% from a year ago and up 2.3% from the first quarter, well below the $67 billion paid in late 2007, and well below their 21% earnings growth. With taxes on dividends set to rise in 2011, we're not likely to see dividend growth next year, barring a revolution in Congress.
Most companies are sitting on near-zero-interest cash - as are many investors and mutual fund managers. Why accept such low yields? Many analysts theorize that near-zero interest income in the bank is better than taking any kind of risk. After all, what would you do with your cash after the current Fed Chairman says that the economic recovery is now "unusually uncertain"? With the scars of 2008 still fresh, corporate managers are hoarding cash for a 2008-style "rainy day."
Short-term Interest Rates are Super-Low, and Going Lower
The widespread demand for no-risk cash is pushing short-term interest rates down further than anyone thought possible just a few years ago. This week, the federal government sold over $100 billion in Treasury securities, whose rates set new lows: First on the auction block, $38 billion in two-year notes came in at a record low yield of just 0.665%, down from the previous record low of 0.738%, set in June. The Treasury then sold $37 billion in five-year notes on Wednesday, netting 1.796%, followed by $29 billion in 7-year notes today on Thursday, yielding 2.394%
The short end of the Treasury yield curve is now dominated by numbers starting with ZERO:
1-month = 0.15%
3-months = 0.15%
6-months = 0.20%
1-year = 0.30%
2-years = 0.61%
3-years = 0.95%
Source: U.S. Treasury; rates as of July 28, 2010
In the banking sector, six-month Jumbo CD yields (on $95,000 or more) fell to just 0.41%, while smaller CDs yielded a whisker less, 0.38%. Bank customers must go out two years to get just 1% (1.03%), and they must now tie up their cash five years to approach 2% (1.93% for 5-year CDs).
The Unheralded Risks in Holding Cash
Cash is considered a no-risk investment, but there's no such thing as a risk-free investment. There is only some "controlled" risk. Cash in the bank has some invisible termites eating away profits:
#1: Lower interest rates: Just when you think rates can't go lower, they go lower. Elderly couples who retired five years ago on expectations of 3% returns on their $1 million in cash suffered a 90% income haircut from $30,000 per year (3%) down to $3,000 (0.3%). That's a big risk.
#2: Higher taxes: Next year's tax on dividends is slated to rise to 20% (vs. 15% this year), while top tax rates on interest, including bonds and CDs, reverts to 39.6%. This adds insult to injury.
#3: Currency risk: While any income seems positive, the U.S. dollar has fallen sharply over the last decade. Recently, the dollar fell to $1.30 per euro, meaning that your income and capital gains would be far more lucrative if held in euros or other currencies rather than U.S. dollars.
#4: Inflation risk: To earn more than 2%, you need to tie your money up for five years or more (in a CD) or buy a 7-year (or longer) Treasury bond. Who can predict inflation 5-7 years out?
#5-Bank failures: There were absolutely NO bank failures for a 31-month period from June 25, 2004 to February 2, 2007. In 2007, there were only three bank failures. Then, the problem grew:
Bank Failures, 2005-2010
2003: 3
2004: 4
2005: None
2006: None
2007: 3
2008: 25
2009: 140
2010: 183*
*Annual rate; source FDIC
Bank failures this year are on a pace to be the most since 1991 (when 271 failed). You seldom hear about these bank failures, since most failed banks have under $1 billion in deposits. But 103 U.S. banks have failed through July 23 of this year. Such announcements are usually made Friday evenings. (Tonight, we'll likely see a few more.) Here are the totals over the last three Fridays:
It's Friday afternoon: Do you know where your money is? I don't intend to scare you. While it's true that the FDIC protects bank deposits (within statutory limits), the FDIC's slush fund for bailing out banks is running low. It will likely require some extra funding next year. More to the point, the FDIC cannot protect you from high tax rates, low returns, devalued dollars and higher inflation - the many risks that stem from the same government that "protects" your cash hoard.
Bottom line, due to low returns and hidden risks, investors frustrated with low interest rates will likely turn to stocks soon, especially if we see more predictability and stability in Congress after November. Corporations will also likely turn some of their cash into more productive uses after they see the end of legislative fever in Washington, DC, and a return to relative gridlock in 2011.
Quiz: Do you think excess cash on the sidelines will be used to buy more stock by year's end?
This morning I asked my visiting grandsons - ages 12, 13, and 14 - what I should write about today: The Dow Jones Transportation Index, the Inflation/Deflation Debate, or the new Financial Regulation Bill. They voted unanimously for inflation. "We've heard way too much about the Dow Jones already, and that bill from Congress sounds confusing." They were right, of course, so let's tackle deflation today.
Our Federal Reserve officials are more concerned with deflation than inflation, perhaps because deflation causes most consumers to delay purchases until prices decline further…and further. They're right. I'm almost ready to buy an Amazon Kindle - but not quite. I'm waiting for $149. That's deflation in action.
Last Thursday and Friday, we learned that June's Producer Price Index (PPI) fell 0.5% and the Consumer Price Index (CPI) fell 0.1%, its third straight decline. The core CPI was up just 0.9% year over year (y/y), the smallest increase since January of 1966. The core CPI has now been below 2% for 16 straight months.
Deflation has plagued the stock market, too, compressing P/E ratios, causing stocks to fall or tread water, even while their current earnings and future estimates rise impressively. Since the market's peak in late April, the S&P's forward P/E has fallen 17%, from 14.3 to 11.9, according to economist Ed Yardeni.
This threat of deflation likely won't be with us much longer. First of all, the trillion-dollar "quantitative easing" orgy at the Fed in late 2008 and 2009 should cure any serious threat of sustained deflation. Also, the June core inflation rates (excluding food and energy) actually rose 0.2% (for the CPI) and declined by just 0.1% (for the PPI). And third, the U.S. dollar has been falling sharply in July. That will tend to raise July import and commodity prices, including food and energy prices.
Inflation is Near-Zero in Rich Countries & Rising Slowly in Most Emerging Economies
There's a lot to like when you look at the global inflation picture. Among the 30 OECD (rich) countries, Ed Yardeni reports that the core CPI (y/y) rose just 1.3% in May, down from 1.8% a year ago and 2.1% two years ago. Some nations have deflation: Japan's core CPI is down 1.4% in the past year, while Ireland's price index is down 1.7%. Spain is on the cusp, with 0.1% inflation. In the largest euro-zone economies, inflation in Germany is only 0.7% and France is a notch lower, at 0.6%.
In China, inflation rates are only slightly higher. China's June consumer prices were up 2.9% (y/y). Not bad. But India's inflation is more troublesome: Wholesale prices are up over 10% there, and India's central bank has raised key interest rates three times this year, the latest increase coming on July 2.
Prices will likely stay low in the U.S. and Europe, due to our slow-growing economies, high jobless rates and picky consumers. The Internet increases price competition (used Kindles are around $43), while the popularity of dollar-type stores (Dollar General, Family Dollar, etc.) is giving the pricier box-stores a run for their money. Retail sales volumes are flat in America. In Europe, sales volume (ex-autos) in May (the latest reporting month) rose just 0.2%. Overall euro-zone sales are 3.7% below the peak in early 2008.
Introducing the Wonderful World of "Flation" (Flat Prices)
Flation (pronounced FLAY-shun) is the Goldilocks solution to both inflation and deflation. In recent years, net price increases have matched our interest rates: Zero to 2%. Why can't the doomsday crowd on both sides of the inflation/deflation debate welcome super-low inflation as a delightful new fact of life?
Prices will always fluctuate. Some prices "fluc" down and some prices fluc up, but net prices will rise in manageable baby steps. Inflation will remain low because there is a glut of goods in this world, limited income to buy them, and a global marketplace that fuels competition for the lowest prices across borders.
Flation is good for stocks, historically. While deep deflation or runaway inflation can poison our markets, more price predictability is obviously good for business, the economy and the stock market.
Technology and Transportation Tend to Deflate Prices
My grandsons thought that the Dow Jones was boring - and I guess they're right - but the history of the Dow Jones Railroad (Transport) index ties into our deflation debate. Technology and rapid transportation tend to depress prices. We've seen that in the recent technology age, but it was also true in the 1800s.
Railroads were the high-tech stock craze of the 1800s, starting in England. In 1824 and 1825 alone, stock prospectuses were issued for 624 railroad companies. In early 1825, the London merchant banker Francis Baring said, "a gambling mania has seized upon all classes and is spreading in all parts of the country."
In its March 1825 issue, the London Quarterly said: "Nothing now is heard of but the railroads. The daily papers teem with notices of new lines in every direction; pamphlets are thrown before the public eye recommending nothing [else] throughout the Kingdom." Alas, this high-tech bubble peaked 185 years ago this month, in July 1825, when many railroad companies entered liquidation before tracks were laid.
Fast-forward a half-century and a continent away to note these benchmarks from this week in history:
- On July 23, 1870, the first transcontinental U.S. rail service began, followed three years later by:
- The first train robbery in America, pulled off by Jesse James and his gang, came on July 21, 1873. They stole $3,000 from the Rock Island Express at Adair, Iowa. But that "terrorist" threat - and the Panic of 1873 - didn't stop America's entrepreneurs from building more railroad lines.
- On July 23, 1877, the first municipal railroad passenger service was opened, in Cincinnati, Ohio, but two days earlier, militiamen shot into a crowd of striking rail workers in Baltimore, killing 10.
- From July 6 to 20, 1894, some 12,000 federal troops broke up the Pullman strike in Chicago.
Why this U.S. military involvement in rail strikes? Railroads employed over a million workers and served most businesses, so railroad strikes could shut down the entire economy, causing a run on stocks.
Despite our national Panics, strikes and train robberies, 60% of all stocks on the New York Stock Exchange were railroads by 1898. The Dow Jones Railroad (now Transportation) Index became the blue chip index of the 1890s, while the Dow Jones Industrials were like the high-flying NASDAQ stocks of that day.
Did any of this growth cause inflation? No: Overall price levels fell 40% from 1878 to 1901 (about 2% annualized deflation). We can't expect to see that kind of chronic deflation again - especially with a compliant Federal Reserve printing money at every threat of financial (or political?) crisis - but benign deflation can happen again, due to advances in technology and transport. Low inflation or deflation can be therapeutic. Stable prices usually fuel higher stock prices. That sounds like good news for everyone.
This week's blog is a bit of a departure from my normal commentary where I typically consider economic and stock market related topics. I just got back from a very interesting conference in Las Vegas where the speakers focused on political topics. The conference inspired me to consider a longer term historical perspective with respect to current conditions in the United States. At the conference, where many of the of speakers expounded on the imminent downfall of the U.S. dollar, further decline of the stock market, our shaky banking system and the fading of our global military "empire." Several of the "doom and gloom" speakers predicted we'll see a double-dip recession, led by a new housing decline; with states and local governments declaring bankruptcy; rising interest rates (and/or inflation) exacerbating deficits. Making matters worse, they foresee a China slowdown leading to a global slowdown; and an invasion of Mexican gangsters and terrorists, pouring into to America through our southern borders - all resulting in a run on the dollar and a market crash.
Ouch! Is there any hope? Yes, there certainly is. A lot of other speakers hearkened back to the words of America's founding fathers. In the closing banquet, for instance, I had the honor of playing John Adams in a dramatization of selections from the musical "1776," along with Steve Forbes as George Washington, Mark Skousen as Ben Franklin, a professional Thomas Jefferson impersonator (Bill Barker) and David T. Phillips as Roger Sherman. Look for it on You Tube someday soon.
Our songs and dialogue from "1776" reminded viewers of a time when five great documents of freedom were published in one year: Thomas Paine's Common Sense in January, 1776; Adam Smith's Wealth of Nations in March; the Declaration of Independence in July; Edward Gibbons' Decline and Fall of the Roman Empire, Volume I, in the fall, and Thomas Paine's second great work of 1776, The American Crisis, on December 23, with the memorable opening line, "These are the times that try men's souls."
Obviously, 1776 was an amazing year in the formation of our great country, but for the common man living at that time, it was a very uncertain period . Victory was right around the corner for America, and defeat soon haunted Britain after their disastrous surrender at Saratoga (NY) in October of 1777. When news of that defeat reached Britain, a young Scottish barrister, Sir John Sinclair of Ulbster, then age 23, told economist Adam Smith, then 54: "If we go on at this rate, the nation must be ruined."
Adam Smith responded, "Be assured, young friend that there is a great deal of ruin in a nation." By that, he meant that nations can absorb a lot more blows than the pessimists think. Later, British historian Paul Johnson translated Smith's idea into 20th Century realities: "People can absorb frightening abuse from governments and bounce back." Those 10 words encapsulate the last century almost perfectly.
Smith was Right: Britain Absorbed "A Great Deal of Ruin"
Look at Britain's "ruin" after Smith's famous quote. In the wake of their own misbegotten "Vietnam War" in America, Britain lost the colonies, but their domestic Industrial Revolution soon expanded British per capita wealth at the most rapid rate in history: Per-capita wealth doubled from 1800 to 1850, and doubled again from 1850 to 1900, while population quadrupled, yielding a 16-fold growth of wealth.
The British Empire began to contract during World War I, when Britain was forced to fight on a second front in Ireland, with the Easter Uprising of 1916. By the 1970s, the pound sterling collapsed and Britain was the "sick man of Europe." But the sick man found the right woman in 1979, when Margaret Thatcher became the first female prime minister in British history - with the longest tenure. Thatcher privatized national industries and cut government spending - and also got lucky with oil in the North Sea.
Pretty soon, Britain thrived and Ireland became the new sick man of Europe, mired in a no-win war with Britain and a dead economy. But after some business tax cuts, Ireland became one of the most rapidly growing economies in the euro region. Suddenly, the seemingly endless Irish war quietly ended. The Irish were too busy making money to fight. Needless to say, rising stock markets followed quickly.
Today's Danger Spots will Also Cool Down Some Day, Maybe Soon
Today, the worry warts tell us that the various Middle Eastern conflicts will last forever. After all, they've lasted for centuries. Islamic fundamentalists will attack America again, since this animosity can never die.
What if we were seduced by this defeatist attitude last century? In 1945, most of the world believed that German and Japanese nationalism could never be cured, since German militarism and Japan's Bushido code could never be "legislated out of existence." But Japan and Germany are thoroughly pacified today and remain solid trade partners with the U.S.
The same is true of the major post-war geopolitical threats in the second half of the 20th Century:
- In 1976, when Mao died, nobody saw the possibility of the rise of a disgraced former comrade, Deng Xiaoping, opening up Communist China to capitalism, lifting hundreds of millions of Chinese out of poverty and into today's fastest-growing capitalist economy.
- In 1989, when the Chinese cracked down on protestors in Tiananmen Square, who would have guessed that the Berlin Wall would fall that same year, without any resistance? The Cold War ended in one night, after 45 years of stalemate, and the stock markets took off in the 1990s.
- In the early 1990s, when white Afrikaaners firmly controlled racially-segregated South Africa, who could have foreseen that nation's leader freeing Nelson Mandela from 28 years in prison and then inviting him to take over the nation? Do you believe in miracles? They continue to happen.
If these changes once seemed impossible, why can't the Middle East also lurch toward peace over the next generation? Maybe the conflicts in Iraq and Afghanistan can generate democratic reforms and ultimately lead those countries to become stable and prosperous . Maybe the radical Islamic terrorists will be seduced by capitalism, like Germany and Japan after World War II.
Adam Smith was right. Nations can learn from their mistakes. They can take a licking and keep on ticking. Rome may not rule the world, but it still thrives. Nations that lag today could lead tomorrow. That means that as investors we can remain confident that our country is resilient and will continue to provide lucrative opportunities for those with conviction and confidence. Frankly, we believe that which we fear the most is least likely to happen.
July is historically a good month, even though we're off to a shaky start in July, 2010. Since 1950, the S&P 500 rose 37 times in July and fell only 23 times. More recently, the Dow has risen in 15 (71.4%) of the last 21 Julys. As Tim Hope pointed out here last week, July is the third best-performing month in the last century (+1.28%, on average), slightly trailing the top two months, April and December (+1.32%).
Click on chart to expand or print
The best July in the last century came right after the Dow's 20th Century low (41.22), set on July 8, 1932. This low came precisely one week after Franklin Roosevelt became the Democratic nominee for President on July 1. The next day, he cheerfully announced his plans for a "new deal for the American people." The people liked that idea. During July of 1932, the Dow gained 26.7% and the S&P 500 rose 37.5%.
The Best Two Months in Market History
The market didn't stop rising in July, 1932. August grew even faster. In fact, the fastest market doubling in history took place then, rising from an intra-day low of 40.56 on July 8 to over 80 on September 7, 1932. Two of the three best months in market history came back-to-back, launching a 372% rise by 1937.
There were two back-to-back monthly market surges within a year. They fell during the two months after FDR's nomination and the first two months of his New Deal. First, in the summer of 1932, the S&P 500 index gained 89% in two calendar months, and then it gained another 65% in two consecutive months in April and May of 1933 - even though the S&P readings seem ridiculously small - all of them under 10!
The S&P's net gain from June 30, 1932 to May 31, 1933 was 117.6%, and it all began with some cheery words from FDR on July 2, 1932 (his "new deal" promise), followed by his stirring Inauguration speech on March 4, 1932 ("nothing to fear but fear itself."). Such is the power of positive thinking in the markets.
The Economic Fundamentals Did Not Justify This Rapid Increase
The market did not rise based on improving fundamentals. The Depression did not end in 1933, not by a long shot. The news stayed terrible: In 1932, 25% of Americans were unemployed and another 25% were severely under-employed. That rate "fell" only slightly to 24.9% in 1933. The GDP kept falling, too, down 2.1% in 1933. Wages (for those who worked) were 60% below 1929 levels. Stock dividends were 57% smaller than in 1929, and the total U.S. GDP was cut in half, not recovering until well into 1934, when the unemployment rate "fell" to 21.7%, still a hopeless national nightmare for most families.
In July 1932, when the market took off, President Herbert Hoover did nothing to help, even though he tried. On July 15, he took a voluntary 15% pay cut, but that was only symbolic. Heck, even Babe Ruth took a $10,000 pay cut. But on July 28, 1932, with the market soaring, Hoover did something far more destructive to American morale. He authorized General Douglas MacArthur to evict World War I bonus marchers from their encampment in Washington, DC. That move probably guaranteed his defeat in 1932.
As 1934 began, manufacturing jobs picked up, but then the skies dried up and family farms evaporated all across the Midwest. There was virtually no rain for the first nine months of 1934 on the Great Plains. To this day, the highest temperatures in the 10 upper mid-West farm states came during the summers of 1934 of 1936. The resulting Dust Bowl sent armies of farming families West to California and elsewhere.
There was also an all-out war against domestic terrorists in 1934. In May, law enforcement officers ambushed and killed Bonnie and Clyde in Louisiana. Then, on July 22, FBI agents shot John Dillinger coming out of a Chicago theater. Some of the same agents gunned down "Pretty Boy" Floyd on October 22 and "Baby Face" Nelson on November 27. Many Americans thought the banks were their enemies, so there was widespread rooting for these bank robbers as the rule of law gave way to open street warfare.
But the market kept rising. On July 26, 1934, right after the Dillinger ambush and before the Dust Bowl deepened, Wall Street launched another +127% bull market that lasted through early 1937. That goes to show you that watching the evening news can be hazardous to your wealth. Things really aren't as bad as they look on TV. It might pay to look closer at corporate sales and earnings, while avoiding the TV news.
Quiz: Will July and August deliver dramatic (10% or greater) gains, big losses, or no change at all?
The first half of 2010 is in the books and it's a huge disappointment, with the Dow closing under 10,000 (9744) again. The S&P 500 is down 7.6% in the first half, while losing over 15% in the last 10 weeks, from a closing high of 1217.28 on April 23 to a closing low of 1030.71 yesterday, Wednesday, June 30.
Apparently, the 55% rise in S&P 500 corporate earnings in the first quarter (reported from mid-April to mid-May) not only failed to lift the market but fueled a relentless decline in May and June. The Wall Street Journal quoted Steve Wood of Russell Investments as saying, "earnings have gone from off-the-charts fantastic to pretty good" in the second quarter. Specifically, analysts polled by Thomson Reuters expect earnings for the S&P 500 companies to rise about 27% in the second quarter, vs. 55% in the first.
So, earnings are up but the market is down - a volatile formula for explosive gains. But if 55% earnings growth didn't ignite fireworks last quarter, how will 27% growth motivate the mob in July and August? As Benjamin Graham wisely said, long ago, the stock market is a voting machine, day to day, but the market is also a long-term weighing machine, with earnings being the key measure of real weight.
Speaking of voting….the market typically rallies on expectations of a regime change in Congress in the mid-term elections, coming November 2. Is it too early to start looking to November? No, not really.
Mid-Term Elections Spark Major Historic Rallies
In 2006, the Democrats staged a November coup by taking over Congress. The market voted its approval of this return to "gridlock" by rising 33% from its 2006 low to the 2007 peak, before trouble struck again.
Since 1950, there have been 15 mid-term elections. All but one (2002) saw a rising market, but that was due to a terrible third quarter in 2002. The average gain from July 1 of a mid-term election year to the following June 30 was 21%, and the rise from the mid-term low to the next year's high averaged +48%.
This track record is all the more amazing since we have seen four 20% or greater bear market declines during the third quarter of recent mid-term election years. I'm speaking of the 26.1% decline in the third quarter of 1974 (at the end of the 1973-74 bear market and Watergate), the 21.2% decline from July 17 to October 11, 1990 (after Saddam Hussein invaded Kuwait), the 22.4% drop from July 17 to October 8 of 1998 (during the Long-Term Capital Management hedge fund crisis) and the 22.5% drop from July 1 to October 9, 2002. Bottom line, four of the last nine mid-term election years saw a major pre-election drop.
The Market Loves "Gridlock" in Washington DC
History shows that voters usually choose "gridlock" as a way to prevent the total control of all levers of government by one party or the other. From 1942 to 1994, the President's opposing Party gained seats in EVERY election, averaging a 34-seat gain. In the 1940s, the Republicans gained a shocking 66 seats in 1946, while Truman was President, and 53 seats in 1942, when a presumably popular four-term winner Franklin Roosevelt was at the war-time helm. The market obviously loves these mid-term power shifts:
If the market gains 49.3% from the June 30 lows (1030 in the S&P and 9774 in the Dow), then we could see a record-high 14,600 Dow and a near-record 1540 S&P by late next year. A lot of that, of course, depends on the outcome of the November election and the resulting changes in legislation, particularly tax bills, financial regulation bills and spending cuts. Historically, the biggest changes in House composition have also sparked the biggest rallies. Here are the four biggest changes in mid-term House composition since 1950, with the market's long-term reaction - gains of 200%, 75%, 50% and 33%.
- In 1994, the Republican Revolution gained 54 seats in the House and eight in the Senate (62 seats total), in the early years of the Clinton Administration. Before that, the market had been in a narrow trading range, but after the election, the market took off, tripling within five years.
- In 1958, the Democrats gained 48 seats in the House and 12 in the Senate (60 total), when those bodies were smaller (pre-Alaska and Hawaii). In the years 1959 and 1960, the S&P 500 gained 50%, rising from 40 to 60 during President Eisenhower's last two "lame duck" years.
- In 1974, the Democrats gained 48 seats in the House and four in the Senate (52 total), chastening the new Republican President Gerald Ford. That's when the market really took off, rising from Dow 577 in late 1974 to 1015 (+76%) by September, 1976.
- In 1966, the Republicans gained 48 seats in the House and three in the Senate during LBJ's "guns and butter" run. The market then gained 32.5% from October 1966 to December 3, 1968.
This list is obviously non-partisan, split equally between Democrat and Republican "revolutions," but the clear winner is Gridlock. When the opposing party rallies at the ballot box, the market also rallies.
Do you think the minority party will gain ground in Congress this November?
Important Disclosures Regarding Navellier Blogs (updated April 2008)
Although information in this presentation has been
obtained from and is based upon sources that Navellier believes to be
reliable, Navellier does not guarantee its accuracy and it may be
incomplete or condensed. All opinions and estimates constitute Navellier's
judgment as of the date the presentation was created and are subject to
change without notice. This presentation is for informational purposes
only and is not intended as an offer or solicitation for the purchase or
sale of a security. Any decision to purchase securities mentioned in this
research must take into account existing public information on such
security or any registered prospectus.
Investment in securities involves significant risk
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