That’s bad news for consumers. But it’s good news for the rest of us., according to today’s Blooomberg,
Ned Davis Research Inc. in Venice, Florida, studied returns for the Dow Jones Industrial Average when confidence as measured by the Conference Board survey is high, medium and low.
When it is high (above 113) the Dow gained an average of only 0.2 percent over the next 12 months. When confidence is moderate (between 66 and 113) the index gained 5.9 percent.
The biggest gains came when confidence was low (66 or less). Then the Dow plowed ahead by an average of 13.1 percent.
Why is consumer confidence a contrary indicator for stocks? When confidence is low, many people have withdrawn from the stock market, whether because of fright, disgust or simple lack of funds to invest. Lots of cash is on the sidelines, and that cash is potential fuel for a rally.
When confidence is high, many investors have already committed much of their capital to stocks, and there is little left to fuel the fire.
Historically, stocks have also performed quite well following sudden drops in confidence. Joseph F. Kalish and Veneta Dimitrova, analysts at Ned Davis, studied 14 cases in the past 31 years in which the Conference Board number dropped at least 9.8 points in a month, a trigger that was reached with February’s 10.1-point decline.
Twelve months after such an event, they found, the Standard & Poor’s 500 Index had gained an average of 8.7 percent, excluding dividends. There were gains in 11 of the 14 cases.
A look at the historic extremes of the Conference Board’s measure may also be instructive. The highest reading in the past 20 years was in May 2000, about two months after the Internet- stock bubble started to deflate. Since then, the S&P 500 has yielded a return of negative 12 percent, including dividends.
Dipping my toe. High dividend paying stocks have three benefits.
First, they tend to be more resistant to downturns on the stockmarket.
Second, they pay dividends.
Third, they’re often not growth stocks so you can stoke your return on them by selling covered calls.
As a famous wag once said, cash is as good as money. I own NLY, AGNC, CVX (Chevron) T (AT&T), Verizon (VZ), Du Pont (DD), Coca Cola (KO) and JNJ. I continue to own EWA. More on this tomorrow. I was a bit busy on the weekend.
Chelsea’s wedding. Chelsea got married at a gorgeous house overlooking the Hudson River. We’d been to the house for a fund raiser. It truly is gorgeous. Everyone locally was thrilled with the wedding and strained to glimpse the guests or the wedding dress. I was amused by this cartoon.
What a great idea.
The Russians are developing an airport security device that eliminates the privacy concerns that come with full-body scanners at the airports.
They have a booth you step into that will not X-ray you, but will detonate any explosive device you may have on you.
They see this as a win-win for everyone. There would be none of this junk about racial profiling. This would also eliminate the costs of a long and expensive trial. Justice would be quick and swift. Case closed!
This is so simple. Picture this:
You’re in the airport terminal. You hear a muffled explosion. Shortly thereafter an announcement comes over the PA system,
“Attention standby passengers – we now have a seat available on Flight Number 123.”
How to hire in-house counsel.
Robert White’s investment business was expanding and as a shrewd and diligent business owner he decided to hire in-house counsel to save some money. He began interviewing several young lawyers.
Into his office, walked a Mr. Greenberg, Chaim Yankel Greenberg. Interviewing Chaim Yankel, Mr. White explains that “you can understand that in an investment business like this, our personal integrity must be beyond question”.
Mr. White leaned forward and questioned, “Mr. Greenberg, are you an ‘honest’ lawyer?”
Chaim Yankel responded, “Honest, let me tell you something about my honesty level. Why, I’m so honest that when my father lent me fifteen thousand dollars for my education, I paid back every penny the minute I tried my very first case.”
“Very impressive,” replied Mr. White. “And what sort of case was that?”
Chaim Yankel squirmed in his seat and said, “My father sued me for the money.”
Harry Newton,who learned that the source of all his water problems at his country palace is iron. The short-term solution is “RustOff.” The long-term solution is to mine the cursed stuff and sell it to China.
It's unfortunate that Chelsea is repeating her mothers mistake. Bill Clinton has been cheating on his wife for a long time. You might say that she probably loved him more then he did her. I heard Chelsea has kept a torch for marc since she was in middle school, and some say she loves him more then he does her. I really hope she doesn't get the misfortune her mother did with Bill.