If you think about it and use logic the days of a constantly growing stock market and the “buy and hold” philosophy is over. Now, we will all have to work for a living in the stock market just to stay ahead. I think, happy days in the stock market again are far off and we will all have to make adjustments, if we haven’t already, to the way we invest our money. There are many factors an affect on this market too much to review here but you can do that for yourself. You can start your approach by looking at the Federal Reserve.

Richard Russell - September 7, 2010

(He reviews economic history before this section)

……..By 2009 the optimism of the ’80s and ’90s turned into fear and pessimism. The phrase that emerged was “safe haven.” The key question was, “Where can I put my money where it is safe, and how can I be sure that my money will be returned to me?” The widely-accepted solution was cash and Treasuries and high-grade bonds. The rush into bonds was amazing. Over the last two years investors have poured $400 billion into bond funds. In the all-out frenzy to buy bonds, yields on bonds declined to historic lows.

Suddenly, every class of investment is suspect. Stocks didn’t pay off. Housing is still overpriced and dangerous. But bonds are loved. Today currencies are the current “happy home” for traders. Trading in currencies now amounts to the staggering figure of $4 trillion a day.

The danger areas of today are now DEBT and UNEMPLOYMENT. Meanwhile, a clueless President Obama is depending on two clueless advisors to avoid a “double dip” recession. The two advisors are — Larry Summers and Timothy Geithner.

But let’s go back to the meaning of the “lost decade” in the stock market. To wipe out 10 years of stock gains is a most unusual feat. I think it means the end of equities as the magic and guaranteed road to riches. It’s the end of Warren Buffet’s thesis that you should “buy good stocks and hold ‘em forever.” What this means is that Americans can no longer be certain of their retirement. It means the end of the time-honored American dream that “My kids will have a better life than I had.”

It may also herald the end of America’s leadership on the world’s stage. America will be just a republic as the Founding Fathers wanted it to be — not an empire.

In the big picture here’s what we’ll be watching: (1) The action and direction of Treasuries. This is our window to the debt of the United States. The market’s appraisal of a nation’s debt tells you a lot about that nation. (2) The action and direction of the US dollar. The world’s appraisal of a nation’s currency tells you most of what you have to know about the health of a nation.

Conclusion — We’ve already received an initial warning from the US equities market. Next, we’ll keep a sharp eye on both the Treasury market and the currency market.

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The Best Investment Advice You Will Ever Get — from Mark Cuban, billionaire:

I’m going to simplify what I consider to be the best investment advice I have ever been given and share it with you. Here you go:

1. If you have any credit card or other type of consumer debt on which you pay 5pct or more interest, pay it off. Compound interest is your enemy. The chances of you earning more on your money than you are paying in consumer interest rates are slim. Pay it off.

2. Cash is King. Now that Madoff is in jail, no investment can offer returns with zero risk. If you don’t fully understand the risks of an investment you are contemplating, it’s ok to do nothing. In times of massive uncertainty like we are facing today, doing nothing is a valid and IMHO preferable investment strategy. Just put your money in the bank.

3. Cash Creates Transactional Returns. What does this mean ? It means that you should analyze what you spend money on over the course of a year. You will get a better return on your money by being a smart shopper and taking advantage of cash, quantity or other types of discounts than you will in the stock market. Saving 15pct on the $1k dollars worth of items you know you will absolutely spend money on is a better return on your money than making 15pct in a year on a $1k investment because you don’t pay taxes on it.

If you have under 100k dollars in liquid assets, your net worth will be higher in one year if you follow this advice than if you follow ANY other investment advice any broker or banker will give you this year.

A friend of mine has been telling me over and over again to buy high dividend stocks. He tells me he has been doing very well in this market by buying the dividend stocks. I have not been paying much attention to him but now I am beginning to wonder.

My feeling right now is when the economy begins to turns which I expect to start soon we will see inflation raise it’s ugly head. That means that not only do you need to be in these markets to keep up with inflation but you need to start buying what I call “things”. That means housing, classic cars, antiques, etc. This happened last time we had big time inflation and there is no reason why it shouldn’t happen again. I have noticed that the markets in “things” are beginning to move already.

Dividends Beating Bond Yields by Most in 15 Years.
From today’s Bloomberg:

More U.S. stocks are paying dividends that exceed bond yields than any time in at least 15 years as profits rise at the fastest pace in two decades.

Kraft Foods Inc. and DuPont Co. are among 68 companies in the Standard & Poor’s 500 Index with payouts that top the 3.78 percent average rate in credit markets, based on data since 1995 compiled by Bloomberg and Bank of America Corp. While Johnson & Johnson sold 10-year debt at a record low interest rate of 2.95 percent last month, shares of the world’s largest health products maker pay 3.66 percent.

The combination of record-low interest rates, potential profit growth of 36 percent this year and a slowing economy has forced investors into the relative value reversal. For John Carey of Pioneer Investment Management and Federated Investors Inc.’s Linda Duessel, whose firms oversee $566 billion, it means stocks are cheap after companies raised payouts by 6.8 percent in the second quarter, data compiled by Bloomberg show.

“That’s the tug-of-war that’s going on right now,” said Peter Vanderlee, a money manager at ClearBridge Advisors, a unit of Baltimore-based Legg Mason Inc., which oversees $659 billion. “If we are going into a double-dip recession, maybe we’re not as cheaply priced as one would suggest. The other side of it is that if we’re just experiencing a slowdown, but we’re avoiding a recession, then prices are clearly attractive.”

The last time the number of S&P 500 companies paying dividends above the corporate bond rate approached the current level was in March 2003. That was just after the start of a bull market in which the equity index more than doubled over five years.

Bank of America Merrill Lynch’s U.S. Corporate Master Index has returned 9.5 percent this year, compared with the S&P 500’s gain of 0.4 percent, including dividends. Since 1995, bonds in the index have yielded an average of 6.2 percent, compared with S&P 500 dividends of 1.8 percent.

The relationship flipped after the Federal Reserve cut its target rate for overnight loans between banks close to zero and consumer prices fell by the most in six decades, helping send interest on 10-year Treasury notes as low as 2.42 percent last month. At the same time, U.S. economic growth forecast to reach 3 percent this year helped restore equity payouts after the most reductions ever in 2009, based on data tracked by Bloomberg.

Dividend yields were also helped by the 9.3 percent retreat in the S&P 500 since April 23. The drop pushed the price of the S&P 500 to 12 times estimated profits in the next year, near the lowest since March 2009. That’s giving investors a chance to buy stocks that pay more than bonds and offer more potential for price gains, Carey said in a telephone interview from Boston.

“It’s an attractive opportunity for people to get positioned in stocks that are paying good dividends and that are selling at relatively inexpensive price-to-earnings multiples,” he said. “That’s where the valuations are: in the big, blue- chip, dividend-paying stocks.”

Equities rose last week for the first time in a month as U.S. and Chinese manufacturing increased more than estimated and private employers added 67,000 jobs in August, beating the median estimate for 40,000 in a Bloomberg survey of 55 economists. The S&P 500 climbed 3.8 percent to 1,104.51. Futures on the gauge slipped 0.4 percent at 8:57 a.m. in London today.

Companies in the S&P 500, including more than 120 that offer no dividend, pay an average of 2.01 percent of their share price to shareholders, up from 1.8 percent in April, Bloomberg data show. U.S. corporate debt yields fell to 3.7 percent on Aug. 24, the lowest level in 20 years of information tracked by Barclays Plc. That day also marked the smallest spread between bond and dividend yields since at least 1995, according to data compiled by Bloomberg.

“It’s definitely a way to say that stocks are cheap relative to bonds,” said Barton Biggs, who runs New York-based hedge fund Traxis Partners LLC. The firm piled into equities at the bottom of the global bear market in March 2009, before the S&P 500 went on to gain as much as 80 percent, providing Traxis investors with 38 percent returns, three times the industry average, according to Chicago-based Hedge Fund Research Inc.

“You should own stocks rather than bonds,” Biggs said. “I don’t think bonds are the right things to be buying, particularly Treasury bonds.”

Concerns about the reinstatement of taxes on dividends and capital gains that were reduced under President George W. Bush may slow gains in utilities and telephone companies, the highest-yielding shares and the only groups among 10 that have risen since the S&P 500 reached its 2010 peak in April. Congress will begin debate this month on whether to extend the cuts. The 15 percent tax rate on dividends would jump to as much as 39.6 percent for the highest earners if the reductions expire.

“Anyone worried about navigating the next two quarters is probably justified in their concern” about the taxes, said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $55 billion. “If investors are at least considering this worst-case scenario, stocks are more adequately priced based on more of the uncertainty related to stocks than bonds.”

J&J’s dividend represents 3.66 percent of its share price, or 1 percentage point higher than the yield on its bonds due November 2019. The New Brunswick, New Jersey-based company, whose cash is 14 percent of total assets, posted higher-than- estimated profit on July 20. The shares have lost 8.5 percent this year.

“If you’re looking for current income, you look for some of these bigger companies that have nice dividend yields, where you could also possibly participate in the upside of this stock,” said Lon Erickson, who helps oversee $9 billion of fixed-income assets as managing director at Santa Fe, New Mexico-based Thornburg Investment Management.

Kraft, the world’s biggest confectioner, beat analysts’ profit estimates last quarter for the sixth straight time. The Northfield, Illinois-based company pays a quarterly dividend of 29 cents a share and yields 3.79 percent, 0.15 point higher than its bonds expiring in February 2018.

The shares have gained 13 percent this year to $30.58. Kraft increased its cash by 65 percent to $2.85 billion last quarter from a year earlier. The average S&P 500 company has $1.63 billion in cash, excluding financial firms, based on data compiled by Bloomberg.

DuPont Co., which has $3.96 billion in cash and near-term investments, pays 3.86 percent to shareholders, while bonds expiring in January 2020 yield 3.27 percent. The third-biggest U.S. chemical maker has surged 25 percent since the S&P 500 hit the 2010 low in July, compared with an 8 percent advance for the index, as second-quarter earnings surpassed estimates and the company raised its 2010 profit forecast because of improving global demand.

Shares of Wilmington, Delaware-based DuPont are cheaper than the equity index and the average of its peers, based on the price-earnings ratio of 12.9 using the past year of profit. That compares with 14.7 for the S&P 500 and 18.3 for the average of a group of commodity producers in the index. J&J is also cheaper than the S&P 500, trading at 12.5 times earnings, while Kraft is valued at 14.6.

J&J, Kraft and DuPont all have dividend coverage ratios, or earnings relative to payments, higher than 1. J&J’s is 2.3, while Kraft and DuPont have ratios of 1.76 and 1.17, respectively, data compiled by Bloomberg show.

S&P 500 companies’ cash probably has grown to a record for a seventh straight quarter, according to S&P. For companies that reported so far, balances increased to $824.8 billion in the period ended June 30 from the first three months of the year, based on data from the New York-based firm.

Cash represents 10.2 percent of total assets at S&P 500 companies, excluding banks and financial firms, according to data compiled by Bloomberg. That’s higher than the 9.5 percent at the end of the second quarter last year, 8.4 percent in 2008 and 7.95 percent in 2007.

“The economy is slowing down, but productivity has been so great in this country and companies have been able to make good profits,” said Duessel, the Pittsburgh-based equity market strategist at Federated. “Companies that would have cut their dividends already did so. It’s an unusual time where, yes, their profits are good, their cash is good, they can afford to pay more in dividends.”

I am still working on some financial projects. No time to post right now. Will be back after Labor Day. Have a nice Labor Day.

Things are not good. The economy and politics in this country are in a sorry state. This week the Wall Streeters are for the most part on vacation until after Labor Day so we might see some surprising volatility in these market. I am not sure equities are where you should be right now. I am looking at different thinks other than stocks to buy.

Zen and the Art of Economy Repair
By Bill Bonner

……..In the US, half a million Americans filed for jobless benefits last week-the highest number in 9 months. At this point in a typical recovery, job growth should be strong. Instead, it is shockingly weak. As for house sales, the drop in July was the greatest one-month decrease since 1968. Again, the direction is all wrong. Housing led the US out of 7 of the last 8 recessions. Now, it is holding it back! One out of every 7 mortgages is delinquent or in foreclosure. The nation is on target to foreclose on more than a million houses this year-a new record.

So let us take up a serious question. If an economy cannot trot out of recession, what becomes of it? To Japan or not to Japan? There are so many economists voicing an opinion on the subject that if you spent 5 minutes listening to each one you would have to be an idiot. There are those who think Europe and America will follow in Japan’s footsteps. And those who think it will not. Taking no chances, our Daily Reckoning has firmly held both opinions at one time or another.

The US is not Japan, say many. Japan’s 20-year slump was made possible by three unique circumstances: deflation imported from China, falling commodity prices and a current account surplus. The US is confronted with the opposite situation: commodities prices are strong, its current account is in deficit, and China is raising prices. These differences will bring on a crisis Japan never had to face. Interest rates will rise. The dollar will fall. Unable to finance its deficits at low rates, the US will unable to stay on the road to Tokyo. Instead, it will soon be detoured to Buenos Aires. Or Harare. The resulting panic will have nothing in common with Japan’s orderly ruination.

Those who think the US and Europe are following on Japan’s heels have at least the flow of current news to support them. Japan fell into a slump. Rather than let its markets clear, its government supported zombie banks and businesses with money borrowed from the public. This effectively transferred the burden of debt from the private sector to the public sector, while holding the economy in a state of suspended animation for two decades. Meanwhile, Japan’s people were getting older…more cautious…and more resigned to slippage.

This seems to be what is happening in America too. The private sector is de-leveraging. The latest report shows credit card debt at an 8-year low. Mortgage debt is dropping sharply too-thanks to defaults and foreclosures. Banks and private companies are stockpiling cash in anticipation of a cold winter. Households are playing it cool too.

Ben Bernanke must have gotten the message sometime between the 4th of July and the Assumption of the Virgin. On the 11th of August, the Fed announced another round of quantitative easing designed to fight against the decline. Of course, Japan tried quantitative easing too. It failed, just as monetary and fiscal stimulus had failed……

When it comes to Dylan Ratigan I find he is not real good at politics (his new gig on MSNBC) but he is good at explaining the economy. Below is a nice review of the current economic situation. It is worth a watch.

Note: To start the video click on the “25″ in the date “Aug 25″ in the left hand corner of the video.

Visit msnbc.com for breaking news, world news, and news about the economy

As the market heads towards the magic 1020 number on the S&P500 and the Dow dropped briefly below 10,000 today one could say things are not looking good. Once we hit 1020 (if we hit it) I see the market going sideways again and then who knows what.

Below is an article by Mark Cuban who is a real interesting character. You pay attention to him because he made a billion dollars and he on occasion makes a lot of sense. You judge for yourself.

The Stock Market is still for Suckers and why you should put your money in the bank
by Mark Cuban — blogmaverick.com

I wrote a whole series of articles warning people about the stock market over the years. You can see them here. It’s gotten worse. So I thought i would write some more about why you should probably avoid putting any new money into the stock market.

If you haven’t noticed, individuals are avoiding the stock market in droves. There has been an enormous exodus from equity based mutual funds. Why ? Because people buy stocks for only one reason, they want them to go up in price. If you don’t believe the market is going to go up. If you don’t believe you can find a greater fool to buy your stock, or the stock your funds own, why would you buy either ? You wouldn’t and people aren’t.

The amazing thing is that doing nothing in the market is the smartest approach to the market. It is pretty much impossible for some man or woman or child who devotes a couple of hours per week to the market to outperform the professionals who spend 24×7 doing this for a living and when they are asleep, they have a workforce full of people doing more of the same. In this day and age, none of us are smarter than the market.

I didn’t always think this way. I didn’t ever think there was a truly efficient market until just recently. What changed ? The availability of capital changed. While we can argue about whether or not the market is efficient because everyone has access to the same information, I would always argue that they didn’t efficiently use that information and even if they did, capital was not always allocated correctly to every market segment.

Capital found its way to where people/funds thought they were smarter than the rest. Some people thought they understood the tech markets better than others. Some thought they understood retail better, etc. The belief that an individual/fund had an advantage drove where capital was allocated. People posted good performance or identified macro opportunities and put their own and others money to work. Others saw the success and followed. Like the saying goes “first there were the innovators, then the imitators, then the idiots”. Fortunately for market participants over much of the history of the stock market, if you were the innovator that was smarter and faster than the other guys, you could make money on the long and / or short side of the market before the imitators and then the idiots flooded the market.

The door was open to opportunity in the past simply because capital was relatively expensive. It was expensive to raise, it was expensive to borrow. High cost of capital creates scarcity of capital. The more expensive the scarcer. The scarcer the capital, the more untapped opportunities just waiting for innovators to exploit and the longer it took the imitators and idiots to chase the same opportunities and close them. Which is why you found funds and smart people posting great returns over a long period of time.

But a not so funny thing happened on the way to and through the Great Recession. Capital became progressively cheaper. It became the opposite of scarce. It became readily available. To anyone.

The innovators had put together unique mortgage programs. The imitators made it a little easier to partake. Then the idiots took over. Capital was so easy and suckers and idiots so prevalent, everyone believed that there was always going to be a greater fool to buy their house and /or give them refinancing money. Until the idiots couldn’t collect on the mortgages they lent or pay the mortgages they took out. That de-levered the system and we know what happened next to the banking, mortgage and housing industries and the entire economy.

In response to that great de-levering, the government stepped in and I truly believe they saved us. Sure, they watched as the idiots dragged us into the mire. Sure they allowed all those mortgages to be guaranteed and that was a key culprit in the Great Recession. Our government has never been very good at being proactive at anything. Reactive thats another matter. That gets the votes.

So the government reacted and poured money into the system. They allowed just about any bank with a pulse to borrow money. To this very minute it is incredibly cheap to borrow short term capital. Particularly if you are in the business of trading/hacking the stock market. If you are a big fund or investor, money is cheap. Unfortunately for the stock market, it is cheap for everyone. In other words, capital is not longer expensive and it is no longer scarce.

When capital is so cheap that everyone with a pulse thinks they can make money once they borrow it, the stock market is in trouble.

Remember the rule about first there are the innovators, then the imitators, then the idiots ? It is why the stock market is truly in trouble.

There is SO MUCH CAPITAL available at so little cost to so many that the timeline from innovator to idiot is measured in days, hours and probably even milliseconds. The guys who are actually smart and uncover new opportunities can’t even get in a position large enough to make it worth their while before the imitators and then idiots pile in right behind them.

Remember the Flash Crash and the discussion about how trades are made in milliseconds, what I called hacking the system ? I don’t know for certain, but Im willing to bet that those innovators that made money by trading in milliseconds, now have so many imitators and idiots that have piled in behind them , putting servers right next to theirs and hiring their algorithm coders away from them, that there is no longer any advantage, or not enough of one for any of the players to make any real money.

There is so much capital chasing so little return that big time players are getting out of the business.

So what does this mean for you ?

It means that I don’t know if the market will go up or down, or by how much. My guess is that it stays in a trading range for a while. There isn’t much money coming in, but enough of that easy to come by capital has so much ego attached to it, that the same people will get in and out of the market over and over again and trade amongst themselves.

Until something happens. What that will be, I have no idea.

But I do know that I have continued to add to my cash balance or sovereign debt from around the world (that I have owned for a while now and has been profitable and is very, very liquid.) The stocks I still own for the most part pay me a nice cash on cash return, or I have owned them for a long, long time and have more in gains than I want to pay taxes on. But in total, I have been a net seller of stocks for more than a year. The only investments I am making are small buys into private companies. I want as much “powder dry ” as possible for when something happens.

I’m not saying you should get out of the stock market. What I am saying is that it is not a bad thing to accumulate cash right now. Retention of capital is a good thing. Don’t go chasing stocks. Something is going to give in this market. Like I said, I dont know what it is, but I want to have as much capital available as possible for when it happens.

Baron Rothschild said “the time to buy is when there is blood in the streets”, Warren Buffet said it differently when he said ” you pay a very high price in the stock market for a cheery consensus”

This is the time to start saving for a “bloody day”. There will be a time when capital regains its scarcity. When it becomes more expensive. When it does , what do you want to have in as great an amount as possible ? Capital.

So save your money. Pay off your credit cards. Put your money in the bank where it is insured. Be patient. Get a good nights sleep knowing that your money is not going any where and just wait till your capital is in demand and you get paid for it. When everyone is complaining about the money they lost, you will be ready to step in and buy.

That is how fortunes are made. Having money when no one else does. And you can take that to the bank !

I have been very busy on a non-business related project I am working on over the past few days so I haven’t had much time to read or make a post.

This market is not doing well but still is hanging in there by going sideways. I have been told that the magic number is 1040 on the S&P500. If the S&P500 drops below that level things could get worse very quickly. The bears seem to be in charge of this market currently and there is no good news coming from the economy.

My website provider sent me a note saying I might have some disruptions in my service. If that happens, hang in there and we will get it fix asap.

Here is a summary by John Mauldin on the current market:

V-Shaped Recovery
John Mauldin Weekly Newsletter

……..Long-time readers know that I think we are in for an extended period of slow growth, high and sticky unemployment, and volatile markets punctuated by more frequent recessions. That is what you get when you have a deleveraging environment resulting from a credit crisis. It is what happens when the Debt Supercycle ends. We start the journey to the New Normal and it just takes time.

“Where Is My V-Shaped Recovery?”

Remember all the bulls and cheerleaders late last year and into this one talking about a V-shaped recovery? They were making their projections based on what had happened in past recessions. I (and others) argued that that data was meaningless, as it did not reflect the fact that a balance-sheet recession requires years of deleveraging, is inherently deflationary, and all the factors that produce the normal “V” are no longer in play. Bank lending is still dropping. Savings rates go up. Debt gets paid down. Governments run into limits as to how much they can stimulate the economy without creating large and destabilizing debt. Central banks push rates to zero, and then what? This is a far different environment than we have had for the last 70 years. Using past performance to predict future results when the future environment is significantly different than the period in which the data was collected is misleading at best and worthless at worst, leading to bad decisions. Much better to deal with reality.

And just to show that I am really the optimist in the room, let’s turn to my good friend David Rosenberg, writing this morning under the following headline:

“U.S. RECESSION NEVER ENDED; GDP TO CONTRACT IN Q3″

Our suspicions have been confirmed the recession never ended. Macroeconomic Advisers produces a monthly U.S. real GDP series and it shows that the peak was in April, as we expected, with both May and June down 0.4% in the worst back-to-back performance since the economy was crying Uncle! back in the depths of despair in September-October 2008. The quarterly data show that Q2 stands at a +1.1% annual rate (so look for a steep downward revision for last quarter) and the ‘build in’ for Q3 is -1.5% at an annual rate. Depending on the data flow through the July-September period, it looks like we could see a -0.5% to -1% annualized pace for the current quarter. Most economists have cut their forecasts but are still in a +2.5% to +3.5% range. What is truly amazing is that despite all the fiscal, monetary, and bailout stimulus, the level of real economy activity, as per the M.A. monthly data, is still 2.5% below the prior peak. To put this fact into context, the entire peak-to-trough contraction in the 2001 recession was 1.3%! That is incredible.

“Interestingly, and dovetailing nicely with our deflation theme, nominal GDP fell 0.3% in May and by 0.4% in June. This is a key reason why Treasury yields are melting.”

Politicians are going to be greeted with a GDP number for the third quarter, right before the elections. Will it be negative like Rosie thinks? I am not sure, but in any event it will not be good. Structural unemployment will still be over 10% and deficits will be high.

…….. Unemployment and continuing claims have started to rise again. This is not what happens in V-shaped recoveries, gentle reader. The ONLY reason the headline
unemployment number has dropped a little is that the Labor Department has dropped so many people from the labor force. Again, if you have not looked for a job for four weeks, they do not count you as unemployed. If you use the labor-force number from just last April, unemployment is 10.5%. Brutal. Who doesn’t know too many people without jobs?
But it is not just rising unemployment claims. Yesterday’s Phillie Fed report was just awful. Buried in the details was the fact that the hours-worked index is collapsing, consistent with previews to past recessions. Very worrisome.

Bottom line? It is going to be a tough environment for the next 6-8 years. That is just what happens when you have a deleveraging / balance sheet / deflationary / end of the Debt Supercycle recession. It is what it is, and no amount of wishing or finger pointing can change the facts……