February, 2010
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STRATEGIES, TRENDS AND NEWS FOR TODAY’S INVESTORS FEBRUARY, 2010 Nasdaq Composite 2,317 * Dow Jones Industrials 10,618 * 30 year U.S. Treasury Bond 4.67% FLEEING FROM THE SAFETY OF CASH What every investor wants to ever have the courage to pull The drug companies will survive know, these days, is how to the plug . health care reform, and the get a better return on cash. stocks are cheap. Johnson and Everybody on this planet is Stocks are another matter. Here Johnson (JNJ - $64, yield 3%) looking for a perfectly-safe we’re willing to take the long- and Sanofi -Aventis (SNY - $39, short-term investment that pays term view, as long as we’re 3.5%) have new drugs that offer 5%, so you can just forget about talking about solid companies an improvement over existing fi nding one. But is it too late that pay large and growing therapies. Patients are free to to buy into bonds? How about dividends. Take, for example, buy those drugs at high prices, stocks, commodities, or the Kimberly-Clark, (KMB - $62) or stick with the dazzling array Miracle of Free Markets in a blue-chip company with a of extraordinarily-cheap, ten- Asia? growing 3.9% yield and solid year-old drugs that go off patent earnings growth that should every year. Bonds have been extraordinarily allow you to sell your shares, good to us in the past year, and three years from now, at your Golar LNG (GLNG - $13) has run it’s still easy to fi nd safe 6% purchase price or better. What up a lot since we wrote about it, yields if you’re willing to buy do panty bombers wear? but the company should resume something that matures in 2025. Depends . paying a $1 dividend in about The problem is that you’d be 12 months. Gas will displace taking a big gamble on interest Century Telephone (CTL - oil and coal worldwide, even as rates, because when rates rise, $34) pays an 8% dividend, Iraq triples its oil production and bond prices fall. We expect a and we think they’ll be able the members of OPEC begin to surprisingly-cool economy and to keep paying it despite the cheat on their quotas. We’ve relatively-low interest rates in steady shrinkage of “plain used exchange-traded funds 2010, but we wouldn’t want old telephone service”. The (ETFs) to make small bets that to place a heavy bet on that company has big earnings and the price of oil will go down, forecast. Most of the bonds an even bigger cash fl ow, and and that copper and other metals we’re retaining have adjustable they’ll use the extra cash to will also decline later this year interest rates, and low prices buy back shares at a rate that when world economic growth that reflect uncertainty about keeps earnings per share rising. slows down. some issue—such as whether AT&T (T - $27) offers a 6% the government will continue to yield and some genuine growth Lastly, we’ve invested in an ETF be willing to bail out Citigroup. prospects that center around that tracks the appreciation of The gummint owns 34% of cellular telephones—which is the Chinese Renminbi (or yuan) the shares, so we doubt that one of those businesses where which should soon resume its anybody in Washington would the big keep getting bigger. continued on page 2 (800) LUMBARD (800) LUMBARD (800) LUMBARD (800) LUMBARD (800) LUMBARD FLEEING... ASK SINGAPORE continued from page 1 slow rise against the dollar. It’s The 5 million people of Singapore been falling against the euro, and live in an area of just 274 square that’s just ridiculous. miles. Water has long been patient care, in a system that is imported from Malaysia (to whom all about doctors and health care How about using that cash to pay Singapore was briefl y married after professionals (as distinct from off the mortgage? No—borrow all independence), but the nation has insurance, bureaucrats, and paper you can at today’s 5% rate, even if implemented water conservation and pushers). Everybody has skin in you have to reinvest, temporarily, recycling efforts that are the envy of the game, and the result is that at 0%. parched cities around the world. All Singapore’s health care costs just 5% runoff from streets and sidewalks is of GDP (versus 18% in the U.S. and The answer to the cash question is captured for purifi cation to drinking about 11% in Europe). Her citizens to diversify the old-fashioned way. water, so littering and other forms of live longer than Americans, and they Seek out dividends and interest, street-level pollution are rare. live longer than Europeans. wait for good prices, and avoid the herd. Singapore has a highly-developed The city-state is a fi nancial center market-based economy that is that is home to businesses that regularly ranked as one of the most reach far across Asia. Our clients A NEW TOY FOR business-friendly in the world. own shares of Singapore Telecom CONGRESS Enormous reserves of foreign (SGAPY.PK - $21), which gives currency (and a large sovereign them a 4% yield and significant The entire Montana congressional wealth fund) back the Singapore stakes in cell phone businesses in delegation has joined hands in dollar and the thriving banking some of the fastest growing nations bipartisan harmony to force General system. The nation’s citizens have of the world—running in an arc Motors to buy palladium from amassed substantial savings as well, from India to Indonesia and the Montana’s Stillwater mine. GM partly through a social security Phillipines. took taxpayer dollars, so now system—with unusually-large Congress gets to call the shots! mandatory contributions—which The nation’s external government creates accounts that are fully owned debt is zero. That’s quite a contrast Rep. Dale Kildee of Michigan by the workers paying into them. to what’s going on here in the ‘States, insisted that GM and Chrysler use where we reward borrowing, foolish unionized trucking firms, at an Each citizen also has a health savings spending, red tape, and complexity, additional cost of $10 million a year account (there are government while penalizing hard work, savings, for Chrysler alone. Then there are subsidies for the poor), and the result thriftiness, and simplicity. It’s time the Senators and Representatives is universal health care that runs we turned to Singapore for guidance. from all across this great land on a free-market model. Patients Former Prime Minister Lee Kuan who have forced GM to reopen 70 shop for services while hospitals Yew stands ready to help. dealerships . and doctors compete on price and ILL-GOTTEN Under intense pressure from the public, Washington is fi nally going to close one tax loophole. You’ll remember that hedge funds charge 2%—much more than double our GAINS rate on larger accounts—and also take 20% of the gains in each client’s assets. That’s shocking, really, but the topper is that until now the richest hedge fund managers were taxed at just a 15% rate on that 20% slice. Of course, they had to buy protection every year with campaign donations, and it wasn’t cheap . - 2 - (800) LUMBARD (800) LUMBARD (800) LUMBARD (800) LUMBARD (800) LUMBARD The economy has strengthened, A recession is a cleansing process. A trillion but don’t expect to see 3% growth The problem for 2010 is that this one-dollar throughout 2010. Right now the one didn’t do much cleansing. bills, stacked Stimulus Package is stimulating Most Americans still have all one on top of the economy—don’t even try to the debt they had in 2007, and another, would pretend it isn’t—but when the the federal government has a lot reach 67,866 stimulus stops the economy will more. miles. defl ate again. 10/10/10 Let’s face it; our There are 110 million And here’s the part economy was pumped households in the United States. that many economists don’t up to greater size and faster growth If the federal government decides understand. Consumers aren’t by borrowing. It will take years to give away a trillion dollars, the going to go back to spending like it’s of slow growth to get us back to handout will be less than $10,000 2005. Brainless over-consumption “normal”. And investors can’t per household. Pretty disappointing, was a herd phenomenon, just like be encouraged by the fact that in the wake of e-mails suggesting the stock-market bubble, the real- the outlook for the auto, housing, that the Congress should send each estate bubble, and the various banking, defense, and health care taxpayer a million dollars to get the commodity bubbles. Retirement industries—and just about every economy moving. now looms for millions, and most other industry—is largely dependent Americans are fully aware that on government policy. Our forecast Still, the situation looks very they can no longer run up credit- for 10/10/10 puts the Dow at different when you suggest that each card bills and roll the debt into 10,010, the S&P at 1010, gold at household will have to pay $10,000 the mortgage. 1010, and the unemployment rate to the federal government to help it at a nice round 10%. pay back the money it borrowed in the last 8 or 9 months. If Congress borrows a trillion dollars a year in When someone asserts to you that The countries that have struggled the next ten years, each household the free market has failed and the most in the past year have is going to have to pay $100,000 that we need a new model, point been the Big Government nations.