Invest in this Near-Monopoly?

Where Do You Live?

13 Bankers

Invest in this Near-Monopoly

From time to time, I participate in an online poll conducted by a major research organization.  It only takes a few minutes, and I’m interested to see what topics they’re investigating.  Also interesting are some of the “regular” questions, which help the researchers categorize respondents.  One of these goes like this, “Do you consider yourself to be mostly a resident of: your city or town, America or the planet earth?”

For me, it’s an interesting question.  

I live in the city where I was born, 400 yards from the house where I grew up.  I have 35 living relatives here in Salem.  My office is in the old public library building where I was employed in my high school years, and across the street from the school that I attended from fifth through eight grades.

So I could easily say city.

On the other hand, I could say the planet earth.  I’ve had a valid U.S. passport since I was 8.  I’ve traveled to 32 countries, mainly for pleasure, and I’m hoping to visit dozens more.  Every week I correspond with readers from all over the world; recent emails came from Uzbekistan and Latvia.

But I always answer America.

In part, this is because my major focus at work is the condition of the U.S. economy, as it impacts the stock market, the companies that comprise it, and our daily lives.  But in part it’s because it’s the American condition that I’m most interested in.  

Our assets include great physical resources, the rule of law, freedom of speech, democratic elections and a great tradition of entrepreneurial capitalism.  We have the world’s leading institutions of higher education, its leading software companies, entertainment companies, media companies, hospitals, drug companies, e-commerce companies and more.

On the other hand, we have some world-class liabilities, including heavy debt, both public and private, as well as future obligations that threaten to bankrupt our country.  We are overly dependent on energy imported from unfriendly suppliers.  And we have less confidence in our elected leaders than at any other time in our history.  

As a result, some critics are saying the best days of the U.S. have passed, and that the future belongs to the Chinese, who are more ambitious, feel less entitled, and are more optimistic about their future.

But I’m confident we’ll muddle through somehow, because that’s what we do.  Americans lead the world in their capacity to adapt to changing times and to find solutions to enormous challenges.  In fact, the bull market–which is now nearly 14 months old–is telling us quite clearly that there’s better news in store from numerous companies that have adapted to the changing demands of the marketplace.  Well-known names that are looking very strong include Apple (AAPL), Coach (COH), Netflix (NFLX), (PCLN) and Whole Foods Market (WFMI), all of which are thriving because they’ve adapted and innovated.

Sadly, however, the perceptions of ordinary Americans tend to be lagging.  Many still dwell on our problems … and our potential problems.

For example, last Monday, I was out walking my dog before heading off to work, when I met a cousin who lives nearby.  We stopped to talk a while, and before long she asked if I’d heard about “13 Bankers.”  I said I hadn’t but I’d look into it.

Ten hours later, I was at a little cocktail party, when a friend asked the same question.  “Have you heard about 13 Bankers?”  And I gave the same answer, “No, but I’ll look into it.”

So I did.   And I found that “13 Bankers” is a book that had just been discussed on NPR.

Its theme is that there has developed in recent decades an unholy alliance of our biggest banks and the federal government; that the influence of the banks on federal policy has grown excessively large; that the banks have grown so large that our government is unwilling to let them fail; and that mistakes by these bankers now (and in the future) will result not in losses but in rescue by the government … which might eventually end with our country in financial ruin.

For the record, the “13 Bankers” referred to in the book are:

Ken Chenault, American Express
Ken Lewis, Bank of America
Robert Kelly, Bank of New York Mellon
Vikram Pandit, Citigroup
John Koskinen, Freddie Mac
Lloyd Blankfein, Goldman Sachs
Jamie Dimon, JPMorgan Chase
John Mack, Morgan Stanley
Rick Waddell, Northern Trust
James Rohr, PNC
Ronald Logue, State Street
Richard Davis, US Bank
John Stumpf, Wells Fargo

Here’s what I think.  If this book had been written five years ago, I might have taken note.  Back then, the U.S. was flying high, fueled by a mountain of mortgage debt, and only a very small percentage of people (the really perceptive ones) were worried about our country’s financial system.  

But this book would have been ignored by most people back then.

Today, however, its theme is embraced so readily that two people in same day mentioned it to me!  And to me (viewing the matter through the lens of Contrary Opinion), that’s a very clear sign that the U.S. financial system is NOT what you and I should be worrying about today.

Now, I’m not saying it should be ignored.  I’m well aware of the current campaign to reform Wall Street and regulate the financial system.  And I’m confident that some progress will be achieved.

But the reason that people are very receptive to the idea of a big financial problem today is that they’ve just experienced one!  The housing and mortgage bubbles burst, and the Great Recession and Great Bear Market hit us hard.  But the worst is behind us, and the perceptive people are worrying about something else today.  Not banks.

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As to the stock market, here’s the way I see it.

The bull market is nearly 14 months old.  That’s not ancient, but it is mature.  And until the April high, it was characterized by an extremely cohesive, broad-based bull market.  That’s good.  It means the bull market is NOT over.

But now the market has begun a correction phase, aided by an earnings season that is bringing good news to some shareholders and less good news to others.  As a result, many stocks are still soaring to new highs … but others are falling out of their bullish patterns.

So far, this is an absolutely normal consolidation, and if it continues true to form, the voices of discontent (by both losing shareholders and critical media) will grow louder and louder … and the number of stocks at new highs will grow smaller and smaller.

Many investors will throw in the towel.

But just when the feelings of disenchantment have grown greatest–ideally in concert with the appearance of notable bad news–the market will come back to life.  And it’s at that time that investors in leading stocks, who haven’t fallen prey to the worries of the masses, will make a lot of money quickly.

One of the stocks that might deliver the goods is Live Nation (LYV), which is trading at a very affordable 16 today but has the potential to be much higher in the months ahead as its very capable management works to integrate its really big acquisition.

The stock earned a spot in Cabot Top Ten Report two weeks ago, and here’s what editor Mike Cintolo wrote.

“Live Nation was spun off from Clear Channel Communications in 2005 and today it’s the world’s largest seller of tickets to live events, mainly concerts for popular music. Last year, when half its business came from North American music sales, the company sold 140 million tickets, promoted 21,000 concerts and partnered with 850 sponsors. But this year, it will do far better because it’s merged with Ticketmaster! … Live Nation will be an even more powerful and profitable force in the industry. Note, the business is highly seasonal, quieter in the winter and super-busy in the summer, but the long-term trend is positive. In fact, Live Nation has grown revenues every year since 2002. “

When that appeared, the stock was trading at 16, and we recommended that subscribers try to buy between 14 and 15.5.  Well, the stock did pull back calmly to 15, but it climbed right back up at 16, and today it broke out to new highs.

If you’d like Mike’s latest opinion on LVY, as well as immediate access to future recommendations of Cabot Top Ten Report, I suggest you take a look here. A new issue comes out tonight, don’t miss it!
Yours in pursuit of wisdom and wealth,

Timothy Lutts
Cabot Wealth Advisory


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