October Stock Portfolio

Investing has always just been a hobby of mine but lately it has consumed my life because of the massive market swings in reaction to any negative/positive news. My own portfolio is no exception to these swings as I have done a good job of outperforming the S&P 500, but my portfolio is still down roughly 15% for the year. The recession will likely continue thru the better part of 2009 before we start to see market confidence return. Normally I would just hold, but I need to spend this money on more important things such as my own wedding plans and my parent's home remodeling. Family always comes first =)

So as you can see below, my portfolio has radically changed. I have taken a more aggressive approach to financials since they have been hit so hard with bad mortgage backed security investments. I'm betting financials will only want to do business in the most conservative ways that pretty much guarantee profit. Morgan Stanley recently received $9 billion from Mitsubishi UFJ Financial Group and another $10 billion from the US Government's Bank Rescue Plan. It's pretty clear to me that Morgan Stanley will receive enough help to never go bankrupt. My other position is American Express. I have always felt very strongly about American Express which has a very strong international presence and is very selective with whom they distribute their credit cards to. They are also receiving settlement payments from both Visa and Mastercard totaling $5 billion for imposing rules that had prohibited financial institutions from issuing credit cards through American Express. My last stock is one I continue to hold, but have reduced my shares in half and that is Pengrowth Energy Trust (NYSE: PGH). Though the price has been cut down roughly 40%, it still offers a very attractive 20% dividend that will essentially double my investment after 5 years (if the price holds *wink*).

The rest of my cash has been pulled out to my Savings Account which currently yields a 3% interest that beats the current Money Market rate of 1.04%.

Symbol	% of Assets	Description	Dividend Yield	Industry
AXP	18.44	American Express	2.71	Finance
MS	14.98	Morgan Stanley	5.33	Securities
PGH	23.12	Pengrowth Energy Trust	19.51	Oil & Gas
BRK.B	31.28	Berkshire Hathaway Inc.	0.00	Insurance
CASH	12.01	Cash	1.04%	Cash

Great Depression 2

"Is another Great Depression formulating before our eyes?"

Great Depression Part I (1929 to 1932)

• Caused by "The Roaring 20's" where American consumers and businesses relied on bank loans and credit to purchase goods and stocks in a very bullish stock market. Debt began accumulating and "Black" Tuesday triggered panic which eventually led businesses to cut jobs and encouraged people to withdraw any cash they had left from failing banks.
• On "Black" Tuesday, October 29, 1929 the Dow Jones lost $14 billion or 11.7% of its value.
• 13 million people became unemployed (approximately 25%)
• Industrial production fell by nearly 45% between the years 1929 and 1932.
• Home-building dropped by 80% between the years 1929 and 1932.
• Home values dropped more than 30% during this time period.
• From the years 1929 to 1932, about 5000 banks went out of business.
• Members of the Rockefeller family bought large sums of stock to demonstrate to the public their confidence in the stock market.
• The Dow Jones reached its bottom in 1932 and didn't return to pre-1929 levels until 1954 or 22 years later.
• The Federal Reserve was unable to inject capital to the economy since the economy was based on the Gold Standard (amount of gold in possession).
• Severe droughts were experienced during the 1930's was a man-made disaster caused from deep plowing of the Great Plains, which killed natural grass that normally kept soil and moisture trapped in the ground.

Great Depression Part II (2008 - TBD)

• Caused by defaulting bank loans given to people for the purchase of over-valued homes which ultimately caused a housing bubble. Banks also began repackaging these home loans as mortgage-backed security investments and began selling them to foreign investors. Housing prices began to decline which left home owners with interest-only loans that would soon increase to monthly payments that were impossible to make before the owner could "flip" the house for profit. A catastrophic chain of events soon followed as houses began foreclosing.
• On Monday, September 29, 2008 the Dow Jones lost $1.2 trillion or 6.9% of its value. (A total drop of 777 points, the largest point drop in history.)
• 728,000 people became unemployed from Jan to Sept 2009 (total unemployment currently at 6.1%)
• US Industrial production fell a sharp 2.8% in September, the biggest decline since December 1974.
• Housing starts fell 6.2 percent in August 2009 to an annual rate of 895,000, the fewest since January 1991.
• Home values on average have fallen close to 15% from their peak values.
• So far, Lehman Brothers and Washington Mutual have gone bankrupt, while Wachovia and Merrill Lynch were acquired by Wells Fargo and Bank of America respectively. Investment banking industry completed eliminated as a business.
• Goldman Sachs Bank and General Electric asked Warren Buffet to pledge $5 billion each to instill confidence to the market.
• The current Dow has fallen to 8451 points, a level not seen since 2003 during the Internet bubble.
• The Federal Reserve is injecting $700 billion into troubled businesses and $250 billion into failing banks.
• Hurricane occurrences along with severe climate changes have increased due to society's dependence on fuel, which creates excess carbon emissions that are the main cause for Global Warming.

Was it really all Bush's fault?

While reading one of my favorite blogs Freakonomics, I came across an interesting article which possibly places some of the blame on the Clinton administration for allowing subprime mortgages to get out of hand.  The date that the article was first published was September 30, 1999 and it cites Fannie Mae's reluctance to lend low-income consumers any kind of mortgage and even goes as far as stating the following:

"Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits..."

"...In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's."

Still you can't really pin this current housing recession on one particular event as one of my co-workers pointed out to me.  It's one thing to tell Fannie Mae to lend money out to low-income consumers, but when the borrower only makes $30,000 annually and turns around and tries to buy a house worth $800,000, it doesn't take a financial genius to figure out that is a bad investment for the bank.