Leave it to our representatives in Washington to make a compromise that ignores most of their previously stated beliefs -- of only a few days ago. This just reinforces again the old joke "How do you know when a politician is lying?..."
Monday the Obama administration and congressional Republicans came to an agreement to extend both unemployment benefits by 13 months, and the Bush-era tax cuts for all by two years. What happened to the Republican and Democratic noise about fiscal responsibility and reducing the debt?
A few days ago Republicans were not going to vote for an extension of the unemployment funding if there was not an associated revenue offset to pay for it. That's gone, so the deficit is going up. The Democrats claimed they would not back an extension of the tax cuts for people that earned over $200,000 for individuals and $250,000 for joint returns claiming this would add $900 billion toward debt reduction. That's gone so the deficit is going up.
Why did this happen? It happened because the weasels in Washington all decided as they usually do that their constituencies would be happier getting something instead of reducing the deficit. All the deficit reduction talk that ever goes on is about cutting somebody else's interests. The only way to reach agreement is to convene a conference where each party is required to show up with cuts they would make that affect themselves and make sure everyone shares the pain.
So now its done and I will leave the rest of the venting to our readership in their comments. All we can do about it at BloggingStocks is give some thought to what investments might be advantaged.
Since nobody is really getting a windfall from the deficit spending I would stick with staples, and to me that means food and energy. In the food arena Archer-Daniels-Midland (ADM) and Deere and Company (DE) the farming equipment manufacturer come to mind. In the energy sector almost all of the oil companies have something to offer but the most conservative bet is still Exxon Mobil Corporation (XOM). These three companies represent the giants in each sector.
All three companies pay a dividend: ADM is paying 1.98%, DE is paying 1.49% and XOM is currently yielding 2.42%.
All three have below average PEG ratios: ADM is 1.24, DE is 1.34 and XOM is 0.96.
All three have very low P/S ratios: ADM 0.29, DE 0.99 and XOM 1.20.
Of the three companies ExxonMobile has by far the strongest balance sheet with very little debt and double digit ROE, ROA, and ROIC. ADM has only modest debt but the company is not achieving the same margins as XOM. Deere's debt level is high as the company is seeing demand for it's equipment improve dramatically year over year and quarter over quarter, 35% Growth Sets Record for Deere Quarterly Revenue so I believe they are borrowing to increase capacity
These are not companies I expect to outperform the universe of individual stocks, but I do expect them to stay ahead of the market with a lot less volatility. These are also the types of stocks that might be a good fit for investors that have been afraid to get back into the market and would like to dip their toe in.
Sheldon Liber is registered architect and the CEO of Chasing Value™ Asset Management, Inc. running a small private investment company. He writes the columns Chasing Value™ and Serious Money. Disclosure: He does not currently owns shares of the stocks mentioned.
Reader Comments (Page 1 of 1)
12-07-2010 @ 7:14PM
william lindblad said...
Perhaps BASF in addition to ADM. Both are in good positions. Deere has brand recognition, but a lot of competition and they don't have any price advantage. Kubota, Bobcat & mahindra are all after the smaller, compact and subcompact lines - and thats not all of their competitors. Case/IH has a big push on right now and that's the big stuff.
As to the hill - I agree. Lots of B.S., politics as usual with what will be detrimental result. Interesting enough CNBC had a segment on this subject today and one of the commentators stated that there had been a review of the 250K bracket in which they stated that 6 households were surveyed. As I recall, the one in the NYC suburbs paid 29K(rounded) in other taxes and the one in Fl. paid 13K. I have to presume this to be real estate,fuel,sales and perhaps even phone as they did not delineate. They also failed to say whether these families were making 250K or 750K. The only thing that was implied was these people were "struggling". They did admit that they had an average disposable income of 14K a month, after paying full boat into their 401K's, taxes, etc. Of course, all are living in a nice home and the high rent district. Since I put a few years in Fl and owned property there I can say that even if the figure represents 10K in real estate that it's tax value is around 750K-1M. Don't take me wrong as I don't begrudge those that are making a good living, but the country has produced more millionairs in the last ten years than ever before and we are running up one hell of a bill. Someone has to pay and you cannot squeeze water out of rock. It would be far better that those who can - pay something. It would also be in their interest as at current rate they will be paying more at the end of the two year time frame on the cuts. The government cannot push this into the future forever and you cannot keep spending what you don't have or don't expect to make.
The people have no bread - let them eat cake.
Marie never said that, but rumors can be a bitch as
it cost her head ---
We may not be going quite in that direction but more "tea parties" and the like are starting to look to be the next rage.
12-08-2010 @ 5:26AM
Dan Barnett said...
Sheldon,
You've hit the key fact. "Deficit Reduction" makes a good electioneering slogan but is a lot more difficult to achieve in practice. When (if) you remove Defense spending from reductions, there aren't that many options available.
It will be interesting to see what the Republican Congress will do next year, aside of course from investigating President Obama's missing Birth Certificate.
12-08-2010 @ 10:35AM
MatWith1T said...
I'm still trying to wrap my head around how you compromise your plan to lower the deficit by 1) raising it and then 2) tacking on 3 additional measures to raise it further (payroll tax cut, education tax credits, unemployment benefits)
I hope this is the same compromise tactics my boss uses when its time to negotiate my raise.
12-08-2010 @ 3:03PM
William Evans said...
Anybody that wants to donate money to the to the Federal reserve can, they even have a number to call.
Feel free to give as much of your money as you want.