Answers in Current Events

With the Fed doing asset purchases aimed at Mortgage Backed Securities it is trying to drive down long term interest rates so that borrowers can access cheaper credit mainly to try to prop up the housing market, which could lead to more jobs. That premise may prove difficult given the fact that these purchases also tend to impact riskier assets, such as stocks and commodities. With stocks hitting new highs it is possible we will see a movement away from government bonds and therefore an increase in long term rates. We saw that today with the 30 yr Bond almost hitting 3% for the first time in the last six months. Time will only tell where long term rates will be, but at some point rates will need to rise.

There is, in theory, no limit to how high in price any stock may go. Price alone is not a determining factor in the future price of any stock. Look at Berkshire Hathaway, it has gone from $7225 in February 1990 to over $130,150 today, an annualized rate of return of 13.6%.

For me the question is how long Apple can continue to grow its earnings at 20% plus, thereby deserving higher stock prices in the future? Currently according to http://finance.yahoo.com/q/ae?s=AAPL+Analyst+Estimates Apple is expected to grow its earnings at a rate of 22.52% per year for the next 5 years.

If this holds true, Apple stock shares should be substantially higher than they are today. I am currently a buyer of Apple as well as some other stocks. You may see the stocks I currently recommend at http://davesfavs.com/ for free, just use free as the user id and markets as the password.

The current mean price target for Apple is $736.17 for the 55 professional analysts that follow the stock.

I hope this helps Josh, Dave

It appears earnings estimates were met, yet FB had a rough day today with even more selling in the after hours session. We also have restricted stock holders rapidily approaching their 90 day window, which could equal even more downside movement for FB. Stay tuned....

Let me present it to you like this. You don't see very many old currency traders. With very few exceptions, they tend to burn out young and quit the business. The shot-termism and the wild volatility take their toll on you over time. Frankly, currency trading is bad for your health.

There are still quite a few gentlemen actively practicing in the money management business in their 80s or 90s. Warren Buffett and Charlie Munger are now in their 80s. Irving Kahn is 106 years old and still goes to work every day.

What do the old timers have in common? They follow a value approach and tend to have long time horizons. They are not opposed to placing big bets with their capital, but they tend to not use leverage. And no, currency trading is not a big part of their practice.

Will the euro rally if Europe's leaders form a coherent plan to fix the Eurozone? Probably. But good luck trying to time that trade.

If you are determined to have exposure to the euro, be smart about it. There is no harm in having some portion of your cash savings in assorted non-dollar currencies, including euros, and there is nothing wrong with holding bonds denominated in euros. But I wouldn't recommend trying your luck trading currency futures. Not unless you have a good supply of Tums for the inevitable heartburn that will come.

No one really knows the answer to your question. What we do know that investing in currency is usually a bet for one and against another. So your odds may seem like 50-50 but consider that more often than not you are not betting against an average investor like yourself rather you are probably betting against institutional investors; Soros, banks, etc. Also these institutions often hedge their bets as well. If you want to bet with your money trade on the Forex at your own risk. Better yet go to Vegas and have some fun!

At the margin, a Romney administration might be a little more pro-growth than an Obama administration, but probably not enough to matter all that much. Here are a couple points to consider:

1. The president of the United States has little power over the key issues driving the economy and capital markets today: the European sovereign debt crisis, the deleveraging of American households (i.e. Americans paying down their debts and saving for the future), the aging of American and European Baby Boomers, and the rise of emerging market powers like China, India, Brazil, and Turkey. The President, like King Canute of old, cannot control these macro trends any more than he can command the tides.
   

2. The republicans talk the talk about cutting the size of government, yet they refuse to touch the one piece of the government that is both discretionary and large enough to matter: the military. And not to unfairly criticize one party; the democrats appear to be slightly more in denial than the republicans about the sustainability of America's social liabilities (Social Security, Medicare, etc.). In other words, both parties split hairs about relatively unimportant issues while ignoring the proverbial elephants in the room.

3. Even if Romney embraces the small-state libertarianism of the Tea Party (which is doubtful), we won't enjoy the benefits for several years--perhaps long after Romney's term has ended. In the short-term, we could expect a dearth of demand as the federal government's role in the economy shrinks.

4. A Romney administration would likely maintain the Bush tax cuts more extensively, which would certainly be a boost.

5. There is always a period of regulatory uncertainty when a new president takes office, but I would not expect something too terribly destabilizing from either candidate. A second-term Obama would not try something as ambitious as another project the size and scope of ObamaCare, and neither would Romney.

In the end, it is American companies and entrepreneurs that boost productivity and push the economy forward, not the man in the White House.

In simplest terms, yes. Romney's background in business in and of itself is a dramatic difference from the current administration. Secondly, the current adminstration has used the EPA to limit expansion of several industries(ie. Energy) and the Healthcare Bill to control businesses(ie. limiting compensation, expanding governmental powers, and increasing business' responsibility to provide benefits). This has all led to many companies who are sitting on record amounts of cash to do nothing until they "understand the rules of the game). This is a opinion, on my part, but I believe this is because the current adminstration puts a philosophical priority of the environment, "leveling the playing field", and punishing abusive companies above that of job creation, smaller government and self-governance. I believe the US economy will see a dramatic growth spurt if Romney is elected, but how the new administration handles the massive current challenges will be much more important. On the other hand, the US Supreme court could strike down "Obama-Care" at any time and business could sky-rocket immediately thereby increasing the chances of the President being re-elected! Wierd stuff.

Wow, Ethan! Why don't you ask a HARD question?!?!? I will give you my best answer. 1) Who knows for sure, but quite a bit of the down-side domestically has already been "baked in", apparently. 2) Spain is likely a bigger driver of uncertainty right now, but Greece is keeping this issue off of the front page. 3) It is possible that the Euro-Debt Crisis is worse than we think and that would be a drag on US markets, overall. 4) I don't think this a tradeable event(at least I'm not good enough to do it). 5) The good news is that these events may be the wake-up call our country needs to dramatically change this country's trend toward bigger government, and that change would be a hugely important positive stimulus to the equity markets. In summary, I'd advise against trying to trade these events and manage to your needs. Look for strong balance sheets, positive dividend histories, limited European exposure and be "tough". Also, I would suggest finding a few different sources for information to educate yourself. Do not depend on the network news agenies soley when making your decisions. I hope this helps you.

The victory of the New Democracy party was anticipated by the big stock market rises in Athens on Thursday and Friday. Key points:

The New Democracy Party is in power but nothing of note has changed. Greece remains corrupt, over-indebted, and uncompetitive. There’s little prospect out of its de facto bankruptcy unless the people of Greece demand and receive real reforms. That is unlikely to happen in the intermediate term.

Notwithstanding promises to essentially renegotiate the memorandum of understanding reached earlier this year with the so-called “troika:” the IMF, the EU and the ECB, the fate of Greece will eventually be decided in Northern Europe.

It boils down to a question: will the Euro-zone become more like a proper fiscal union? There are hopeful signs such as the European Stability Mechanism and the Summit later this month.

But big challenges remain for Europe:

Rich countries need to create a mechanism to deal with Euro-zone imbalances without taxpayers thinking they’re idiots for subsidizing the profligates.

The electorate in Core Countries must buy into the idea that the “whole” is greater than the sum of its parts. That they are all Europeans traveling in the same boat.

What this means for investors:

We believe the odds favor more of the same: politicians continuing to muddle-through this process of defining what it means to be in Euro-land.

Global Stock Markets will remain volatile because these problems require political solutions and this creates uncertainty that investors loathe.

The investment climate remains fearful.

Where to put your money:

Fear and uncertainty is the friend of long-term investors because it lets you buy low. Many great European companies are now selling at valuations not seen since the lows of March 2009.

Ethan - in my opinion, short-term, the Greek election appears to have helped avert a potential disaster scenario as the results suggest less likelihood Greece will withdraw from the EU or the EZ. Long-term, it made little difference as the results did not provide a clear consensus government and do not resolve the more substantive issues facing the European Union and the Eurozone countries. There is still plenty of reason to be a cautious equity investor.

Regardless of where one places responsibility for the situation in Greece, Greece can’t inflate its way out of the current economic problem since it is tied to the EURO. Even though it may be difficult for Europeans to fathom a partial (if not total) decoupling of the common currency, it seems like this may be the only answer for Greece.

There is a depression in Greece. People are suffering. If they had their own currency they would at least have a chance of inflating their way out of the problem over the next several years.

By being able to devalue their currency, Greeks would find it expensive to spend their money outside of Greece. On the other hand for foreign purchasers of Greek goods and services, or for investors, or for tourists, Greece would likely become a bargain. This is a radical solution but it seems to come closer to fruition every day.