Even in Coal Country, the Fight for an Industry

Has the coal industry been left for dead?  It certainly looks and feels that way.  With natural gas still near historic lows and new supply coming on daily, coal can;t really compete with gas on a cost basis let alone an environmental basis (as it appears today).

But as this NYT piece points out, just because the coal is not being used here in the US it does have value in other parts of the world.  As fast as coal plants are being shuttered here in the US they are opening new plants around the world, namely China.

• Environmental groups, after years of targeting coal plants as leading sources of air pollution, have moved in for the kill. “We never thought we would get to a place where coal plants are falling so fast,” said Bruce Nilles, the director of the Sierra Club’s Beyond Coal initiative. It has been aided by $50 million from Mr. Bloomberg, who views the campaign as part of a public health effort, and $26 million from an odd bedfellow: the top official of a natural gas company.
• The environmentalists figure that if they can shut down a third of the nation’s coal burning plants by 2020, emissions of greenhouse gases in the United States could be cut at least as much as they would have under a landmark 2009 climate bill that died in Congress.

The Revenge of the Rust Belt: How the Midwest Got Its Groove Back

For those of you who live in the Midwest such as we do, you know how first hand the impact the "Great Recession" has had not only on the economy but from a lifestyle standpoint.  The job losses, people relocating out of necessity rather than choice, and just a thick fog of hopelessness that people wondered if it would ever lift.  To some degree it has and to some degree it has not.

Whenever the low occurred and no matter how difficult it has been to endure and muddle through, there are glimmers of hope.  This piece in the Atlantic offers some of the hope and the rebound that is occurring in the rust belt areas.

• For the past thirty years or so, there have been two great running narratives about American manufacturing, both of which have been disastrous for the Midwest's economy. The first has been about the disappearing factory worker -- how by shipping some jobs abroad and replacing others with machines, companies have figured out ways to produce more goods with millions of fewer employees on their assembly lines. The second narrative has been about migration -- the decision by companies to move production away from once-booming industrial centers of the north, to southern states with weaker unions and lower wages.
• There's a relatively simple explanation for this recovery. When it comes to the price of operating a business, the Midwest is a lot more competitive than it used to be. As the Wall Street Journal  recently reported, the overall cost of doing business in the region, including factors such as labor and energy prices, is now about 96 percent of the national average. 

As an added bonus I found this WSJ article that captures the revival of one such steel mill in Burns Harbor, IN located along the south shoreline of Lake Michigan.

• Left for dead a decade ago, this 50-year-old facility on the shores of Lake Michigan has been rejuvenated thanks to an unusual experiment by its owner, Luxembourg-based ArcelorMittal.
• In 2008, Burns Harbor was "twinned" with a hypermodern mill in Gent, Belgium. Over 100 U.S. engineers and managers, who were flown across the Atlantic, were told: Do as the Belgians do.

Bespoke Summary of Economic Indicators

Bespoke put together a great summary of economic indicators that is definitely worth the look.  The summary compares various economic points from where we are today vs. a year ago.

From our view this is how we interpret the current data vs. a year ago

• Manufacturing - Down
• Employment - Mixed/To Up
• Housing - Up
• Inflation - Down
• Consumer - Mixed/To Down

However if you look at the very bottom of the summary in the "Total" row, you will see that the net number of indicators has been negative for the past 4 more in a row.  What we see in this data is how disconnected the stock market is from the real economy.  One likely reason for the disconnect are the actions of the Fed in keeping interest rates artificially low and flooding the markets with liquidity.

Sooner or later the markets and the economy will sync up which will likely lead to a major correction in the equity markets.

Click on this link to see the full Bespoke summary with all of the detailed reports and data.

Week 39 Performance.....Outperformance in Q3 despite the Noise

Although Q3 finished on a down note this week, the overall quarter was an exceptionally strong one for the equity markets.  All four major stock indices finished up between 6.6% and 9.4% with the NASDAQ at the high end and the DJIA at the low end.  However it was the DWCM Fund that finished higher than any of those indices.

The DWCM Fund was up double digits, returning 10.3% for the quarter.  For the year the Fund is up 27.5% almost doubling the performance of the DJIA, S&P 500, and the Russell 2000.

What were the key drivers that led to this performance?  We hit on all but one of our strategies that we have been discussing throughout the year which include the following:

1. Agriculture companies, feeding a growing and diverse global population.  Here companies or farmers are trying to get more output with the same amount of acreage.  The severe drought was also a driving force behind some of the price movement up.
2. Dividend paying companies, but not just any dividend paying company.  Those that have a strong balance sheet with little to no debt and produce extreme amounts of cash did the best.  Here we diversified ourselves away from just telecoms and into health care, real estate, and energy
3. The Best Technology companies,  Apple and Google.  These two companies are the best at what they do and both turned in phenomenal quarters.  It's no surprise that these companies are the largest two holdings within the DWCM Fund.

What did we miss on this quarter?  We initially started our short position in a group of 6 home builders in the beginning of July.  Our belief was that with a weak economic recovery that was not producing enough growth in both jobs and income, that people were not going to be able to afford new homes.  We also took into consideration what is know as the "shadow inventory" issue where banks are sitting on an undisclosed amount of foreclosed houses because they are not ready to take the losses yet.  From a technical analysis perspective these stocks had already had such a huge run up (in some cases near 100%) that a pull back was likely in the cards. Well no such pullback has occurred and the home builders have produced decent returns which have made their stock prices climb even higher.

So where do we go from here?  The markets were back to themselves a little bit this week after the Fed hangover had begun to wear off.  The focus this week has turned to the European debt crisis and to a certain degree, more instability within the Middle East region.

As it stands today, President Obama has a slim but growing lead in the US Presidential election.  Everyone is putting a lot of emphasis on the upcoming debate this week and unless Romney wins this debate convincingly, it could be lights out for the Republican party.  However with that said, anything can happen in which case additionally volatility could seep back into the markets.

With plenty of uncertainty abound and another earnings season about ready to rain down upon us, what investment strategies will weather these potential storms?  We see plan to implement a strategy of, if it isn't broke don't fix it.  If we see a worsening of conditions in any of the potential issues which could bring equity prices down then we will act.  However, the DWCM Fund is already positioned on the defensive side of the ball with just over 40% in cash and the majority of our positions paying some form of dividend.

We have stated for the past several months that we would be comfortable holding up to 50% of the portfolio in cash if events warranted such action.  However we like the current position of the portfolio and are researching new investment opportunities on a constant basis.

The Week Ahead
There seems to be this constant feeling of trepidation during the first week of every month leading up to the jobs report.  The market seems to hang on every nugget of information that comes from the job report the first Friday of each new month.

Another closely watched data point will be auto sales.  Remember this could be a good indicator of how well the consumer is doing and feeling when it come to the state of the economy.  As opposed to a survey where consumers voice their opinion, here they really put their money where their opinion is.

• Mon - PMI Manufacturing Index, ISM Mfg Index, Construction Spending
• Tue - Motor Vehicle Sales
• Wed - ADP Employment Report, ISM Non-Mfg Index
• Thu - Challenger Job-Cut Report, Jobless Claims, FOMC Minutes
• Fri - Employment Situation, Consumer Credit

DreamWorks Capital Management

If you are currently trying to develop your own investment plan or are seeking the help of a professional investment advisor we urge you to give us the opportunity to show you what DWCM can do for you.  No matter what stage in life you are currently at, DWCM can help you plan for your ever changing needs.

DWCM can you help you with any of the steps in your wealth management journey including;

• Addressing emergency fund needs and requirements
• Developing a retirement plan
• Sending a child to college
• Looking at various investment options
• Determining how to involve philanthropic passions as apart of your planning process

With our "SMART Principles", we can help you develop your unique goals and create a focused customized plan to achieve your financial and lifestyle goals.

Contact us at pfenner@dwcmllc.com.

Dropping out: Is college worth the cost? Peter Thiel thinks so and is willing to pay to prove it

The Sources of Wealth

According to Boston College professor Jack Falvey of Making The Numbers there are two kinds of jobs, but only one kind creates wealth.  Although you may have a product to sell, without a sales person going out and making a sale, no wealth is created.

Full opinion piece here in Barron's

• Arthur (Red) Motley, the late, great advertising salesman for Parade Magazine, put a finer point on the answer: Before wealth and jobs can be created, somebody has to sell something.  The more advertising Motley sold, the more new production was required, and thus, the more new jobs were created. No politician in Washington can do better.
• THE SOURCE OF WEALTH IS celebrated by those who bring it into the world; the entrepreneurs who sign the front of the paychecks, manage the payroll, buy equipment and services, and give birth to new enterprises. They're very different from those who kiss babies and tax or regulate wealth creation.

America's Most Innovative Neighborhood: 15 Square Miles In New Mexico, Population: 0

One point I gleamed from this piece is that people like Thomas Edison and Ben Franklin couldn't do the things today that they did back then due to various laws and regulations.  So does that mean that government stymies growth and innovation.  To a certain degree yes and to a certain degree no.  Much of our lives involves too much regulation in my opinion but there are certain things we probably need government for in order to police companies and industries that those would not willingly take on themselves.

Full Fast Company article here

This summer, Pegasus Global Holdings will begin building a city from scratch in the desert just outside of Hobbs, New Mexico, that will look not unlike Hobbs itself. The Center for Innovation, Testing and Evaluation will be modeled on a mid-sized, mid-American town of about 35,000 people. Hobbs, located just outside the Texas border in the Southeastern corner of the state, is just a bit larger than that. The new city--CITE, as the locals and out-of-town developers call it--will similarly have a kind of downtown, a retail district, residential neighborhoods, and collar communities. It will have functioning roads, self-sustaining utilities, and its own communications infrastructure. It will not, however, have a single permanent resident.

Will America Ever Recover From The Housing Crisis

Courtesy of the  Bank of The Internet

Social Security is not going broke

When I saw the heading of this Reuters opinion piece I knew that I had to read it.  Like any trade or investment strategy, you would want to consider the other side.

The main theme that most people have heard is that Social Security is going broke.  Reuters columnist David Cay Johnston take the opposite side of the Social Security debate.  Johnston offers up some interesting opinions regarding how the burden of the tax has shift from the wealthy onto the middle and lower classes.

Here are a few of his points form the article here including a few solutions he offers to help continue to fund the program

• From 1961 through 2011, the year covered in the last Social Security report, Social Security taxes exploded from 3.1 percent of Gross Domestic Product to 5.5 percent.
• In 1983, President Ronald Reagan sponsored an increase in Social Security taxes, changing the program from pay-as-you-go to collecting much more taxes than it paid in benefits. The idea was to have the Boomers prepay part of their old age benefits. The extra tax was supposed to pay off the federal debt and then be invested in federal bonds. Instead, Reagan ran huge deficits, violating his 1980 promise to balance the federal budget within three years of taking office.

How Apple and Microsoft Armed 4,000 Patent Warheads

The patent business is hot, hot, hot.  Look at the settlement Apple received over Samsung.  So how do companies know when their patents are being infringed upon?  Contact the Rockstar Consortium.

The 32-person outfit has a single-minded mission: It examines successful products, like routers and smartphones, and it tries to find proof that these products infringe on a portfolio of over 4,000 technology patents once owned by one of the world’s largest telecommunications companies.

Wired takes a look at this niche industry in this piece here.

• When a Rockstar engineer uncovers evidence of infringement, the company documents it, contacts the manufacturer, and demands licensing fees for the patents in question. The demand is backed by the implicit threat of a patent lawsuit in federal court. Eight of the company’s staff are lawyers. In the last two months, Rockstar has started negotiations with as many as 100 potential licensees. And with control of a patent portfolio covering core wireless communications technologies such as LTE (Long Term Evolution) and 3G, there is literally no end in sight.
• Rockstar is a special kind of company. Because it doesn’t actually make anything, it can’t be countersued in patent cases. That wouldn’t be the case with Apple or Microsoft if they had kept the patents for themselves. And because it’s independent, it can antagonize its owners’ partners and customers in ways that its owner companies could not. “The principals have plausible deniability,” says Thomas Ewing, an attorney and intellectual property consultant. “They can say with a straight face: ‘They’re an independent company. We don’t control them.’ And there’s some truth to that.”

Inside the reverse-engineering lab at Rockstar.  Photo: Rockstar

The Man Who Took on Amazon and Saved a Bookstore

This is an awesome story of entrepreneurship.  Just when you think you can put the small man and business down, someone comes along to show you how to do something different.  Different enough to succeed and carve out a profitable niche of it's own.

Check out this Forbes story about the Harvard Book Store  in Cambridge, MA.

• A former technology executive with a passion for reading and books, Jeff saw – like everyone else – that the digitization of content was destroying the neighborhood bookstore.
• Essentially, Jeff installed a printing press to close the inventory gap with Amazon.  The Espresso Book Machine sits in the middle of Harvard Book Store like a hi-tech visitor to an earlier era. A compact digital press, it can print nearly five million titles including Google Books that are in the public domain, as well as out of print titles. We’re talking beautiful, perfect bound paperbacks indistinguishable from books produced by major publishing houses. The Espresso Book Machine can be also used for custom publishing, a growing source of revenue, and customers can order books in the store and on-line.
• Ultimately the bookstore exists to serve a community, and Jeff devised a strategy to safeguard that mission. While people will always take the path of least resistance to buy a book, they still value the experience of browsing and spending time in a place that ignites their imagination. That’s the position that Harvard Book Store has defended.

Power, Pollution and the Internet

There is a dirty secret to the virtual online world that we live in today, quite simply it is the pollution byproduct of our virtual world which is on a collision course with the real world that we live in.  The NYT in a yearlong examination, is reporting that information industry is sharply at odds with its image of sleek efficiency and environmental friendliness.

The data centers that support your Facebook account, ordering an item on Amazon, or being able to log into your bank account requires server up server.  These servers require an enormous amount of energy to process and store information but not only that they need energy systems in order to cool them to keep them going.  And don't forget about the insurance.  In the event that something does goes wrong there needs to be an additional layer of protection to keep the servers going if the main source of energy goes down.

Having some experience in dealing with second source energy supplies, I can tell you that they are not cheap.

Full NYT piece here

• Most data centers, by design, consume vast amounts of energy in an incongruously wasteful manner, interviews and documents show. Online companies typically run their facilities at maximum capacity around the clock, whatever the demand. As a result, data centers can waste 90 percent or more of the electricity they pull off the grid, The Times found.
• To guard against a power failure, they further rely on banks of generators that emit diesel exhaust. The pollution from data centers has increasingly been cited by the authorities for violating clean air regulations, documents show. In Silicon Valley, many data centers appear on the state government’s Toxic Air Contaminant Inventory, a roster of the area’s top stationary diesel polluters.
• Worldwide, the digital warehouses use about 30 billion watts of electricity, roughly equivalent to the output of 30 nuclear power plants, according to estimates industry experts compiled for The Times. Data centers in the United States account for one-quarter to one-third of that load, the estimates show.

Thank You from Dreamworks Capital Management

I would like to thank everyone who was able to attend the DreamWorks Capital Management LLC financial lecture, “How to Balance Your Changing Investment Needs” this past Tuesday at The Community House.  We had a great turn out with an extremely knowledgeable and interactive group which made for a great event.

I hope that you were able to take away some key action items and principles that will help you on your wealth management journey.  As I noted, “bite the elephant one bite at time”.  The wealth management journey can become overwhelming at times, but if you stay focused on your goals and apply the “SMART Principles” you will increase your chances of success in order to have the financial life that you envision.

Paul Fenner, ChFC

President

Week 38 Performance.....A Rising tide of Apple helps to lift all boats

It is a familiar story about Apple especially within the DWCM fund.  We initially began holding a position in Apple late 2011.  Since then we have been in and out of some call option call, been long the stock (which we currently are) and have taken some profits from time to time.

But with the release of the iPhone 5 in stores yesterday, the Apple machine just keeps pushing ahead crossing over the $700 per share mark and setting fresh 52 week highs.  It's not just Apple stock either.  Technology as a whole continues to do quite well this Fall season with most tech names participating in the rally.  However, one big name missing from the party has been Intel.

Intel is down 11% over the past 1 month and 13% over the past 3 months.  What gives?

In our view Intel is a very stable company one that carries a solid balance sheet, provides a nice size dividend, and can usually whether a tough storm.  All the qualities we like in a company that we consider to be a core holding.

We believe the concern with Intel is over the lack of demand in PC's which Intel is the dominant player.  While it has branched out into the smartphone and tablet arenas, Intel may be getting unfairly punished while other semiconductor names who are solely in the smartphone and tablet space are riding the wave of success off of Apple's coattails.

Regardless, we believe that both companies can offer shareholder's additional upside which is why we currently have positions in both and are looking at adding to our position in Intel.  Currently Apple makes up about 10% of our total portfolio which is relatively high while Intel only makes up 1.4%.

As they say in the markets, "the trend is your friend until its not".  As the most hated rally in history continues along, the DWCM Fund marked it's 10th straight week with positive gains.  In a week where the markets felt a little hungover from the Fed's new QE Unlimited program, all four major equity indices finished lower on the week.

We saw this type of success earlier in the year with the DWCM Fund.  If you remember we started off the year with a 9 week winning streak which came to an end as things started becoming a little more volatile in the spring months.


In our Q1 Newsletter Investing is Simple But Not Easy, we talked about that at certain times within the market stock picking can look easy because everything goes up in value.  Investing becomes harder and more challenging when you really have to start developing your own strategy and executing that strategy even in the face of down markets.

We believe that we have built and will continue to build a portfolio that will be able to create value for clients in trying markets.  By taking profits off of the table at times and cutting back on losses, one of our goals is to have a positive absolute return in any market condition.


The Week Ahead
The release of new economic data really heats up again this week with the release of new housing data, Fed surveys, orders, and probably most important GDP figures this Thursday.

With the Fed's decision to launch it's latest round of QE, it's hard to determine how markets will react to new economic data.  The Fed is going to be pumping money into the economy whether it is doing good or bad.  So it essence waters down the economic data and to some degree renders it not very useful.

With that said, we think that you still need to pay attention to the data but we're just not sure yet what the markets will do with it.

• Mon -  Chicago Fed National Activity Index,  Dallas Fed Mfg Survey
• Tue -  S&P Case-Shiller HPI,  Consumer Confidence,  FHFA House Price Index,  Richmond Fed Manufacturing Index,  State Street Investor Confidence Index
• Wed -  New Home Sales
• Thu -  Durable Goods Orders,  GDP,  Jobless Claims,  Pending Home Sales Index,  Kansas City Fed Manufacturing Index
• Fri -  Chicago PMI,  Consumer Sentiment

DreamWorks Capital Management

I would like to thank everyone who was able to attend the DreamWorks Capital Management LLC financial lecture, “How to Balance Your Changing Investment Needs” this past Tuesday at The Community House.  We had a great turn out with an extremely knowledgeable and interactive group which made for a great event.

I hope that you were able to take away some key action items and principles that will help you on your wealth management journey.  As I noted, “bite the elephant one bite at time”.  The wealth management journey can become overwhelming at times, but if you stay focused on your goals and apply the “SMART Principles” you will increase your chances of success in order to have the financial life that you envision.

Paul Fenner, ChFC

President

10 Life-Changing Decisions We Make Without Thinking

We haven't posted an article from one of our favorite bloggers  and writers James Altucher lately.  so, in digging through some unposted pieces, I found this one from James who tackles 10 Life-Changing Decisions We Make Without Thinking.

In this piece, James tackles everything from the way we eat to what we are watching and how these little decisions or big decisions in hindsight can affect our lives.

Ronald Reagan on Marriage: Love, Dad

I can't remember where I first picked this piece up but I found it so profound that I wanted to share it with our readers.

Regardless of your political affiliation, Ronald Regan was one of the most polarizing Presidents of our time.  something akin to Bill Clinton but for different reasons as this letter may tell.

It has been well documented in a series of letters and books the relationship that President Regan had with his wife Nancy.  The two shared some type of love and connection that would make any couple envious.

In a letter to his son Michael, the night before he was to marry, the President wrote the following letter courtesy of the website Letters of Note.

• There is no greater happiness for a man than approaching a door at the end of a day knowing someone on the other side of that door is waiting for the sound of his footsteps.

In June of 1971, just days before his 26-year-old son, Michael, got married, future-U.S. President Ronald Reagan sent him the following letter of advice. It really is quite stunning.

(Source: Reagan: A Life In Letters; Image: Ronald Reagan, via.)

Apple: iPhone 5 pre-orders topped 2M in 24 hours

Apple touched the $700 per share mark today, quite the milestone for the most valuable company in the US by market cap.

If new iPhone sales are any indication for Apple adding onto it's nearly $658B value it will continue to get bigger rather than smaller.  At a forward price/earnings ratio of 13, the stock unbelievably still looks like a good value.

Sales are projected to be in the range of 6 million to 10 million iPhone 5s in the first week. That compares to sales of 4 million of the iPhone 4S on its first weekend last October.

Review this USA Today article for more specifics on the iPhone sales

• Apple on Monday said iPhone 5 preorders topped 2 million in 24 hours -- more than double the amount of preorders it had for the iPhone 4S.
• Phones ordered online won't be delivered until Oct. 5 at the earliest, according to Apple's website. And analysts say phones available at retail, starting at 8 a.m. Friday, will probably be sold out by Sunday.

Weekly Petroleum Supply Team on Possibility of Recession

This is a great post from Mish Shedlock who received a very intuitive email from James Beck, Lead Analyst, Weekly Petroleum Supply Team for the Energy Information Administration.  As Mish points out, it is very rare that someone from the inside steps forward with this type of detailed analysis and identifies themselves.

With that said the piece of Beck's email that stood out to me is as follows,

• The data support your general point that total petroleum product demand is at 1997/98 levels. The running three-month average that I am using (Apr/May/Jun--the last three months available) show that total demand has bounced above the lowest point for the same three-month period in 2009, but remains significantly below 2010 and 2011 levels--remaining very near 1997/98 levels.  This 15 years of demand destruction cannot be explained fully by increased efficiency or increased use of biofuels and renewables (these have, at most, a marginal effect). This is truly an indication of the real and continuing trouble in our economy, high unemployment and underemployment, loss of manufacturing, and reduction of shipping. Total product supplied for April - June has averaged 18.652 million barrels per day, 0.5% above the same period in 2009, and is the second-lowest level for the three-month period since 1997 (which was at 18.487 million barrels per day).

So with demand down why are gas prices up?  Part of it has to do with refinery issues whether it is production issues or capacity being taken off line.  Global politics are playing a role as well with constant saber rattling in the Middle East.

As much as pundants claim that Americans are used to $4 gas and have adjusted to it, I say that is garbage.  Tell that to the person who is out of work, the person who is trying to support a family, or the person who just took a job at a reduced salary.

Higher gas costs are a tax on the economy.  That usually means less savings and spending on other goods and services meaning less economic growth.

Who Are the One Percent?

As we have discussed below even among the 1% of wealthy Americans there are vast differences between those at the top of that 1% and those at the bottom of the 1%.

According to the Harrison Group and American Express Publishing who put out a Survey of Affluence and Wealth in America, The bottom of the 1% have alot more in common with the rest of the 99% than you would think.

According to the survey

• 67% grew up in a middle class or poorer household.
• 85% made their wealth in their lifetime.
• 76% describe themselves as “Middle Class” at heart.
• 3% is the sum total of their assets that they inherited.

The Barron's article goes on to discuss how troubling it is that these people have become so risk adverse.

• In 2007, the One Percent had a savings rate of 12%; in 2011, that savings rate had jumped to 34%. So no surprise their savings doubled between 2007 and 2011, from $250 billion a year to $550 billion a year. The percentage of those savings going into “personal savings and money markets,” earning low returns but relatively safe, has jumped from 24% to 54%. Conversely, and more disturbing, is the fact the rate invested in “financial products and markets” has plummeted from 76% to 46%.

These people are, by definition, risk takers, and yet they’ve stopped taking financial risks. They are, in the words of the report, “irrationally defensive.” Taylor warns that “this is tremendously risky for the country. They’re putting their money under the mattress. They’re terribly nervous.”

Why should the public care? Very simply. Investment doesn’t follow job creation; new jobs are the result of risk-takers making investments.

Full article here

Some Interesting Facts About McDonalds

I would call this list of facts about McDonald's by the Fiscal Times as more interesting than disturbing.  McDonald's simply put is an global economic powerhouse

Full listing here via The Fiscal Times


1. McDonald's' daily customer traffic (62 million) is more than the population of Great Britain.
2. McDonald's sells more than 75 hamburgers every second.
3. McDonald's feeds 68 million people per day, that's about 1 percent of the world's population.
4. McDonald's' $27 billion in revenue makes it the 90th-largest economy in the world.
5. The $8.7 billion in revenue from franchise stores alone, makes McDonald's richer than Mongolia.

Apple iPhone 5 vs. 4S: What’s the better buy?

This very question has been a debate going on within my own household.  My wife who has had a iPhone 3S for years needs to upgrade.  Her phone randomly losses power often and just goes dark.  So the question is,  do you pay the extra money and go right for the iPhone 5 or do you cut your costs in nearly half by upgrading to the iPhone 4S?

This WSJ article helps consumers sort out the differences between the two phones and what may work best for you.

• Apple’s forthcoming operating system, iOS 6, will also be available to 4S owners as a free upgrade—and should help them keep up with many of the new features, including the updated iTunes, the new Passbook service for storing loyalty card sand ticket bar codes, the enhanced Safari browser and the smarter Siri.
• The 5 boasts more processing power, supports speedier 4G LTE data networks, has longer battery life and comes with a better camera that shoots 1080p video with the rear-facing camera and 720p video on the front-facing camera. With competitors rolling out bigger phones, the larger screen alone—4 inches instead of the 3.5 inches on older models

How Not to Blow It With Financial Aid

The WSJ put this article together that provides some assistance for you parents or grandparents out there planning for a child's education.  Financial Aid is a complex weave that it hard to understand or get your arms around.

We will address education planning in our lecture this Tuesday.  However the focus of the WSJ piece is identifying the biggest mistakes families make in the aid process, and the best ways to steer clear of them.

Full WSJ article here

• Earning too much at the wrong time
• Letting the wrong family members hold college money
• Making assumptions about what schools will offer
• Not applying for all the aid you're eligible for
• Figuring the "expected family contribution" is all you're paying
• Going for the loan with the lowest interest rate
• Thinking an aid offer is set in stone
• Figuring aid will be about the same all four years

Week 37 Performance.....QE Unlimited

We were about ready to break our winning streak in the DWCM Fund until the Fed and Ben Bernake came to the rescue.  As we had posted mid day on Thursday when the FOMC release it's statement and the rain of money came pouring down, the equity markets initially spiked higher and then took off like a rocket.

So what we initially thought was a QE 3 policy that would come to an end at year end was just not enough for this Fed.  Instead we now have what is being coined as QE Unlimited where the Fed will be buying back some $40B worth of mortgage backed securities each month until it sees a turnaround in the economy and more specifically the unemployment rate.

You see the Fed has now decided to take additional action that our Washington politicos are just not capable off.  And that is to come together to make better economic policies and help move the country in a forward direction.

Instead the Fed has now shifted to focus on it's other mandate which is full employment.  According to some reports the Fed is looking to draw the unemployment rate down from the low 8% level to 7.3%.

We do not believe that the Fed will be able to accomplish this target with monetary policy alone.  While the stock markets may like this addiction to easy money, we see it as completely bad for the future of the economy and the country.  Maintaining artificially low interest rates isn't doing much of anything to stimulate the economy in any meaningful way.  The one clear consequence of the Fed's decision is too crush the savers of this country and force them into higher risk assets.  Exactly what you don't want people to do.

These actions we fear are reinforcing bad habits within America that say, "well since I'm not gaining any interest or income off of my assets, why save?"  This is exactly the wrong approach to take.  Whether you are getting any interest or not, saving for an emergency fund, retirement, or education is still the prudent approach to take in order to accomplish financial and lifestyle goals.

The concern we have as we listened to characters on CNBC this week especially on Thursday was the call to buy anything and everything, "you can't go wrong," one person commented.  This is precisely when things can start going wrong.  The old adage is don't fight the Fed.  The Fed will supply liquidity in good times and bad......until it can't.  Until the bond market says enough when no one will buy US Bonds and interest rates will begin going up.

Needless to say, we stayed on the sidelines this week as the markets took off.  And while we enjoy seeing our clients and Fund assets go up in value and our investment strategies payoff something feels a bit unsettling.  

This has been called the most hated rally in Wall Street history.  The reason, no one expected it and it is doubtful that too many people have been participants in the run up this year.  Endowment funds begin to report annual returns soon and it is expected that they will show under performance compared to the broader markets.

With that said, this rally could very well continue on even through what is usually a very volatile Fall season into October.  People do not want to feel like they have been left behind which makes them want to rush in and buy near tops.  During this rally pull backs have been buying opportunities and this trend will likely continue until it doesn't.

We have had some very successful strategies implemented this year.  However one strategy that has not worked out this year has been our short position in the home builders.  We still believe that this industry has run too far too fast and faces some major headwinds, it has the Fed in it's corner and that is all that matters.  Interest rates are likely to stay low indefinitely and even though the jobs market is weak, this action by the Fed will likely hold home builders up.  

So with that said we will be looking to exit our short position in the upcoming week.  We'll use the proceeds to bolster our cash position.

The Week Ahead
This week is rather light as far as economic data is concerned.  The biggest event this week is likely to be the DreamWorks Capital Management quarterly lecture at The Community House in Birmingham, MI.  We look forward to what is believed to be a record crowd for one of our education lectures.  There are still a few open spots but register soon as time is running out.

• Mon -  Empire State Mfg Survey 
• Tue - DWCM Lecture, 
• Wed -  Housing Starts,  Existing Home Sales 
• Thu -  Jobless Claims,  PMI Manufacturing Index Flash,  Philadelphia Fed Survey,  Leading Indicators 
• Fri - N/A

Have a Great Week!

 DreamWorks Capital Management
FREE LECTURE:  Our next finance lecture will be on Tuesday September 18th at the The Community House.   The topic will be Balancing Your Changing Investment Needs: Emergency Fund, Investments, Retirement, Education, and Philanthropy.  We will cover significant points regarding creating, developing, and executing on your wealth management plan.  We hope to have another interactive group, so be sure to sign up by emailing me directly at pfenner@dwcmllc.com or by contacting The Community House at 248-644-5832.  There is no charge and light refreshments will be served.

Obama grows lead in Battleground States

What Percent Are You?

Click the interactive chart from the WSJ below to determine what % you are

Subprime Auto Nation

This is a long read by James Quinn but his article is packed with good points and excellent charts which helps lay out his case that the American Consumer is in rough shape no matter how much the government tries to prop people up.

I have often wondered how auto sales have been able to continue to climb with so many people still out of work and income levels falling?  Part of the answer lies in the ability to get a loan at any costs which is one of the points that Quinn lays out in the increased level of subprime auto borrowers.

A vehicle is usually the last payment to be missed as getting to a job if you are fortunate enough to have one is one of essential importance rather than a luxury.  However the type of car that a person drives may not be related to what they can actually afford.

Full article here

FOMC Statement Release

Here is the released FOMC Statement.  The key is that the Fed will be buying back another $40B in mortgage backed securities through the end of the year in addition to continuing Operations Twist which totals another $45B.

The DJIA spiked up nearly 80 points on the move.  We'll see if the markets can hold onto this for the rest of the day.

September 18th Lecture: "Balancing Your Changing Investments Needs" Presented by DreamWorks Capital Management

Have you ever thought about how to balance all of your financial needs but not known where to start?  If so, then don't miss "Balancing Your Changing Investment Needs" presented by DreamWorks Capital Management.  

The lecture will cover the following and more....

• The 5 steps in the creation of a financial & wealth management plan which include
• Emergency Planning
• Retirement Planning
• Education Planning
• Investment Planning
• Philanthropy Planning
• "SMART" Principles and how to develop your financial and lifestyle goals
• Prioritizing your wealth management needs

This valuable lecture is being held on Tuesday September 18^th, 6:30- 8:00pm at The Community House in Birmingham.  Register by calling TCH at 248-644-5832, and ask for the Program Department; or you can email me directly at pfenner@dwcmllc.com.

DreamWorks Capital Management is a Registered Investment Advisor and does not offer or sell any proprietary products.

Career Lessons From Christine Lagarde

Whether you agree with her economic policies or not, IMF lead Christine Lagarde is an inspirational role model for males and females alike.  We featured a post on Ms. Lagarde when she was appointed to lead the IMF back in January in this 60 Minutes interview.

In this Investopedia feature, Largarde offers up some of her career lessons which can be beneficial to anyone looking for career guidance.  Her number one lesson when interviewed by Facebook COO Sheryl Sandberg, "Dare".  Other points she offered was to think globally and find Strong Role Models

Time for Congress to Wean U.S. Banks From an Outdated Crisis Backstop

"The government and Fed have already taken huge risks by intervening so heavily in the economy and financial markets. The last thing they should do is send signals that such intervention will become permanent."  Those are the word of WSJ columnist David Rielly on topic of weaning the country off of our government stimulus programs.

These are the same sentiments share by Mark Hanna at Market Montage in his post regarding hedge fund manager David Tepper's call back in 2010 who said "you can't lose – either the economy improves and stocks go up, or the Fed steps in and stocks go up."

We agree with both Rielly and Hanna that the more stimulus poured on will only hurt America rather than help it.

Is it Time to Sell Apple?

This is precisely what this WSJ article suggests even though iPhone 5 sales are likely to blow forecasts out of the water due to pent up demand for the product.  However the article points out that the iPhone design itself has not really changed in over 3 years.  Te new version is likely to be thinner and have a wider screen but nothing revolutionary.

Apple hopes are to continue to draw people into it's ecosystem with it's phone so that people will want to invest in iPads and MacBooks.  This is certainly what happened to me with my recent purchase of a MacBook Air.

However I am still debating this week whether or not I will keep the computer or not.  I have found that what I really use it for which is hard core Microsoft Office use makes using the Air very cumbersome.  This could probably be overcome in time but for someone who doesn't have the time and can;t really see the big benefit of using the Air, it makes for another big decision.

Getty Images

Will These Royal Yields Rule?

This is a great education piece courtesy of the WSJ's Jason Zweig who underscores the importance of understanding what you are buying.  In this world where people are scouring the earth for a yield above 1% to 2% people have looked at Royalty Trusts.

Full WSJ article here

Ten Tips and Tricks Every iPhone and iPad User Should Know

I can't say that I have used any of these 10 iPhone and iPad tips but thought it may be useful for readers.

Courtesy of the WSJ

Morning Bell: The Good, the Bad, and the Ugly of a New School Year

The state of Michigan where I reside, passed a law a few years ago that did not allow public schools with the state to start the school year prior to Labor Day.  The reason being is that the tourism industry was taking a hit and people were not traveling due to the various school start dates.

Although my triplets are still a few years off from starting school I found this Heritage article regarding the cost it takes to educate a child from grades K thru 12 to be very insightful.  Although you may not agree with the points laid out in this piece, there has to be a better cost effective approach to educating the next generation.

• We continue to fund institutions—sending that money to schools—instead of actually funding children. Imagine if a child could put those dollars in a funding “backpack” and take that $11,400 to any school—public, private, or virtual. As in every other sector of American life, we would likely see outcomes improve as a result of competitive pressure placed on the government school system.

Full article here

27% of Michigan workers in low-wage jobs

I read this article in the Detroit Free Press last Sunday which goes along with the stagnant job market and anemic income growth we have seen here in the US.  As most readers know I reside in the metro Detroit area in Michigan.  However, I don't believe that this article would be that much different than any other state in the US besides maybe the Dakota's where unemployment rates are much lower due to the gas boom.

Author Katherine Yung, states in her piece that new data from the Michigan League for Human Services, a research and advocacy organization, show that 27% of all Michigan workers, or nearly a million people, are stuck in positions where they can barely earn a living.

• Of the seven occupations that employ the greatest number of workers in Michigan, five have a median wage that will not bring a family of four out of poverty, according to the MLHS.
• "In the jobs where most people are working in our state ... five of the areas don't support families," said Gilda Jacobs, CEO and president of the MLHS. "That's kind of a red flag." 

Full article here

Labor Data Visually

Sometimes it is hard to see what the data is trying to tell you through words and just numbers.  We thought that the graphs below do a good job visually depicting the current labor situation.

As we stated in our weekly performance summary this week, we see a structural change in the US labor market due to many factors such as globalization and increased productivity just to name two.

People are dropping out of the labor force which is not good for our economy nor our society.

Getting Less Bang for Fed Bucks .

The velocity of money is one of those quirky calculation that attempts to explain money flows and the impact of growth or regression of the money supply.  As the velocity goes down that means money is changing less, usually indicating people are saving more, spending less.  Just the opposite effect if the velocity is going higher which means money is trading hands more often.

This velocity indicator is somethings that the Fed has no control over as it implements it's monetary policies.  Theory has it that as you increase the money supply, the velocity of money is supposed to increase thus representing growth in the economy.  Just the opposite has happened since the Fed began expanding it's balance sheet over the years.


Source WSJ

Apple Victory Shifts Power Balance .

The powerful become more powerful.  At least this is our perspective from the Apple patent suit against Samsung which was finalized more than a week ago.  Apple was awarded over $1B in which it found Samsung guilty of infringing upon Apple's iPhone patents.

Right now for some reasons unbeknownst to the rest of the world, Apple has decided not to go after Google and it's Android platform. We're sure there is some sort of strategy behind this Apple move.

More on this topic in this WSJ article

Week 36 Performance.....Puzzling Performance

This market left allot of people scratching their heads this week.  What looked to be a crushing jobs report on Friday following a monster rally on Thursday due to more talk about solutions from Mario Draghi and the ECB, the equity markets barely moved at all on Friday.

When we saw the jobs number come out we thought we were going to be in for a rough ride and expected to give back all of Thursday's gains.  Instead the markets started up early then began to moderately descend and finally stage a rebound in the afternoon to finish positive.

Let's recap some of the economic data for the week starting with the jobs report released on Friday:  Source data from Barron's

• Payroll jobs in August gained 96,000 vs. analyst projections of 125,000, following gains of 141,000 in July (originally 163,000) and 45,000 in June (previous estimate of 64,000). The net revisions for June and July were down 41,000.   The unemployment rate slipped to 8.1 percent from 8.3 percent in July due to a sharp drop in the labor force
• Auto Sales released on Tuesday saw a 2.8 percent monthly boost in August. Sales for the month are an annualized 14.5 million units which matches February as the best rate of the year. August's gain is centered in domestic cars and domestic trucks where strength offsets slight monthly weakness on the import side.
• ISM Manufacturing numbers release on Tuesday at 49.6 were lower than the projected 50.0.  August, showed their third straight monthly contraction and at the deepest rate since April 2009. New export orders are definitely part of the problem, at 47.0 for what is also the third straight month of contraction. Manufacturers, as they wait for new orders to return, are increasingly drawing down their backlogs which are at 42.5 for the fifth straight month of contraction.
• Productivity released on Wednesday showed growth for the second quarter.  Nonfarm business productivity rose an annualized 2.2 percent in the second quarter, compared to the initial estimate of a 1.6 percent gain and compared to a 0.5 percent dip in the prior quarter. The consensus forecast was for a 1.9 percent increase for the second quarter. Unit labor costs were revised down to an annualized 1.5 percent increase, compared to the first estimate of 1.7 percent, and following a 6.4 percent surge in the first quarter. Expectations were for a 1.4 percent rise. 
• New jobless claims fell sizably in the September 1 week to 365,000 for the lowest level in 4 weeks. This is right at the best end of expectations. The weekly decline of 12,000 is the best in 6 weeks. A slight offset is a 3,000 upward revision to the prior week.  Another offset to the latest week's improvement is upward movement in the 4-week average to 371,250. This unfortunately is the highest level in 7 weeks and is slightly higher than the month-ago trend. Yet the 4-week average was trending more favorably during the August 18 week which was the survey period for tomorrow's employment report.

 

• The ISM's non-manufacturing sample reports wide strength in August with the composite index up 1.1 points to 53.7 for the best monthly rate of general growth since May. The rise in the composite is led by a 4-1/2 point surge in employment to 53.8 which is the best reading since April and which points to strength for tomorrow's employment report. A slowing in delivery times, which is a sign of rising demand, also boosted the composite.

So what does this all mean?  To us it means that people and companies are not buying new good with the exceptions all automobiles which does give us some confidence in the consumer.  However the only consumers who can afford a new vehicle are those who are comfortable in their current employment situation which we find to be potentially shrinking.

We believe that unemployment is going to remain stubbornly high due to structural changes within our economy.  Those that have been out of work the longest are having the hardest times breaking back into the job sector which is evidence in the historically low labor participation rate.  People are just falling off of the roster which is what drove the unemployment rate down.  This is not a good thing.

As productivity continues to either strengthen or at worst case, stay level, employers do not need to hire new workers especially when there is weak demand for their products.  This continues to support our theory about the two halves of America .  Those that have a job and can buy a car, iPhone, etc. and those that cannot who have been unemployed and are facing extreme challenges.  The great recession is far from over for most of these people.

We think, unfortunately that the only reason why we didn't see a drop in the markets on Friday after the jobs report is that this data gives the Fed the support they are looking for to put together another quantitative easing program this fall.  We rallied Thursday off of the European news that he ECB was in essence going to do whatever it takes to keep the insolvent countries going in the European Union.  Same things we have already been hearing but this is what it takes to make the markets go these days.

We had another big week in the DWCM Fund, up another 2.2% which puts us up 26.8% for the year beating all four major equity market benchmark by.  We are beating 3 of the 4 indices by almost 2 fold.

We did make four moves this week exiting out of our BMW and K12 positions making room for Lindsay and Intel.  Although we continue to like BMW which has been a consistent performer for us all year, we wanted to take profits and maintain our cash position level.  K12 was a reduction in our speculative risk profile.

Lindsay fits into our agriculture strategy as it is a manufacturer of irrigation equipment.  Intel is the behemoth chip manufacturer who just reached our buying point despite cutting it's revenue forecast on Friday.

The Week Ahead
This week doesn't pack as much economic data punch as last week.  However, things will really heat up on Thursday when the FOMC releases it's forecast and Bernanke holds his press conference.  This will likely move markers one way or another as the anticipation of additional QE in our opinion is already baked into these markets.

Friday is the major day of economic release with CPI, Retail Sales, and sentiment survey results.

• Mon -  Consumer Credit 
• Tue -  NFIB Small Business Optimism Index 
• Wed - FOMC Meeting Begins
• Thu -  Jobless Claims,  Producer Price Index,  FOMC Meeting Announcement,  FOMC Forecasts,  Chairman Press Conference
• Fri -  Consumer Price Index,  Retail Sales,  Industrial Production,  Consumer Sentiment,  Business Inventories

Have a Great Week!

DreamWorks Capital Management
FREE LECTURE:  Our next finance lecture will be on Tuesday September 18th at the The Community House.   The topic will be Balancing Your Changing Investment Needs: Emergency Fund, Investments, Retirement, Education, and Philanthropy.  We will cover significant points regarding creating, developing, and executing on your wealth management plan.  We hope to have another interactive group, so be sure to sign up by emailing me directly at pfenner@dwcmllc.com or by contacting The Community House at 248-644-5832.  There is no charge and light refreshments will be served.