Thursday, March 18, 2010

Ed Justice

EQUITY MARKETS CONTINUE TO edge up, probably from lack of any other opportunity to find a meaningful return. By the numbers, for the week ended Friday, March 12, 2010, the Dow Jones Industrial Average closed at 10,624, up 58 points, or 0.5%. The Standard & Poor’s 500 closed at 1150, up 14 points, or 1.2%, and the NASDAQ Composite closed at 2367, up 41 points, or 1.7%.


The flight to bonds continues, as investment grade corporates continue the upward journey in price they have experienced the last four or five years. It wouldn’t surprise us if the winning streak in bonds is nearing its end, and it will be interesting to see how bond prices respond to a quarter point increase in interest rates, once that happens.

China and Google are fighting for control, Congress is fighting for its life, the Administration is fighting for power, and Toyota is fighting for market share. I’m not convinced that most of these are worth fighting for. Fighting for justice, truth, those who can’t speak for themselves, yes – but fighting for power and control is an empty victory, if it comes.

U.S. debt grew at its slowest pace on record, with consumer debt actually falling in 2009 for the first time since records have been kept. Is there anyone willing to serve at the federal level that will bring discipline to their financial decisions the way households are required to? By the way, what’s a dangling participle?

In general economic news, retail sales were up 0.3% in February, a respectable showing given the nasty weather. Business inventories were unchanged in February, and the U.S. trade deficit fell to $37.3 billion, as both imports and exports declined.

States around the nation are facing large and growing deficits, with the typical suspects, those bastions of socialism such as California, New York, and New Jersey, having especially difficult challenges. California has already issued scrip instead of cash for some of its noteholders. Look for other states to follow, either with scrip, or trips to Washington, with sob stories in tow.

Revenue bonds can be attractive for the yield. Like corporate bonds, they depend on the revenue of an underlying entity, such as a road, museum, hospital or housing project for their value and income stream. In many cases, these entities are governed and run by those from the public or non-profit sector. Given my experience with non-profits, this isn’t especially comforting.

If we were buying individual bonds, I’d be tempted to stick with the General Obligation bonds of states such as Tennessee, Oklahoma, North Dakota, or Idaho. You may have to look hard for GO bonds from some of the less populated states, as they don’t carry much debt. There’s probably a tip in there somewhere.

Ed Justice, the youngest of six, was born in Paola Kansas. He died a couple of years ago at the age of 87. In the late 30’s, Justice drove Route 66 west to California and took a job with Douglas Aircraft. After his brother Zeke joined him, they worked at Kurtis-Kraft building race cars. Soon, they launched Justice Brothers Racecar Repair and Fabrication. This led to a distributorship for motor oil additives, sold to service stations, and a move to Florida. Bill France, owner of an Amoco Station and founder of NASCAR, was one of their customers. Justice became an early NASCAR sponsor. After his retirement in 1989, Ed devoted his time to the Justice Brothers Museum of Early American Racing. You can visit the website at www.justicebrothers.com. Click on the racing button.

Quote of the week:

“Americans have always been able to handle austerity and even adversity. Prosperity is what is doing us in.”
                                                                                              James Reston

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