Manarin Investment Counsel, Ltd.

We’ve got some great guest hosts to share the studio with Dana and Curren this week for the radio show.  For those of you in the Omaha area, be sure to tune in to 1110 AM KFAB this Sunday morning at 9AM catch a special edition of our radio show, “It’s Your Money.”  For everyone else, you can find the show here on our website at http://manarin.com/radio-show/.  Advisors Tom Kerins and Tim Bastian join us to discuss the Fed’s latest announcement, what’s going on in Greece, and how they see things shaping up in the next couple of years.   Tom, our lead author for our newsletter, & Tim are former members of the economics faculty at the United States Air Force Academy and Tim is currently in the same role at Creighton University.  You’ll certainly want to hear their insights on the current financial environment.

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With each headline about debt downgrades, and Greek financial issues, doom and gloom is the theme. We're always told about how things are becoming. What they neglect to tell you is that for each banking crisis and struggle, there have been numerous ones just like it. Every banking system in every country has crises from time to time. It's just the nature of the beast. Here's a great article from the American that shows all of the different banking crises that occurred throughout the 20th century. You'll be surprised at how common an event it is. Certainly not the end of the world..

http://www.american.com/archive/2011/september/theres-usually-a-banking-crisis-somewhere

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“Tune into CNBC or click onto any of the dozens of mainstream financial news sites, and you’ll find an endless array of opinions on the latest wiggle in equity, bond and commodities markets. As often as not, you'll find those opinions nestled side by side with authoritative analysis on the outlook for the economy, complete with the author’s carefully studied judgment on the best way forward.”

 http://www.caseyresearch.com/articles/us-monetary-system-verge-collapse

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I couldn't have said it better myself!

“In re-reading yesterday’s speech by President Obama, several things stand out.The first is its crass distortions. In his remarks in the Rose Garden, the president said, “If we’re not willing to ask those who’ve done extraordinarily well to help America close the deficit … then the logic, the math says everybody else has to do a whole lot more: We’ve got to put the entire burden on the middle class and the poor.” As others have pointed out, the top 10 percent of earners pay nearly 70 percent of all income taxes and the richest one percent pay more than 30 percent of their income to the federal government, while the average worker pays less than 14 percent. In addition, almost half of the public do not pay any income taxes at all. This is known as a progressive tax system. Now, one may argue the wealthy should pay even more than they do in taxes – but to pretend not embracing Obama’s plan would place the “entire” burden on the middle class and the poor isn’t “math”; it’s a massive distortion"

Read more.

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President Obama spoke to the nation last Thursday about his plan to create jobs. As was recently highlighted by the “debt ceiling” fiasco, our government is woefully in over its head in debt. How does President Obama plan to pay for the job creation measures he proposes? It’s not by finding new revenues or cutting spending in other area. We’ll simply raise taxes in the future to retroactively pay for it. It’s deficit financing  that will just keep digging the whole deeper.

 Please read this article from the Cato Institute for a full explanation

 http://www.cato.org/pub_display.php?pub_id=13643

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Want Jobs? Have Faith.
Brian S. Wesbury ? Chief Economist
Robert Stein, CFA ? Senior Economist
Date: 9/6/2011

The private sector created 17,000 new payroll jobs in August and the government lost 17,000. The net was “zero.” Nada…zip…zilch…nothing.

Some would say that this is a perfect metaphor for the economy…a big fat zero. The stock market is getting drilled, politicians are frothing at the mouth, the Fed is having longer meetings, and investors are scared. So, what’s going on?

(more...)

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Corporate profits in the second quarter (both nominal and inflation-adjusted using the business sector price deflator) reached all-time record highs during the April-May period of this year, according to today's BEA report on GDP and corporate profits for the second quarter (see chart above).  Real GDP growth in the second quarter was revised down from the previous estimate of 1.3% to 1%, based on more complete data. While overall economic growth remains weak as measured by real GDP, the record level of corporate profits shows that American companies are financially healthy and strong, and can easily weather the current spring-summer "soft patch." 

Read the rest here

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By: Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 8/29/2011

Market turmoil and a cycle of shrill headlines and worrisome “breaking news” convinced many to evacuate the equity markets. That was a mistake. The odds of recession are low, but the stock market seems to have priced one in, anyway.

We use a capitalized profits model to value stocks, dividing corporate profits by the 10-year Treasury yield. We compare the current level of this index to that from each quarter for the past 60 years to estimate an average fair-value. Not only are 10-year yields low (2.2%), but corporate profits are growing strongly. As a result, and hold onto your hats, this top down model says that the fair-value for the Dow is currently 40,000.

 However, we think the Treasury market is in a bubble. So, instead of a 2.2% yield, we use a more conservative discount rate of 5% for the 10-year Treasury. This generates a “fair value” of 18,500 on the Dow and 1,940 for the S&P 500. In other words, the US equity markets are currently undervalued by about 65%.

 Obviously, there are many moving parts to this model. Interest rates could go higher than 5%, profits could fall or both could happen. Profits, for example, are now 12.9% of GDP, the highest in measured history (back to 1947) except for one quarter in 1950.

 So what does our model say if profits revert to the historical mean of about 9.5% of GDP? Even in that scenario, and assuming a 5% yield on the 10-year Treasury, equities are about 21% undervalued, with fair value at 1430 for the S&P 500 and 13,700 for the Dow.

  The problem with this scenario is that it takes the worst of both worlds: a major decline in profits and a surge in interest rates. In the real world, a large decline in profits would normally be accompanied by a drop in bond yields. In other words, our model says the risk of investing in equities today is very low.

 This is the opposite of what was happening back in 1999/2000. Back then, the market was over-valued and an ounce of gold traded for roughly 4 shares of Intel (INTC). Today it is trading for about 75 shares. Stocks look cheap and we think fears about the economy are overblown.

 Yes, it would be good to trade the ups and downs of this market, but we don’t know anyone who can do that consistently. Rather, we focus on valuation, risk and reward. And right now, we believe the reward outweighs the risk by more than many people seem to believe. Fear will not disappear overnight, but the model says it is overblown and stocks are extremely attractive. 

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This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy

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