I will say it again. Janet Yellen has one of the worst jobs in the world and its not going to get any better any time soon. No matter how much they may want to “normalize” rates the economy just refuses to give them the justification for a rate hike. No matter what course she tries to steer or what she says she will be vilified by about half the folks observing. The economy is better but not good and now as the fed pointed out in the statement” "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” The only problem with that statement is that it may not be just the near term. The growing refugee crisis in Europe is not going to help that economy get back ion solid footing. China has decided to show weaker numbers and that won’t help us make our numbers look any better. A few months back Louis Navelllier told me that he doesn’t think the Fed will be able to raise rates in his lifetime and its starting to look like he may be correct.

I keep hearing the pundits and economists tell me everything is getter better and everything is on track. While not denying that things are getting a little better a look at just a few recetn headlines will give you a better idea of what the Fed is up against. Here are just a few recent economic headlines :

Philly Fed factory activity contracts unexpectedly in September

New York State factory activity declines for second month

Manufacturing Survey Shows Slowing in August

U.S. Housing Starts Fall 3% in August

The Morning Ledger: U.S. Employment Growth Slowed In August

We remain firmly mired in a better than it was but not really very good economy. Given that and what we are seeing in earnings and revenues aggressive buying of stocks today means you are voting that low rates will continue to spur buyback and M&A activity. You may be right for a bit but you cannot make the case that stocks are a tremendous bargain so you are paying a premium price for hope of prolonged Fed supported financial engineering. I was hoping for a rate hike that PO’d the market a bit and we got the kind of sell off that allows us to talk about good companies at great prices but we didn’t get it. I will continue to kick the rocks and look for bargains but outside of community banks there is just not a lot to do. It will eventually happen but unitl then we will sit here on our pile of cash and be frustratingly patient

On the bright side from my point of view there is going to be a very similar conversations round a lot of community bank board tables in the next few weeks. It is going to be along the lines of “ I thought we could stick this thing out until rates moved higher but it does not look like that’s going to happen now. We need to revisit the idea of staying independent.” This is especially going to be true of those institutions where the board and CEO are older and just plan tired of the very difficult regulatory environment they find themselves in today. Taking the time to review community banks trading below book value with an average board ago over 60 and an activist pushing for a sale should be a very lucrative enterprise for the next year. Of course we have already done that and put it to work for Banking on Profits subscribers. It is a tad pricey at $40 for the paperback but I highly recommend taking the time to read it.

As a thought exercise after reading it I spent some time thinking about which industries might see the type of spending over the next 30 years that might create the type of sustained growth that could drive stocks up to 100 times the current price. I came up with small banks as a result of continued roll up acquisitions over time. It is not heard of for shareholders to see their original banks taken over several times in a row by ever larger institutions and I figure 6 takeovers should produce something like 100 to 1 returns over time; cyber security because that is just going to be the new and lasting form of criminality and warfare; pollution control because more people means more trash and carbon emissions, and the need for water around the world. I also think that alternative energy will be a hunting ground for these stocks as that industry is going to grow steadily but I really do not see any companies yet that I think can do it. It will be the companies that achieve the technology breakthroughs in storage and transmission that achieve those gains and I do not know enough about the industry to identify potential winners. Now we just have to get the right price on some of these stocks so we can sit tight for a few decades! If anyone else does this little exercise I would love to hear your thoughts.

Thats all for this week

Cheers,

Tim

Ps If we practice the art of buying right and sitting tight then

https://www.youtube.com/watch?v=wbMWdIjArg0