The Tycoon Report

The big day is finally here ...

Alright everyone, the big day is finally here. I want to urge everyone reading this letter to get out there and vote. I don't care who you vote for (well actually I do), but I will never tell you who you should vote for.

If you are content with the status quo, then keep your representatives in power; if you are not, then vote them out of office ... vote for change.

As someone who reads Tycoon Report - and obviously has some interest in finance and investing - you need to know that this election will of course have a significant effect on the economy and stock market.

Politicians are, of course, in charge of fiscal policy. Speaking strictly from an economics point of view, businesses love Republicans and hate Democrats, and trial lawyers are the complete opposite. 

Obviously, Republicans receive most of their financing from big business, and Democrats from trial lawyers. The final thing that I will say on this topic is that there are many issues that are important to the society at large; the economy is a very important one, but not the only one. Let's move on, shall we?

Position update ...

I want to briefly say that I stand 100% behind my CVS recommendation at $31 per share, originally suggested about two weeks ago. I believed (and still believe) that CVS is a rock-solid company that is poised to take full advantage of short and long term trends in the U.S. economy.

CVS announced their 3rd quarter earnings on November 1st (one day earlier than expected), and as I predicted we saw a very nice surprise; they beat the street. The street expected them to earn 32 cents per share, and they earned 33 cents instead.

CVS had an increase in same store sales both in the front and back. In other words, the pharmacy same store sales rose over 10% while the rest of the store same store sales rose over 6%.

So why isn't the stock much higher then?

The short answer is fear. With Wal-mart announcing their "$4 campaign" for a month's supply of certain generic prescription drugs, and with the recently announced CVS/ Caremark merger, analysts are not sure how the company will make out going forward.

This of course gives us an opportunity to take advantage of these scaredy cats and buy the stock at a lower price. I believe that this merger is a great deal for CVS's long term prospects. It will create about a 75 billion dollar a year drug powerhouse with a whole lot of pricing power. This giant will be responsible for about a quarter of all prescriptions filled in the U.S.  Have patience on this one, and you will be rewarded.

Moving right along ...

We have seen a lot of important data on the economy recently. The week before last we saw that GDP was up 1.6% for the 3rd Quarter. This was well below the first and second quarter numbers of 5.6% and 2.6% respectively.

The economy definitely has slowed. This is mostly due to the slowing housing market, and of course all the related businesses that go along with the housing market such as furniture, appliances, etc.

The Fed obviously voted to keep interest rates at 5.25%. They are basically taking a wait and see approach. The Fed believes that inflation still remains a concern, but that it "should" eventually diminish because of the fact that GDP (the economy) is indeed slowing.

Remember, when the economy slows demand for goods and services are slowing, and prices subsequently begin to fall.

Last week, we saw that personal income was up .5% and personal spending was up .1%. If you don't spend the money that you earn, then you save it or pay down your debts, which is why the personal savings rate went from -.5% to -.2%. Remember, Americans spend more than they make, so we have a negative savings rate. Our country borrows money from countries like China, which is one of the reasons why we seem to always be running a deficit.

Finally, the last bit of big news from last week was the employment situation report, which was released on Friday. This told us that the unemployment rate fell to its lowest point in 5 years: 4.4%.

This report also told us that average hourly earnings rose 6 cents for the month of October, rising from $16.85 per hour to $16.91 per hour (feel rich yet?). The average workweek increased as well (don't you just love spending more time with your boss?).

The bottom line is that the report was a fairly strong one for the economy. When more people are working more and earning more money, they spend more, which fattens up corporate profits (and makes rich people richer).

The report was strong, but was not strong enough to send the market higher on Friday. The market wants to know that we are in for a soft landing on the economy, not a recession ... and this report just wasn't convincing enough.

This report competed with a slew of other economic data (such as GDP) which point to a bigger slowdown in the economy. T-bonds fell on Friday, which raised their yields because bondholders were expecting the Fed to cut interest rates sooner rather than later, and since they believe that this is unlikely, they unloaded some bonds (some bondholders even believe that the Fed may raise rates again sooner rater than later). This good piece of economic news helped their dreams fade ... for the moment at least.

Where do we go from here?

The short answer is that we don't know. The big issues are obviously the elections today, as well as the next Fed meeting on December 12th.

I started out being bullish several hundred points ago, and I was dead right. Several weeks ago I changed to cautiously bullish and the market has indeed pulled back. I still remain cautiously bullish.

In other words, only invest in solid companies with solid earnings right now. The market will be choppy for the next several weeks. If you buy options, make sure that they are long term ... unless you want to risk losing all of your money.

In closing, I want to say that I am working on a fabulous report about the top 10 economic indicators for stocks and options. For those of you who have any bit of horse sense, make sure to get it as soon as it comes out. I am convinced that it can help make you money and save you money as well.

Until next time folks, spend your hard earned money wisely.