Strategists’ Unnerving Unanimity Suggests Rising Volatility, but We Stay Positive as Investors Reach for Yield

Posted on December 18, 2013 by tomdoerflinger

It is getting harder to forecast the direction of the stock market.  A year ago there were still plenty of bears around and we expected the market to rise as cautious strategists, one by one, threw in the towel.  Investors were pulled into a rising market, producing the “valuation levitation” we expected.  Now confusion and disagreement have dissipated and there is a rather alarming unanimity that stocks are headed higher in 2014—even though the S&P 500 is already 7% above where strategists, as of four months ago, expected to end this year.  Although the consensus is not always wrong, the risks of a stock market correction is higher, now that there are far fewer bears to convert.

Rising optimism is apparent in the latest Barron’s survey of 10 Wall Street strategists (to which I added the views of 2 other houses).  The strategists have become more bullish since September and are in close agreement as to what 2014 will bring:

  • They expect S&P EPS to rise 8.2% in 2014 to $118.3.  Pretty much everyone agrees about this; of the 12 EPS estimates, 9 are in the range of $117.5-$120.  The standard deviation of 2014 EPS forecasts is only half as big as in early September, when Barron’s took its last survey.
  • Since September strategists have become more bullish on 2014 profits; $118.3 is 1.6% above the average forecast back in September.
  • The average 2014 year-end price target is 1969, implying a trailing PE of 16.6x.  This also reflects increasing bullishness; back in September they expected the year-end 2013 PE to be 15.7x.
  • At 1810, the S&P 500 trades at 16.6x expected 2013 profits of $109.4.  Back in September strategists’ average year-end 2013 target was 1700, or 15.7x expected EPS of $108.  So strategists were too bearish on both profits and valuation.
  • All the strategists like tech stocks, which I consider to be negative for the sector.  It looks cheap, but for a reason.  The big incumbents (e.g., ORCL, MSFT, IBM, CSCO) keep missing estimates because the Internet and cloud are disrupting their business models. There are good names in tech, but you have to be selective.

What should we conclude from strategists’ unanimous bullishness on the overall market?

Complacency has increased, and investors are carrying huge profits, so the market is vulnerable to bad news—particularly any evidence that the Fed won’t be as accommodative as expected.  You don’t need a really good reason for stocks to trade down 15%.  Keep some powder dry.

That said, my guess is that strategists are not yet bullish enough.  We could well end 2014 above their average target of 1969. The dominant financial reality is that investors earn nothing on CDs and money market funds, and they earn very little from bonds, despite the price risk.  With short rates unlikely to rise meaningfully before 2016, investors will continue to reach for yield in the stock market while companies, responding to shareholders’ wishes, raise dividends faster than earnings. (3M just raised its payout 35%!)  Therefore I think the S&P 500 yield will remain 2%, and with dividends likely to be $41-$42 next year that implies a 2014 year-end price of 2050-2100.  If profits are $120 the  trailing PE would be 17.3x which is high but not ridiculous.  It is only modestly above the current 16.6x, and of the 12 strategists, 4 have year-end 2014 trailing PE forecasts of 17.1x or higher.  The economic pick-up in the U.S. and parts of Europe is positive for earnings; though I don’t expect a huge upside surprise, positive profit news is bullish for sentiment.  And don’t forget politics.  The Obamacare news will only get worse next year as millions of small business employees lose their plans and their doctors and are forced into inferior plans with higher premiums and deductibles.  A big Republican win next November would be unambiguously bullish for stocks.

Copyright Thomas Doerflinger 2013.  All Rights Reserved.

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“If you like your current plan and doctor, vote Republican” – 13 Reasons Why ObamaCare Will Be Repealed

Posted on December 6, 2013 by tomdoerflinger

That is not a bold prediction, just common sense.  To address a limited problem—40 million people lacked health insurance, often by their own choosing—the ACA screwed up the entire U.S. health insurance and healthcare systems, severely damaging the economy in the process.  The law will be repealed by Republicans, along with Democrats interested in keeping their jobs, because . . . .

Reason Number 13.   The economy sucks for the average worker, making Democrats politically vulnerable even apart from Obamacare.  They can’t blame G. W. Bush forever.

Reason Number 12   Barack who?  His influence is fading fast, and he is too arrogant and aloof to have many friends on Capitol Hill.  Congressmen are more interested in saving their own careers than Obama’s lamentable “legacy.”

Reason Number 11  Wrath of Middle Class Independents   Participants in the “individual market” have already been shocked by losing their current plans and being forced into more expensive plans that have higher deductibles, many features they don’t need, and less choice of hospitals and doctors.  Next year the same fate awaits tens of millions of people employed by small and mid-sized businesses that don’t “self-insure.”  Many of these Obamacare victims are independent voters.

Reason Number 10.  Doctor No.  Over the next two years people who are kicked off their current plans will discover, or be rudely reminded when they get sick or injured, that their family doctor won’t see them anymore.  He or she is “out of network.”

Reason Number 9.  Mauled Millennials  Twenty-somethings will fall out of love with Democrats when they grasp that, in addition to high unemployment, huge education debts, and Social Security that may not be there when they retire, they must either pay a fine to the IRS or buy over-priced insurance.

Reason Number 8.  Low income workers get screwed too.  Many will be lured into Medicaid and experience severe doctor shortages.  Some low-income people with tight budgets who make too much to quality for big subsidies will face the terrible choice of A) buying more expensive insurance than they can afford, B) foregoing coverage and paying a fine, or C) reducing their income so they qualify for Obamacare subsidies.

Reason Number  7.  Democrats’ War on Women, who grapple with health insurance issues in a large majority of American households.

Reason Number 6.   Labor Pains — Obamacare discombobulates the U.S. labor market by encouraging firms to both stay “under the limit” of 50 full-time workers and to restrict workers to 29 hours per week.

Reason Number 5.  The Website from Hell won’t really function as intended for many months, if ever.  The “back end” linking consumers with insurance companies still has not been built.  And don’t forget the high risk of security breaches.

Reason Number  4.  The few “winners” from the law are already Democrats—namely, low income people who get insurance for the first time, for free.

Reason Number  3.  Exacerbating inequality    In true crony capitalist fashion, Obamacare hurts small and mid-sized businesses but leaves unscathed government workers and employees of giant corporations that self-insure.  This is patently unfair.

Reason  2.  Fiscal Fiasco.   Congress will have to plug a gaping money hole when the actuarial arithmetic does not work because the young, healthy and overcharged refuse to enroll and, in many cases, manage to evade the IRS.  With total Federal discretionary spending squeezed by sequestration, Democrats will find their entire domestic agenda swallowed up funding and defending an unpopular, dysfunctional law.

And the NUMBER ONE REASON WHY OBAMACARE WILL BE REPEALED:    Fraud.  The plan has no political legitimacy because it was sold on the false promise that if you like your current plan and doctor you can keep them.

Copyright Thomas Doerflinger 2013.  All Rights Reserved.

 

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How Yellenomics May Blow an Asset Bubble

Posted on December 2, 2013 by tomdoerflinger

I recently explained why we were in Stage One of a secular bull market – the stage, comparable to the early 1950s and early 1980s, when bears capitulate and investors begin to embrace equities.  In the second stage stocks continue to grind higher but with greater volatility as PE ratios rise, the Fed tightens, and recession risks increase; the years 1956-66 and 1987-93 fit this template.  Then there is a euphoric “blow-off” phase a la the late 1920s, 1968-72, and the late 1990s.

How does Yellenomics fit into this?  Her dilemma is that Fed policy is keyed to the labor market, but employment is being strangled by tax and regulatory policy, which the Fed can’t undo.  Tax hikes on employers, the war on banks, the war on fossil fuels, Obama’s anti-capitalist rhetoric, and a dearth of pro-growth policies (such as corporate tax reform) are deterring hiring.  And next year businesses won’t be eager to hire as they grapple with the chronic catastrophe known as ObamaCare.

Francois Obama

One indication of how Obama has “Europeanized” the U.S. labor market is the employment/population ratio.  After averaging 62.7% from 2003 to 2007 this metric plunged to 59.3% by mid 2009, when the recession ended.  In the “economic recovery” since then it has actually declined further, to 58.3%.  Even Larry Summers admits this is a disaster, though it does not occur to him that Obama’s policies are the culprit.  Whatever the cause, Yellen is dealing with a devastated labor market.

To counteract Washington’s war on jobs Bernanke has Fed funds at zero and is buying $85 billion in bonds each month.  These policies are appropriate for a financial panic and recession but are way too aggressive four years into an economic expansion, when ISM surveys are in the mid-50s, housing is recovering, auto sales are strong, the stock market is soaring, corporate profits are healthy, and “deleveraging” has been accomplished by most households, corporations, and state and local governments.

Janet in the Hot Seat

All of which raises fears that the Fed will feed a stock market bubble.  When asked about bubble risks in her Senate testimony, Dr. Yellen’s response was as follows:

  • The Fed carefully monitors asset markets, looking for “price misalignments” that might hurt financial stability.
  • She sees no big misalignments today.
  • If bubbles do appear there is “a variety of supervisory tools micro and macro prudential that we can use to limit the behavior that is giving rise to those asset price misalignments.”
  • She would prefer not to use monetary policy to pop bubbles because it is a “blunt instrument” and Congress directed the Fed to use monetary policy to maintain price stability

Her response is reasonable but contains an inescapable contradiction.  Super-loose monetary policy is designed to boost asset prices.  But that very goal would be thwarted if the Fed, perceiving “price misalignments,” used “supervisory tools” (such as a sharp increase in margin requirements for stock purchases) to crater asset markets.

A Lesson from the Roaring ’20s

Another problem is that such micro-prudential policies tend not to work, once a bubble really gets going.  Similar to today, the 1920s bubble was inflated by too-loose monetary policy, designed by Benjamin Strong to help Britain peg Sterling to its pre-World War I exchange rate of $4.86 / Pound, which was way too high.  Markets were shocked in 1927 when the discount rate was cut from 4% to 3.5%, fuelling the “call money market” that financed stock speculation.  The Fed finally did raise rates in 1928, but the stock market laughed it off and headed higher.  Finally in March 1929 the Bank used the “direct action” (aka “moral suasion”) of telling banks not to lend to the call money market.  The Fed intoned, “the Federal Reserve Act does not . . . contemplate the use of the resources of the Federal Reserve System for the creation or extension of speculative credit.” Call money rates promptly shot up from 12% to 20% and stocks collapsed.  But the Fed’s restrictive policy was brashly circumvented by Charles E. Mitchell, the uber-bull who ran National City Bank. Mitchell let it be known that he had $20 million, borrowed from the New York Fed, to lend in the call money market.  The stock market recovered, eventually peaking in September 1929.

A Yield-driven Bubble?

So how great is the probability of a stock market bubble?  Fairly high, I would say.  Two potentially interlocking mechanisms could push stocks to excessive prices.  Hedge funds, which have been very late to this bull market, could drive stocks much higher.  Because the Fed has promised not to “remove the punch bowl” until sometime tomorrow morning, they may borrow heavily and barge into equities on the long side, even though they are no longer cheap.  When short rates finally do rise, we could get a crash—which would be all the more severe because Dodd Frank has drained capital from brokerage firms’ trading desks.

Meanwhile, down on Main Street, individual investors may push stocks well above “fair value” in a quest for income.  CDs and money market funds yield nearly nothing now and probably into 2016.  As we have already seen with “bond substitutes” such as utility, telecom, consumer staple, and REIT stocks, these yield-hungry investors are willing to over-pay for stocks to get that quarterly check.  For the broad stock market, I expect dividends to rise twice as fast as earnings over the next few years, and with individuals “paying up” for income the market’s PE multiple could rise above 20x.  Consider this plausible scenario:

  • In 2013 the S&P 500 will earn about $110 and dividends will be $36, for a payout ratio of only 32%, far below historical norms.  Assuming a year-end S&P price of 1810, the dividend yield is 1.9% (36/1810 = 1.9%).
  • Assume earnings grow 9% next year and 5% in both 2015 and 2016, for a three-year growth rate of 6.2%. (Much faster growth is unlikely because profit margins are so high.)  With shareholders clamoring for income, firms will increase dividends much faster, as they did this year.  If the payout ratio rises to 41.7% by 2016 S&P 500 DPS would be $55, implying a 2013-16 DPS growth rate of 15%, same as the past three years.
  • The S&P 500 dividend yield has averaged 2% since 2009, and with rates anchored near zero is not likely to rise.  If, in 2016, the index yields 2% on dividends of $55, the year-end price would be 2750 (55/.02 = 2750), and assuming 2016 EPS of $132, the PE would be a lofty 20.8x (2750/132 = 20.8).  Sober-minded strategists would warn that the market’s PE is too high, but individual investors would, in effect, say “We don’t care.  We need the income and Janet Yellen won’t let us get it in money market funds.”

In this scenario the market rises 53% to 2750 by the end of 2016.  With highly leveraged hedge funds playing alongside yield-hungry individuals there would be ample room for speculative excesses of all kinds, some of which are already evident.

Copyright Thomas Doerflinger 2013.  All Rights Reserved.

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Will the Ivy League Rescue Obamacare?

Posted on November 15, 2013 by tomdoerflinger

President Barack Obama has no more ardent and loyal fans than the faculty and staff of Ivy League universities.  According to Fox News, 98% of their donations in the 2012 presidential election went to Obama. (Thank goodness for diversity initiatives!)

So it is not surprising that Ivy League heavy-weights have rushed to the defense of Obamacare.  In the Financial Times Larry Summers chastised Republicans for hoping that Obamacare would fail; he practically blamed them for the disastrous rollout. Despite the $600+ million cost of healthcare.gov, Summers implies that vindictive Republicans have left Obamacare “under-resourced.”  Princeton economist Alan Blinder wrote a WSJ opinion piece titled, “Despite a Botched Rollout, the Health-Care Law Is Worth It.”  Blinder’s colleague Paul Krugman, displaying his usual even-handed judiciousness, considers Republican opposition to Obamacare to be part of a broad-based “war on the poor” motivated by—what else—racism.  (Sorry, Paul, but Obama is winning that war all by himself; the poverty rate has been 15% for three consecutive years vs. an average of 12.5% when G.W. Bush was President.)

Charity Begins at Home

Ivy Leaguers may love Obamacare, but there are limits.  They think the law is wonderful—for everyone but themselves.  Summers, Blinder, and Krugman may be earnest and big-hearted democrats, committed to the health and wellbeing of the common man, but no way are they going to actually go to healthcare.gov and sign up.  Charity begins at home, you see, and they must do what is best for their families—which means avoiding Obamacare like the plague.

In contrast to Obamacare’s one-size-fits-all approach, university health plans provide lots of flexibility.  For example, Princeton’s health plan

“provides benefits-eligible employees with comprehensive health insurance plans that offer the flexibility to select coverage that best meets your and your family’s medical needs. You can choose from several medical and dental plans and a vision care plan. You can cover yourself only, or you and your spouse, your same-sex domestic or same-sex civil union partner and your eligible dependent children.” (emphasis mine)

When Princeton Profs Blinder and Krugman enrolled in the Princeton Health plan for 2014 and selected precisely the coverage that met their family’s needs, they were no doubt relieved to see an advisory saying, in effect, “Don’t worry.  Obamacare does not affect you.” Specifically:

“Princeton University believes your plan is a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the Affordable Care Act). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that your plan may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections in the Affordable Care Act, for example, the elimination of lifetime limits on benefits.”

Yale, Brown, Cornell, Johns Hopkins, the University of Chicago, Columbia Teachers’ College and no doubt hundreds of other universities all provide similar assurances to plan participants that their health plans are “grandfathered.”  So they won’t be forced into the dysfunctional bureaucratic labyrinth of Obamacare, as those millions of poor slobs in the “individual market” just were.  (Obama’s unconstitutional re-writing of legislation to delay it a year will merely prolong  the pain.)

Will Ivy Academics Rescue Obamacare?

To paraphrase Patrick Henry, now is the time for all good professors to come to the aid of their President.  Poor Obama is in a box, hanging by a thread, twisting in the wind, painted into a corner, hoisted on his own petard, trapped by his own lies, wallowing in his own bullshit.  He needs help, fast.

Think how great it would be if he could appear on stage with the Presidents of ten top-drawer universities whose faculties and staff have decided to chuck their “grandfathered” health plans, with all their many options and extensive networks of top quality doctors and hospitals, and sign on to Obamacare.  Not only would an Ivy League endorsement boost the credibility of this legislative abortion.  It would provide tens of thousands of healthy enrollees needed for the actuarial arithmetic to work.  I know just the right illustrious academics to lead this rescue operation: Larry Summers, Alan Blinder, and Paul Krugman.

Copyright Thomas Doerflinger 2013.  All Rights Reserved.

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Much Further to Run in this Bull Market

Posted on November 13, 2013 by tomdoerflinger

The stock market is getting a little scary.  Having climbed the proverbial “wall of worry,” will it fall off the cliff of complacency?  The short answer is definitely yes — but probably not for a few years, if not longer.

Signs of complacency abound.  CNBC’s Joe Kernan notes that a few months ago many strategists were telling investors to “wait for a pullback,” but now you seldom hear that.  The parabolic rise of “glamour stocks” like TSLA, NFLX and LNKD is a sure sign of a toppy market.  Yesterday’s Wall Street Journal is a cacophony of complacency.  On page A-1:  “Stocks Regain Broad Appeal: Mom-and-Pop Investors Are Back, but Some Say That Could Be Cause for Concern.”  On page C-1:  “New-Issue Flurry Hints at Trouble” and – even more alarming – “‘Long-Only’ Funds Trim Their Hedge.”  (What would you expect after the hedgies missed the first 120% of the bull run?)

So how worried should we be?  To put this bull market in historical context, we looked at the quarterly price of the S&P 500 since World War II to identify major bull and bear markets.  This is an inexact process; others would slice and dice the data differently.  See the Appendix for my chronological analysis.  Two conclusions:

  • The market is sufficiently frothy that we could get a material “pull-back” of 10-15% at any time.  I have no insight about when that might occur.  But the risk is non-trivial.
  • Nevertheless the stock market is likely to grind higher over the next couple of years.  History suggests we are still quite early in a secular bull market that has much further to run.

Lags and Lurches

Since the 19th century the stock market has alternated between lags and lurches – that is, between lengthy periods when stocks “do nothing” (1907 -1920, 1929-49, 1972-82, 2000-2011) and “secular bull markets” when stocks surge (1920s, 1949-72, 1982-2000).

Below I dissect the secular bull markets of 1949-72 and 1982-2000, but first we’ll outline a template of how the typical secular bull market evolves over time.

The Three Stages of a Secular Bull Market

At the start of Stage I, which follows many years of poor performance for equities, most investors hate stocks because they are “too risky.”  Even when stocks post strong gains there is disbelief that the bull market is “for real.”  (Sound familiar?)  For example, in 1954 Congress held hearings on the dangers of stock market speculation because the S&P 500 had finally exceeded its 1929 high.  In Stage I the upward move in stock prices is fairly smooth and strong as investors belatedly move back into stocks from other assets such as bonds, cash, commodities and (in the current cycle) hedge funds.  In Stage II, after the “easy money” has been made stocks becomes more volatile and risky for various reasons – they are more expensive, the Fed is starting to tighten, and the risk of recession is higher.  Stage III is characterized by a speculative blow-off as dumb money embraces a “cult of equities” and buys overpriced stocks on margin while regulators stand idly by, afraid to break up a great party that is pouring capital gains tax revenue into the U.S. Treasury.

We Are Still in Stage I of a New Secular Bull Market

Since March 30, 2009 the S&P 500 has climbed 122%.  That sounds like a huge gain, but it is not that big compared to history.  In Stage I of the 1949-72 secular bull market, stocks climbed 235%, and in Stage I of the 1982-2000 secular bull market they rose 190%.  Also, in Stage III of the latter bull market—i.e., the 1990s–stocks rose 390%; even if they had stopped in Dec. 1996 when Alan Greenspan lamented “irrational exuberance” the gain would have been 142%.

Stocks probably won’t keep going “straight up” as they did this year.  But keep in mind that, even if the Fed starts tapering soon, the yield on money funds will be close to zero for the next couple of years; by contrast, the yield of the S&P 500 – using the current price and estimated 2014 dividends – is 2.4%.  Endowments and institutions that have been eschewing equities for years will lumber back into stocks.  Though profit margins won’t rise much from current levels, profits can grind higher as the global economy improves.  Another positive that Wall Street has ignored is that U.S. economic policy is likely to improve markedly once Obama is replaced by a less socialistic President.

One big risk is a melt-up.  As we have noted before, Obamacare and other regulations are impeding hiring, which remains weak even though other economic indicators (such as ISM’s) are improving markedly.  With the Fed focused on employment despite these regulatory headwinds, it could remain too loose for too long, creating a stock market bubble and then a crash.  But it’s a little hard to believe the Fed is that stupid after missing both the tech and housing bubbles.  But anything is possible in the city that produced Obamacare.

Anatomy of the Secular Bull Market of 1949-72

Stage I  Q2 1949 to Q1 1957  Stocks rise fairly smoothly, from very low valuations, as the U.S. economy expands and the much-feared return of the Great Depression does not happen.  In this period recessions were shallow and inflation low.  Nevertheless, individual investors gravitated toward stocks as a “hedge against inflation.” Market rises for 33 quarters, up 235%.

Stage II  Q2 1958 to Q2 1966  Market becomes much more choppy.  It declines 15.6% in the 1957 recession, then surges for four years to decidedly lofty valuations, before a severe sell-off in the spring of 1962.  It then rises 69% before Fed tightening causes a recession scare in 1966.

Stage III Q3 1966 to Q4 1972   The bull market became quite speculative, with lots of excitement about high-tech stocks, diversified “conglomerates,” (a truly dumb corporate innovation from the decade that brought us the Vietnam War) and, in 1972, the “nifty fifty” “one decision growth stocks” such as McDonalds, Pfizer, Disney etc.  The party ended sadly in 1973 when inflation soared and the “Arab Oil Embargo” started in the autumn of that year.

Anatomy of the Secular Bull Market of 1982-2000

Stage I   Q2 1982 to Q3 1987  Stocks surge as inflation and interest rates decline.  Individuals remain skeptical and can afford to do so because real interest rates offered by bonds and money market funds remain high.   Market rises for 22 quarters, up 190%.

Stage 2   Q4 1987 to Q3 1990.  Stocks become much more volatile.  They decline 30% in the 1987 crash, rise 45% between Q4 1987 and Q2 1990, then decline 14.5% in the 1990-91 recession brought on by Saddam Hussein’s invasion of Kuwait.

Stage 3   Q3 1990 to Q1 2000  Over 39 quarters the market rises 390%.  This phase started slow because of a “jobless recovery” from the 1990-91 recession.  But stocks surged in the second half of the decade, with five straight years of 20%+ gains (1995-99) as productivity growth picked up, GDP accelerated, and investors embraced “new economy” Internet stocks.  All was not rosy.  The 1997-98 Asian Financial Crisis raised the specter of global deflation and caused a U.S. financial panic in the autumn of 1998.  The Fed eased in response to both the Asian financial crisis and the risk to IT systems posed “Y2K.” This liquidity fueled the final speculative surge in 1999-2000, which Greenspan did little to discourage via higher margin requirements.

 

Appendix: Stock Market History since 1949 (based on quarter-end prices)

Q2 1949 to Q1 1957   Secular bull market begins; market rises for 33 quarters, up 235%.

Then market drops 15.6% in a pretty severe recession in 1957.

Q4 1957 to Q4 1961   A post-recession surge.  Market rises for 17 quarters, up 79%.

Then market plunges 23.5% because of over-valuation in first half of 1962

Q2 1962 to Q4 1965.    Market rises for 5 quarters, up 69%.

Market drops 17% in 1966 on Fed tightening, recession fear

Q3 1966 to Q4 1968.   Market rises for 10 quarters, up 36%.

Market drops 30% in 1969 malaise and 1970 recession

Q2 1970 to Q4 1972.  Market rises 11 quarters, up 62% as economy recovers from recession. Nifty fifty blow-off in 1972.

Market drops 46% in 1973-74 on severe inflation, “Arab oil embargo,” and recession–a disaster for financial assets, particularly growth stocks, such as the “nifty fifty.”

Q3 1974 to Q4 1976   Market rises 10 quarters, up 69%

Choppy market and then back to back recessions (1980 and 1981-82); market does little for five years.

 

Q2 1982 to Q3 1987   New secular bull market begins.  Market rises for 22 quarters, up 190%, on disinflation, rising PEs and profits.

Then, market crash in autumn of 1987 on fears of Fed tightening, plunging dollar; market down 23%

Q4 1987 to Q2 1990  Market rises 11 quarters, up 45% as economy remains fairly strong despite stock market crash.

Then, recession in 1990-91; market falls 14.5%

Q3 1990 to Q1 2000 stocks rise 39 quarters, up 390%, amidst strong economic growth and tech bubble.  Brief plunge in 1998 Asian crisis but recovery as Fed eases policy.

Severe bear market after tech bubble; stocks down 45.6%

Q3 2002 to Q3 2007  stocks rise 21 quarters up 87%

Financial crisis; stocks decline 47.7%

 

Q1 2009 to Q3 2013   New secular bull market begins.  Stocks rise 19 quarters up 120% as economy recovers, short term interest rates go to zero.

Copyright Thomas Doerflinger 2013.  All Rights Reserved.

 

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Obamacare Hits the Fan – and Creates a Stock Market Bubble?

Posted on November 8, 2013 by tomdoerflinger

Obamacare could create a stock market bubble because it will restrain job growth and prompt the Fed to maintain super-easy monetary conditions despite an improving global economy.

The law was conceived in deception.  Never just a way to procure health insurance for 37 million uninsured Americans, it is a convoluted scheme to lay the foundation for universal health insurance by forcing everyone (except DC VIP’s) to get—usually via their employer—standardized, one-size-fits-all coverage.  No thought was given to how the ACA would inflate healthcare costs and hurt job creation.  The Obamanites always knew the law would be unpopular, which is why A) They delayed implementation until after the 2012 election, B) Obama repeatedly and knowingly lied that if you like your plan and your doctor, you can keep them.   Anyone who studied the bill could ascertain that was false, but the mainstream media was too biased and lazy to wade through complex legislation and report the truth.

Enough Shoes for a Centipede . . .

However, reality has finally struck.  The first shoe to drop was the “Employer Mandate,” requiring firms with at least 50 “full-time” (over 30 hours per week) employees to provide coverage.  It was set to happen on Jan. 1, 2014, with the “number of full-time workers” based on the monthly average in 2013. Naturally firms cut the hours of worker to less than 30 in the first half of 2013; a former head of the Bureau of Labor Statistics called this shift to part-time workers unprecedented.  Fearing that this trend would hurt Democrats in the 2014 election, Obama delayed the Mandate until 2015.

The second shoe to drop was the failure of the healthcare.gov website—Senator Baucus’ “train wreck” happened right on schedule.  This shoe will likely keep dropping well past the new deadline of Nov. 30, which was set by apparatchiks not engineers.  Other surprises may occur.  I would not be shocked if hackers steal thousands of Social Security numbers, as Rep. Mike Rogers (an expert on the NSA) recently warned.

The third shoe: people in the “individual market” getting letters saying, “No, you can’t keep your healthcare.  Go buy a policy on the exchange via Healthcare.gov (if it ever functions properly).” Obama’s lie was starkly exposed.  Women afflicted by cancer, who have suddenly lost their insurance coverage and their doctors, are asking CNN’s Erin Burnett, “What do I do now?”  The arrogant answer of the White House: Well, there are only five million of you.  And as Stalin observed, you can’t make an omelet without breaking a few eggs.  These folks in the “individual market” will experience “sticker shock,” despite high deductibles and less choice of doctors.  The plans are costly because they cover stuff people don’t need (think fertility treatment for grandfathers).  There is method in this madness.  By charging for unused features insurance companies generate income to cover the costs of the newly insured.  This is a “silent subsidy” paid for by the middle class.

Back to the “Employer Mandate.”  The next shoe is that many smaller companies whose health coverage does not meet Obamacare standards will simply drop coverage, pay a $2,000 fine for each worker after the first 30 workers, and send the employees to healthcare.gov.   This could hit tens of millions of workers; no one knows how many. (See Appendix for quantification of this issue.)

The next shoe to drop—I think we are up to five now—will be in April 2015 when individuals who do not have insurance are supposed to pay a fine to the IRS.  In the first year it is $95 or 2% of income, whichever is higher, but it rises in subsequent years.  If they don’t pay the fine, it will be deducted from their tax refund—unless they take enough deductions so they do not have a refund.  As I highlighted last year, lots of healthy young people who are burdened by college loans and a terrible job market will be hit by Obamacare.

The final shoe: insurance companies providing coverage via the healthcare.gov exchanges will tell HHS:  lots of sick folks signed up but not many healthy ones, so costs exceed revenues and we have to raise rates.  But if we do that the healthy ones will drop coverage, and the situation will get worse.  The polite term is “adverse selection,” but I prefer the more poetic “death spiral.”

. . . All Kicking Job Growth

Let us count the ways this crazy law hurts hiring:

  • Small businesses will try to stay under the limit of 50 workers and restrict workers to less than 30 hours.  Investors Business Daily has shown that this is hurting low-wage workers.
  • People in the “individual market” who are now losing coverage are rattled by the unexpected news they must pay more to get less.  The Wall Street Journal says nearly half of them are “self-employed or small business owners.”  As they scramble to get coverage these folks will be in no mood to hire another worker or buy that new computer.  The extra money spent on insurance can’t be spent at the mall.
  • Small businesses hit by the employer mandate next year will be similarly loath to hire new workers or make new investments, as they huddle with lawyers and accountants to figure out how to minimize the damage.
  • In early 2015 people hit by the individual mandate will be similarly rattled.
  • Congress must decide how to bail out insurance companies caught in the “death spiral” without blowing a hole in the Federal budget.  A bloated, inefficient healthcare system will further squeeze legitimate government investment in areas like infrastructure and basic research.

Bubble Trouble?

We have an economy that by many measures – the ISM Manufacturing, ISM Services, auto sales, housing, corporate profits, stock prices – is doing fairly well.  Third quarter profits show signs of improvement, driven partly by stronger demand in Europe and China.   There’s just one problem; employment sucks.  Consider this.  Back in May of this year Bernanke told Congress that “the job market remains weak overall,” and since then employment has weakened markedly—the six month moving average of monthly job gains has dropped from 200,000 to 174,000. The likely reason is Obamacare: firms aren’t hiring because as this fraudulent law and Obama’s lies come into sharper focus it seems ever more costly and risky to hire.  Of course, this process has just started.

The Fed has a dual mandate to keep prices stable and unemployment low, and it has explicitly tied “tapering” of “quantitative easing”—or buying fewer bonds each month—to an improving labor market.  If the job market remains weak because of Obamacare the Fed may remain looser for longer, juicing up asset markets with more and more liquidity.  Like most other economists, Fed officials rarely single out over-regulation as a hindrance to hiring—which is weird because “structural reform” is all the rage in Europe and Japan.  So the Fed seems unlikely to tell the White House and Congress, “Sorry guys and gals.  We’ve done all we can.  It’s up to you to create a more job- friendly regulatory environment.”

Consequently bubble trouble could be just over the horizon—for the third economic recovery in a row.  I have argued that this bull market so far was not just driven by “liquidity;” it was well justified by rising profits and a rebound in PE ratios to appropriate levels for the current environment of low inflation, low interest rates, and share-holder friendly corporate managements.  But the market has become frothy and rather complacent in recent weeks; yesterday’s sell-off was healthy.  If investors sense that the Fed will remain on hold for months and months, prompting speculators to leverage up their portfolios, we could get a stock market bubble that would justify some meaningful reallocation toward cash.

Appendix

On Fox News Sunday,  Karl Rove said there are 150 million people who get insurance through an employer and 15 million who get it as “individuals.”  However, large firms that self-insure, and that collectively employ about 90 million people, are not covered by Obamacare; they are covered by ERISA. (So, in the finest tradition of crony capitalism, corporate America worked out a sweet deal with Obama while small business was hit full force by the ACA.)    Americans impacted by Obamacare are in two buckets, the 15 million people in the “individual market”– many of whom just received notices their policies were canceled–and around 60 people working for small firms that do not self-insure, but rather get insurance from big firms such as Aetna, United Health, etc.  (Note that many large firms that do self-insure nevertheless use these insurance companies to administer their plans).  It is people in the individual market and those working for smaller firms that are at risk of losing their coverage. Next year we’ll learn how many of the 60 million working for smaller firms will lose coverage.

Copyright Thomas Doerflinger 2013.  All Rights Reserved.

 

 

 

 

 

 

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Cruz Control: Going for Growth

Posted on November 1, 2013 by tomdoerflinger

The YouTube video was titled “Ted Cruz Bashes Obamacare and Talks ‘Single Biggest Lie in Politics.’”  I expected the Senator’s Iowa speech to be another acrid diatribe, cogent but predictable, against Obamacare and an out-of-touch Congress that foisted this absurd and unworkable law on American citizens (but not on themselves).

I was refreshingly wrong.  Yes, he bashed Obamacare and the DC elite, but it was not all “red meat” for the Tea Party set.  Ted Cruz delivered a broad-gauged critique of Obamanomics as the second coming of Jimmy Carter-style stagflation.  The solution, he argued, was to return to rapid economic growth, comparable to the Reagan years.  After suffering through the campaign of pathetically inarticulate Mitt Romney–who literally never made a speech explaining his economic agenda—it was great to hear a coherent, incisive explanation of why America should reject Obama’s statist stagnation in favor of free market capitalism.

Here is part of the speech (largely verbatim but with a paraphrase here and there):

“We all know we are in extraordinary times.  The challenges facing this country are not simple, and not ordinary…… Assault on constitutional rights, unlike anything this country has ever seen.  So, how do we turn things around?   ….  If you remember one thing that I said tonight, let it be this—that I am profoundly optimistic that despite all the challenge of this country I am convinced we are going to turn this country around.  Two things we need to do to do that.  Number one, champion growth and opportunity.  And number two, empower the people.

“ In the last four years our economy has grown on average 0.9% a year.  You know there is only one other period since World War II of four consecutive years of less than 1% average growth.  That was 1979 to 1982, that was coming out of the Jimmy Carter administration.  It was the same failed economic policies—out of control spending, out of control taxes, out of control regulation, and it produced the exact same economic stagnation.  I can tell you every day I have been in the U.S. Senate, my number one priority has been focused on one thing, restoring economic growth. . . . .

“Our friends in the media wonder why Congress is held in such low regard.  When you ask Texans, what is your top priority, the answer is overwhelmingly jobs and economic growth. Nothing else comes close.   And that is true throughout the country.  You get the same answer, jobs and economic growth is the top priority.

“In the ten months I have spent in the U.S. Senate, we have spent virtually zero time even talking about jobs and economic growth.  It simply is not a priority in Harry Reed’s USA.  We spent six weeks talking about guns and taking away your Second Amendment rights to keep and bear arms, and no time talking about fundamental tax reform, about regulatory reform, about stopping the burdens of Washington that are strangling small businesses and killing jobs.  And growth is foundational to every other challenge, whether it is unemployment, whether it is national debt, whether it is maintaining the strongest military in the world to project our national security.  With growth we can do all of it.  Without growth, we can’t do any of it.  The problems are insoluble without economic growth.

“…..When Reagan came into office in 1981, he implemented policies the exact opposite of Obama’s.  He cut taxes and dramatically simplified the tax code.  Instead of exploding spending and the national debt, Reagan restrained the growth of spending.  Instead of unleashing regulators like locusts to devour small businesses, Reagan pulled back regulation.  The result was some of the most incredible growth this country has ever seen.. ..[7.2% real GDP growth In 1984.]”

 

Senator Cruz went on to turn the “inequality” argument on Democrats.  Wall Street and Big Corporations are doing just fine under Obama’s crony capitalism.  It’s the little guy who is hurting – small businesses and community banks crushed by an avalanche of new regulations, and people in the “individual market” who lose healthcare coverage.  The result:  weak employment growth and fewer hours for low-wage workers because of Obamacare.  So it is no surprise that income inequality is at an all-time high, the poverty rate is at recessionary levels and median household incomes are sliding. The biggest losers from Obamanomiics have been young people, Hispanics, and African Americans.

Ted, Meet Jamie

The speech was compelling, but I do have one suggestion.  It needs some poetic, optimistic, Reaganesque paeans to the intrinsic greatness of America, to the extraordinary growth and prosperity that awaits the nation if it breaks the statist shackles of the coastal elites.  Ironically enough, a good place to start would be these stirring comments by Jamie Dimon:

“This country not only has the best military on the planet, it has got the best universities, the best businesses, it’s got low corruption, the widest and deepest capital markets, it’s hugely innovative from Steve Jobs to the factory floor, it’s got a wonderful work ethic.  We’ve got a royal straight flush.  We don’t have a divine right to succeed but we have an unbelievable hand if we play it well.  And now we have natural gas, shale oil.  America is going to come back, and it’s going to blow people’s socks off when it does.”

NYT Agrees with Ted Cruz: Obamnomics Is a Disaster

That Obamanomics is a spectacular failure is no longer controversial.  Even Charles M. Blow, Obama sycophant and New York Times columnist, labels the divergent fortunes of the rich and the rest in Obama’s America “obscene.”  While the rich get richer, the middle class is shrinking and sinking—the “slowest post-recession jobs recovery since World War II;” the lowest labor force participation rate in 35 years; median household income 8.3% lower than in 2007; one in seven young adults neither in school  nor in a job.

Naturally Mr. Blow does not blame President Obama, whose name does not appear in the column; it’s America’s fault.  A few pedigreed  but clueless economists continue to blame abstract forces such as “financial deleveraging,” rather than the anti-capitalist policies of Barack “you didn’t build that” Obama.  But most voters are not that dumb.  They will reject Democratic socialism if offered a sensible, compelling alternative by an articulate leader such as Senator Cruz.

Copyright 2013 Thomas Doerflinger.  All Rights Reserved.

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SEC Charges HHS and Kathleen Sebelius for Botched Rollout of Affordable Care Act

Posted on October 27, 2013 by tomdoerflinger

FOR IMMEDIATE RELEASE
2013-207

Washington D.C., Dec. 30, 2013 —

The Securities and Exchange Commission today charged the U.S. Department of Health and Human Services and its Head, Kathleen Sebelius, for their roles in the botched rollout of the Affordable Care Act as well as failure to disclose to regulators and members of Congress the material weaknesses in its website and project design.

An SEC investigation found that  Sebelius failed to comply with U.S. Internet standards and did not exercise appropriate professional care and skepticism in conducting audits and due diligence in managing the rollout. She and her subordinates misled Congress as to the status of the rollout on multiple occasions and also apparently failed to alert her superior, President Barack Obama, about the numerous material weaknesses.

HHS and Sebelius agreed to settle the SEC’s charges.  They will be prohibited from practicing as regulators of the American healthcare system for the next fifty years, and agreed to pay a penalty of $158.4 billion.  This penalty represents 337 million hours wasted by 32.1 million Americans trying to register on the defective website, valuing their time at $85 per hour, plus an additional penalty of $385 per hour wasted.

“Sebelius and HHS failed to subject the project to appropriate and prudent scrutiny and contributed to a debacle that wasted enormous amounts of money and time, for the Federal government and tax payers alike.” said Robert J. Kohn, a Director in the SEC’s Division of Enforcement. “It is the hope of the Commission that this penalty will dissuade other Washington bureaucrats from engaging in such reckless and imprudent interference in the American economy in the future.”

 

(Extract from AP article on SEC Fine of HHS. . . )

. . . . Commenting on the SEC fine, President Obama, in unscheduled remarks  to the White House Press corps, said,  “The many flaws in the Affordable Care Act are inexcusable and reflect poorly on America’s legislative process. I hope this will be a lesson to Congress, so that in the future it will design better laws for me to sign.  It is particularly unfortunate that Congress did not receive more constructive input from Republicans about how to draft a law that could actually be implemented without disrupting the healthcare coverage and wasting the valuable time of millions of Americans.  I am holding them accountable for the many flaws in so-called ObamaCare.”

Copyright Thomas Doerflinger 2013.  All Rights Reserved.

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Create Your Own Conglomerate, Part Deux

Posted on October 22, 2013 by tomdoerflinger

Back in June I argued investors should create their own conglomerate by assembling a diversified portfolio of high quality companies.  Michael Crook of UBS provides a potent factoid validating this strategy. He calculates:

“After accounting for inflation, $100 invested in US equities, US corporate bonds, US Treasury bonds, and US Treasury bills in 1932 would now be worth $30,790, $1,252, $810, and $156, respectively. That is equivalent to excess performance for equities of over 2000% over eight decades.”

Roll that around in your brain for a moment: $30,790 versus $156 – $1,252.

Bottom line: Over time you can become wealthy investing in stocks, but not in bonds or cash.  Very long term, it really is that simple.  Naturally, there are short-term exceptions.  Equities perform poorly in certain decades (1930s, 1940s, 1970s).  And bonds are a great investment occasionally, such as the early 1980s when nominal yields were sky-high (15-20%!) and inflation was about to plummet.

Timing Is Not That Important . . .

. . . if you are saving for retirement out of income, because you can invest regularly without making bets on when the market will rise and fall.  And if you accumulate significant savings by the time you retire, you can raise some cash and—to the extent you need to dip into capital rather than live off dividends and Social Security—sell stock in years when the market is strong, and use cash in years when stocks are weak.

. . . . But the Cult of Over-Diversification Makes This a Fairly Good Time to Buy Stocks

Yes, it would have been better to plunge into stocks four years ago.  But now is still a decent time because investors remain skeptical about stocks, leading to excessive diversification.  At the end of long bull markets, you get a cult of equities.  At the end of the 30-year bull market in bonds we got a cult of bonds, with PIMCO’s Bill Gross arguing bonds would continue to outperform stocks, which were a “Ponzi scheme.”  (Stocks are up 27% since Bill shared his insight with the world.)  Now we have a cult of over-diversification:

  •  A New York Times article by Gretchen Morgensen notes that “alternative investments” (hedge funds and private equity) “now account for almost one-quarter of the roughly $2.6 trillion in public pension assets under management nationwide, up from 10 percent in 2006, according to Cliffwater, an adviser to institutional investors.  Investments in public companies’ shares, by contrast, fell to 49 percent from 61 percent in that period.”
  • Ivy League endowments similarly have their funds spread across many asset classes, with modest amounts in domestic equity (see my Dec. 22, 2012 post).  Like pension funds, they have too much in costly, opaque, poorly performing hedge funds.
  •  A top wealth management firm is telling clients willing to accept “Moderate Risk” to have only 34% of their money in stocks / 46% in bonds.  Even “Aggressive” investors are advised to be 55% stocks / 33% bonds.

Five years from now, much higher allocations to equities will be conventional wisdom—which will be a bearish sign.  But as institutions raise equity allocations over the next few years it will be positive for stocks.

How to Assemble your own Conglomerate

  •  Gradually assemble a collection of 30-40 high quality companies that are expanding their earnings.
  • Most should pay dividends that are growing at a decent pace.  I like dividends because most large firms can pay them without hurting their EPS growth, which boosts total return.  And there is the all important “sanity factor.”  When the stock market freaks out, as it does from time to time, investors can stay sane if their dividend checks remind them they own shares of real businesses—not merely pieces of paper whose price just fell 30%.
  • Be well diversified across sectors.  Most true stock market disasters occur when investors become enamored of one sector that gets too popular and expensive, and then collapses as you get lower PEs on lower earnings—energy in 1980, tech in 1999.
  • It is fine to own some smaller fast-growing stocks IF you understand the business and growth prospects, and to own some foreign stocks if they are great companies.  But don’t try to “allocate” between regions or bet on currency movements.
  • In general, sell your losers not your winners, unless a stock becomes hideously overvalued and too large a part of your portfolio.  (But keep in mind that, as Peter Lynch pointed out, much of your return will come from a few great stocks, which can only happen if you own them for a long time.)
  • You can limit risk by rebalancing—for example, maintaining a 15% cash position.
  • Have enough cash or very safe short term bonds so you don’t get scared and sell at the bottom of bear markets.  (This is the main reason most individuals vastly underperform the mutual funds they invest in.)
  • Don’t try to time the stock market.  You own companies for the long term.  In rare periods of extreme over-valuation, such as 1999 when the trailing PE of the S&P 500 was 28x, shift some assets to cash or to cheaper, lower-beta stocks.  This only happens every fifty years or so.

This advice is more radical than it sounds . . .

No trading.  No market timing.  No allocation across stocks, bonds, cash, gold, industrial commodities, private equity, hedge funds, real estate, art, rare baseball cards, etc.  “Risk” is not defined as short-term price volatility but permanent loss of capacity to generate free cash flow.  (According to Wall Street’s conventional definition of “risk” as “Beta” — or stock price volatility relative to the market — General Motors and Citigroup were “less risky” in 2007 than Nike or Starbucks.  Oops.)  You have to accept that occasionally the quoted value of your portfolio will go down a lot.  But this doesn’t matter unless you need to sell stock (which is why you should keep enough cash to weather bear markets, both financially and psychologically).

Don’t Buy High-yield Stocks Because “I need the income.”

In an interesting Barron’s interview, American Funds’ James Rothenberg was asked whether and why he owned too many bank stocks before the financial crisis.  His answer:

Yes, we did.  We have a lot of funds for which current yield was, and is, a very important part of the objective.  And there were only a few places where you could get significant yield.  One was financials, one was oil, one was utilities, and there was a smattering of other things.  So we were naturally drawn to the financials because on earnings they looked cheap, relatively speaking.  The problem was that t heir earnings weren’t real, as we now know. (emphasis mine)

I am not second-guessing Mr. Rothenberg; I, too, got burned badly in certain financial names in 2008.  But, what is flawed here is the thought process of investors thinking, “Well, I need income.  I only want stocks with high yields.”  That logic dramatically narrows your choice of stocks. You are likely to end up in companies with high dividend payout ratios, mediocre growth, and perhaps high financial risk.  (Which describes many utilities these days.)

Even if you value income, you want to own growing businesses.  You should evaluate stocks not just on dividend yield but also EPS growth, using the “PETR Principle” described in my April 30, 2013 post.  It simply involves dividing the PE ratio by an estimate of total return, defined as (dividend yield + long-term EPS growth).  Doing this properly requires an understanding of the business and its future growth, which is why you may need an investment advisor.

Copyright Thomas Doerflinger 2013.  All Rights Reserved.

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Cali-Cultural Advantages

Posted on October 19, 2013 by tomdoerflinger

In the movie Annie Hall neurotic comedian Alvie Singer (Woody Allen) says, “I don’t want to move to a city where the only cultural advantage is being able to make a right turn on a red light.”

You can’t stop progress.  California’s newest “cultural advantage” is charging shoppers 10 cents if they want a bag for their groceries.  (For some reason they have not yet applied the tax to newspapers, which take up way more space in landfills.)  California has also broken new ground in the realm of corporate synergies with a retail space in Pacific Heights that combines a Starbucks and a Wells Fargo Bank; you can get a loan and spend it all on a La Boulange Reduced-fat Pumpkin Cream Cheese Loaf Cake and a Caramel Mochiata no Whip Mocha with an Extra Shot.  (I hope the Wells-Starbucks combo succeeds; I own both stocks.)

Here’s another California cultural advantage:  The way-too-numerous homeless people in San Francisco do not content themselves with a couple of bags of belongings, as on the East Coast.  No no no.   They have one or two laundry hampers filled with belongings, sometimes with a couple of dogs perched on top.  They sleep in the parks and wander up and down San Francisco’s splendid waterfront embankment, unmolested.  How progressive is that!

Moving from the waterfront to the regulatory front, California Proposition 65 requires restaurants to prominently post this sign:

Warning:  Detectable Amounts of Chemicals Known To The State Of California To Cause Cancer, Birth Defects Or other Reproductive Harm May be Found In And Around This Facility

In other words, “Caution, Salt Is Served Here.”  I am looking forward to the Proposition requiring signs to be posted in all government offices and polling places stating:

Warning:  Over-regulation and High Taxes in the State of California Are Known to Retard Economic Growth, Increase Poverty, and Cause Out-migration to States With Less Insane Regulatory Environments.

But despite all that, California is a nice place to visit.  Perfect weather, excellent restaurants, and plenty of beautiful people running up and down The Embarcaderro on San Francisco’s waterfront.  We spent a couple of nights in Pacifica, an agreeably tacky beach town about twenty miles south of San Francisco.  Back in the 1950s, the Best Western chain snagged a great location right on a beautiful beach frequented by surfers.  The location is so great, they haven’t needed to make a single improvement to the hotel since 1955.  What I liked the most was that I could leave my hotel room and, without crossing a four-lane highway (unusual in California), take a short hike up a steep hill overlooking  the crashing waves of the Pacific.  Maybe next time I’ll wear hiking boots, rather than loafers, and get to the top of the hill.

San Francisco is a bit like Boston, but with steeper hills, better weather and way more immigrants.   The Mission District is a large and lively low-income Hispanic neighborhood with dozens of fruit markets and taquerias.  They serve food that is fresh, simple and tasty—I am still wondering why you can’t find comparable Mexican food in New York.  China Town, hard by the financial district, has the usual complement of restaurants, travel agencies, and dry cleaners, but also quite a few establishments offering exotic new-age therapies, such as a place called Spirit Acupuncture Holistic Health, which treats back pain, stress, anxiety, migraine headaches and infertility.

Copyright Thomas Doerflinger 2013.  All Rights Reserved.

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