Galt Stock  

Independent Investment Research for IRA’s and 401K’s 

by John Dalt

12/16/08

We have a new term of federal obfuscation, “Quantitative Easing” referring to the FED’s description of how they are going to ease the credit markets. At 1:30, the FED cut interest rates to 0.0% to 0.25%, the lowest benchmark ever. So what is “Quantitative Easing” of credit markets?  Simply put “Print more money”. This euphuism describes what the FED will do since it cannot cut interest rates anymore. They are going to expand the credit facilities available to banks and bid on Treasuries to beat down the interest rates, with brand spanking new money.  

What does this mean to you as an investor?  Buy quality stocks that have a strong balance sheet, generate cash so they are not caught in the credit crunch, and that have pricing power on their products.  We all want to be value investors, but you have to step back and look at each of our holdings; think about the company’s future.  Do not look at the stock price, instead what does the future hold for the company.  Will they expand their profits next year, or are they getting ready to announce lower earnings and a difficult future?  Do they have a strong balance sheet?  This will let them have a free hand to make investments that make sense for the long-term and survive difficult credit markets.  It is impossible to issue new stock or bonds right now, bank credit may become available under stringent requirements.  Can they hold or increase margins on their products?  Are sales increasing?  A tough business environment with declining sales and discounts to move products can erode even the best earnings statement. 

We all fall victim to looking at symbols and contemplating the future stock price.  Now is a great time to get our feet back on the ground and think about the company you own, represented by that ticker symbol on your computer screen.  Ask hard questions about each company you own, make cold decisions about the future of each company!  Bear market rallies give us the chance to sell stocks we may not want to keep for the long run.  Business changes occur, the reason you bought the stock a couple of years ago may not be valid anymore.  If a particular stock you are looking at has shown some weakness in the last three months, why not sell it now and use the capital gains against some of the losses this year, then buy it back on a dip next year.  You have to wait thirty days so you are not charged with a wash sale.  Check with your accountant for the mechanics of this rule. 

WARNING:    The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future. 

 
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